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Opportunity Road Map in China

The People’s Republic of China has become the world’s fastest growing industrial and financial powerhouse. To increase their efficiency and productivity- the leaders of China’s quest for economic development have found the world of business jet travel gives them a distinct edge.

AvBuyer   |   1st April 2011
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When large potential and gradual developments run parallel

The People’s Republic of China has become the world’s fastest growing industrial and financial powerhouse. To increase their efficiency and productivity- the leaders of China’s quest for economic development have found the world of business jet travel gives them a distinct edge.

Under former leader Deng Xiaoping- the central government embraced a new path of market reforms- openness to the outside world and anticipated prosperity. China’s emerging young entrepreneurs and businessmen (many are 30-40 years old) embraced the message- and in addition to helping the economy grow became very rich- very fast.

It is clear that opportunities for companies and entrepreneurs are huge as Business Aviation in China is still relatively new compared with the USA and Europe- both of which have a long history of business jet operations and ownership. The USA has around 14-980* business jets (plus 170 executive airliners)- Europe has 2-800**- while the Asia Pacific region- including China has a total of around 650 business aircraft (turboprops included)- or 3.6% of the world business jet fleet.

Of the Asia Pacific total China has 131 jets- but this could reach 700 by 2019 according to a 2010 forecast from Canadian business jet manufacturer Bombardier. Asia Pacific has increased its market-share of new business jet deliveries- despite the world financial crisis. It recorded a 7% share increase in 2007 and 12% in 2009- and many observers are in no doubt that China is leading this order surge.

“The industry is growing very fast- and there are lots of opportunities in China-” said Jason Liao of China Business Aviation Group. He believes that now is the time for companies the world over to invest in the Chinese Business Aviation infrastructure.

“Over the next five years we expect the number of business jets in China to grow to around 400-500 - call it 20-25% compound annual growth-” predicted David Paddock- Jet Aviation’s Senior Vice President- Group Business Development and Strategic Planning.

Despite being in the process of selling Jet’s stake in its joint venture Fixed Base Operator (FBO) and line maintenance operation at Beijing Capital Airport- Paddock added- “There are significant opportunities in China- and also a great amount of interest particularly from Chinese companies who want to partner with western organizations to develop the Business Aviation infrastructure.

“We’ve signed a term sheet with a local partner to start exploring options- and I would guess in the next year or two we’ll come up with a fully-fledged aircraft management and charter product in China.” He added that it would be difficult to manage airplanes without some level of maintenance support: “It is likely that we would have some form of maintenance set up as well.”

Managing the projected growth

Chinese Business Aviation is definitely on the rise- according to insiders. With close to 50 aircraft due for delivery during the next 12 months (worth around $1bn-1.5bn USD) their excitement is fully justified. However- these views are tempered by the thought that orders could slow if infrastructure doesn’t keep pace. Another factor is the current shortage of qualified pilots to fly the projected new arrivals.

Beijing-based Jason Liao explained that many business jet orders currently are for large cabin long-range aircraft from very wealthy businesses and individuals who operate their privately owned company or closely held corporation. State-owned companies aren’t buying at the moment. Fleet orders for smaller- shorter-range jets will come- Liao predicts- but this will take a few more years as infrastructure improves and more airports become available.

“The Chinese Government is very supportive in developing the Business Aviation industry and is probably leading Asia Pacific Business Aviation development-” he added.

Because of the increasing number of business jets being delivered to China- Liao believes- there may be problems finding a suitable aircraft management company. “Entrepreneurs are aware of this- which is leading to more start-up and joint-venture operations appearing.”

Two such joint ventures - the alliance between TAG Aviation and China First Mandarin Group- and of ExecuJet with Tianjin Haite - should help to remedy this problem and supply much needed extra aircraft maintenance and ground support in the country.

Improved Access

“Operating into China has improved dramatically compared with four or five years ago-” said Hong Kong-based Business Aviation expert Chuck Woods. “Planning a trip used to take three- to seven-days. But for the bulk of your China flying now you can get everything arranged in about a day - that’s a lot of progress.”

Woods- newly-appointed Asia Pacific President of JSSI (Jet Support Services Inc.)- was previously CEO of Macau’s Jet Asia operation. He observes that access and infrastructure are ‘starting to come’. “There aren’t a lot of executive terminals or FBOs but- they’re coming too-” he added.

Impressing the new entrepreneurs by getting them quickly in and out of executive terminals- run by professional Business Aviation handling companies- will only enhance their opinions of business jet travel he commented. “I think the Chinese market will be modulated by the number of companies offering MRO and FBO coverage- so even if you had 3-000 people ready to buy aircraft- there isn’t enough ground support there yet.”

China isn’t a good place to experience an AOG (un-serviceable Aircraft on Ground)- Woods added. Spare parts inventories are scarce- but at the same time- it is much better than it was a few years ago.

Government Allowances

The results of three years of U.S./Sino co-operation recently brought its rewards with the Chinese Government announcement last November that it was allowing general aviation to use its lower altitude airspace. While such relaxing of airspace restrictions is welcome and will facilitate such general aviation activities as training and utility services- business jets operate at higher altitudes where access still requires advanced notice.

This program- which saw the U.S. and Chinese general aviation industries working together- will also be vital for VIP helicopter operations. Although the availability of these lower altitudes initially won’t affect business jet operations- it is a welcome step that may encourage additional airspace changes in addition to allowing lighter aircraft and helicopters to operate below 1-000 meters without prior approval for the first time. It also means aircraft flying between 1-000 and 4-000 meters will have to file a flight plan but not have to seek prior flight approval from the authorities.

This U.S./Sino co-operation was a specially designed analysis for the Chinese general aviation industry with funding from the USA Trade Development Agency. It looked at the benefits of opening up China’s general aviation industry as a contribution to the Chinese economy.

It is reported that within days of the lower airspace announcement the manager of China’s Huaxi Village was quoted as saying that 20 aircraft would be bought for training and tourism- in addition to the two VIP/tourist helicopters it already owns.

The overall picture of our Opportunity Roadmap in China reveals a region with enormous potential. Gradual overall progress that has occurred over the past several months should enabling the eventual materialization of that potential- and with it- the release of the many benefits of Business Aviation to a growing pool of entrepreneurs and businesses alike.

* Source: NETJET LLC; ** Source: EBAA.

The following points are some of the major issues facing China’s Business Aviation industry. The Chinese government is now tackling these opportunities for advancement- giving cause for optimism that they will not remain barriers to significant growth in the future.

1. A shortage of qualified pilots. Many pilot training centers are operational and more are planned- but there might be a lag before trainees become qualified commercial pilots.

2. Even more airports are needed despite a phenomenal five- to ten being built each year. There will be more than 192 available before the end of 2011- and 52 more are to be built before 2020.

3. There is a need to further relax procedures for building more airports and allowing private money to be invested. Most existing airports are built along the eastern industrialized seaboard- but more need to be built across China.

4. Airspace restrictions need to be relaxed further to free more capacity. This would not only increase efficiency for Business Aviation but also for the airlines.

5. Direct routing for flights needs to be improved to save block time and fuel burn.

6. More upper-airspace needs to be made available to business jets. Pilots are frustrated at having to fly at lower altitudes amongst airline traffic when they could be flying at the aircraft’s maximum efficiency - around FL450-FL470- which is higher than airliners typically operate.

7. VAT (currently 17%) and Import Duty (4%) on business aircraft need to be lowered to stimulate growth.

8. China needs more MROs (maintenance- repair and overhaul facilities) as well as more FBOs for efficient ground handling and more hangarage.

9. User fees- permits and landing fees need to be reduced for foreign business jets. Foreign operators must pay around $6-000 per single trip for a Gulfstream-sized aircraft to get a permit to fly in or out of China.

10. Hong Kong and Macau registered aircraft are now treated almost the same as foreign aircraft fee-wise. But they should be regarded as China mainland-registered aircraft.

Read more about: Business Aviation in China | China

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