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THE PULL OF CHINA:
Business Aviation company leaders offer their verdicts

China is a magnet to the world’s top Business Aviation companies as it evolves into a serious player in the sector. Over the following paragraphs- BizJet Advisor talks to some of the foreign leaders to find out the current status of the region.

It is a fact: China is embracing Business Aviation. As more high net worth Chinese people come to understand its value proposition- they are buying aircraft and developing the sector organically. Chris Buccholz- President- Asia Pacific at Houston-headquartered Universal Weather and Aviation has spent many years in Asia- and believes that the China market is heating up.

“Executives are seeing that they can save lots of time travelling in private jets-” he explained- adding that more domestic firms are likely to add corporate flight departments over the next few years- as they acquire an aircraft for company use and manage it in-house.

Trevor Esling- vice president- International Sales- Cessna Aircraft Company looks to the Chinese economy as a key driver for market development - however he is cautious about the rate of growth. “We see potential as the government experiments with improvements that will make it easier to operate business aircraft- although real growth is a few years away-” he outlines.

“Despite all the newspaper reports at the height of the last pre-‘credit crunch’ boom- we should not expect a sudden and dramatic expansion in demand from Mainland China.”

Mr. Esling believes the market is developing on a ‘top-down’ basis- with the long-range large-cabin jet market showing strong levels of demand. Ultimately- this demand will filter down to mid-size and smaller business jets- so that although the market in China is still relatively small- it could potentially reach US$4-5 trillion GDP in the medium- to long-term future. “The government sector is particularly strong for us- and among our Citation fleet I would name the Sovereign and XLS+ as our leading aircraft for the Chinese market.”

Johnny Lau- Managing Director- Global Head Aviation Finance- ICBC Leasing- (the world’s biggest leasing company)- which will import 59 business jets into China by the end of 2011- is seeing developments in the super mid-size jet segment as the affluent begin to embrace private jet travel.

Customers need expert guidance on the types of financing to acquire aircraft. Many people are still cash buyers today and are not aware of several benefits of the tax free zone in Tianjin- for example. Lau outlined- “It takes half a day to process the paperwork there.” He pointed out that many transactions are in US dollars- so it can be useful to work with a lessor or financier.

Jeff Lowe- Director of Sales and Marketing for Hong Kong’s BAA Asia Jet Management (which acquires and manages aircraft on behalf of customers) concurred- adding that elsewhere there is often such a backlog with the Civil Aviation Administration of China (CAAC) that many clients put their aircraft on a foreign registration to begin with.

“The CAAC are a busy bunch of people and it can take a minimum of six months to process the paperwork-” Lowe outlined. “However- some people are happy to wait and operate their aircraft on a temporary foreign ticket- such as the US “N” register for six months. Then when the aircraft goes in for a regular inspection it is de-registered- then re-registered on the Chinese ‘B’ register. Other key barriers to market development outside of Tianjin are the 5% import duty on aircraft- plus 17% VAT.

Fixed Base Operators (FBOs)
In terms of infrastructure there are around 425 paved airports in China- 160 of which are civil. Fewer than 50 of them offer customs- immigration and quarantine facilities- but most have good quality ramps- taxiways and runways- albeit with limited hangar space and maintenance for GA.

Mr. Lau pointed to the potential for development remarking that “The airport infrastructure is second to none in 75 to 100 airports. However there is a peripheral facilities gap at moment. There are not enough FBO providers putting investment into services to give product support to the aviation sector.

“They are waiting for the General Aviation market to build up. Maintenance is mostly controlled by commercial airlines and most airlines operate a corporate jet segment.”

Mr. Esling agreed. “In China- there is a need to increase the number of Business Aviation airfields and Fixed Base Operators (FBOs) in place- and to ease the restrictions on when aircraft can land. Airports tend to prevent business jets from landing at peak times - and without FBOs- business jet passengers need to be processed through the same terminal facilities as all other passengers. Furthermore- a larger supply of professional aircraft management companies and indigenous pilots is a key ingredient for further growth.

Simon Wagstaff- CEO of the ASA Group- which offers ground handling- and high-end security services said: “I’d like to see a more consistent service throughout FBOs for VIP clients. Things are improving- but it would be good to see more world class facilities.”

Dave Best is Chief Commercial Officer for Signature Flight Support- which owns the world’s biggest FBO chain. His company is an investor in the Hong Kong Business Aviation Centre and will likely look toward business in China in the future. He explained that there needs to be a larger number of business jets before many of the large Western chains move into the market. “As the number of business jets continues to grow in China they will need future support. Once this reaches a critical mass- we will be more likely to look for local partners.”

Another issue is getting into the country. Mr. Wagstaff pointed out that it could be difficult to enter China on a foreign aircraft- especially if the trip is a multi-stop one. It can take up to four or five days for a four-stop journey.

Mr. Buccholz added that it costs 3-000 USD in fees and a further 1-200 USD in permits- so it is an expensive affair simply getting into the country. He would like to see foreign registered aircraft afforded the same service as domestic ones. “In addition- the sponsor letter seems outdated. I can see why it was necessary in former times- but not so much today.”

Buccholz would also like to see the route between China and Taiwan opened up to foreign aircraft and charter operators- as well as more air routes available for business jets generally.

Maintenance Repair and Overhaul
Foreign entities are making key appointments to cater for their development in China. Swiss aviation services specialist Jet Aviation recently appointed Stefan Benz the new vice president- MRO sales for the EMEA & Asia group. Benz is responsible for growing sales and expanding Jet Aviation's MRO service portfolio available in the EMEA and Asia regions to all customers.

Another industry leader who has recently taken up a new position is Chuck Woods- President of Jet Support Services Inc. (JSSI)- who said: “Maintenance done poorly degrades the value of a customer's asset when they come to trade-up. It is important that there is someone with an expert eye to oversee what is happening.”

He added that it could save on the costs of hiring an engineer or technical support person to pay for a warranty administration package. JSSI will go to look at work on a customer’s behalf. The company can also help handle unscheduled events on the road in areas where there is limited parts availability. “The chances are we can source that part more quickly than anyone else because of our greater buying power-” he outlined.

The biggest MRO centre in China is Metrojet- located in the Special Administrative Region of Hong Kong. Bjorn Naf- CEO said: “We are rapidly expanding into other countries- including China and across Asia pacific. We are sister company to the Peninsula Hotel group and work with Bombardier- Gulfstream and Honeywell. We place a great emphasis on standards.” He added that foreign companies must accept the rules of China- and how it is set up.

Those rules clearly do not deter foreigners. The biggest industry players are flocking in droves to China. Fractional ownership aircraft operator NetJets’ Chairman- David Sokol said last year that the company- (partly owned by US super-investor Warren Buffet)- is to set up an Air Operator’s Certificate in the country this year. The new entity will be a joint venture with two Chinese partners- which will take a 51% share between them.

Sokol added that NetJets will not partner with an airline- and hinted that at least one of the partners would be an airport. As we went to press Netjets had just placed the largest order for Bombardier type aircraft ever - some of which are potentially destined for its new China outfit.

So international investors are definitely seeing potential in China. Cessna’s Esling concluded: “The Chinese have the capacity to accelerate market development significantly- and will be less burdened by bureaucracy when a clear path is determined by the authorities. It seems highly likely that by 2025 China will be within the top 10 individual countries for business jet ownership outside the US.”

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