Business Aviation In China Today: The Challenges and Opportunities.
In this month’s JETNET >>KNOW MORE analysis- we turn our focus to Business Aviation within China following the Shanghai International Business Aviation Show (SIBAS) that took place in mid-April- and also the Business Aviation Summit from the Asian Business Aviation Association (AsBAA) held in March during the Asian Aerospace International Expo.
According to the 2010 Hurun Rich List- one-sixth of the 2-000 Renminbi Chinese billionaires have plans to buy private aircraft (jet or helicopter) to serve business purposes as well as personal ones. That’s 333 billionaires - and if each purchased only one aircraft- that would be three times the number of business aircraft currently based in China.
We begin by examining the Business Aviation fleet in operation today in China compared to the United States. The following information is taken from the SIBAS website:
Companies operating in Business Aviation
• China: 88 (+45 in approval process)
• USA: 10-993
Number of people working in the industry
• China: 7-000
• USA: 1-200-000
“China’s private aircraft market will grow 20-25% annually in the coming decade. The nation will surpass the U.S. to be the biggest holder of private planes in the world over the same period-” Michael Walsh- president of Asia Jet- the largest seller of private planes in Asia- boldly forecasts.
One has to ask- how this projection is even possible in 10 years’ time? Assuming that such a Business Aviation market projection comes even close to becoming a reality- much infrastructure- including airport and maintenance facilities will need to be established to prepare for China’s future - but that is gradually happening.
The recent moderation of Business Aircraft operating regulations and permits in China is a contributor to the increased demand. Authorities have reduced the time from six days to three hours to get a flight permit for a Chinese-registered business aircraft. Additionally- new FBO facilities have been opening across Asia and the Pacific over the past few years. Another significant contributor to the increased demand according to a 2010 Asia-Pacific Wealth Report- is the growth in population of high-net-worth individuals across Asia-Pacific - catching up with Europe in 2009 and recently surpassing it.
Table A compares China today to the U.S. and World in terms of Business Jets- Business Turboprops- and Helicopters using statistics from JETNET fleet data records in April 2011.
Taking this projection for just the Business Jet Fleet- 98 aircraft rounded up to 100 aircraft- and adding 20% CAGR for ten years would give a number of 619 business jets in 2021; even 25% CAGR would only result in 932 business jets - and while these are impressive percentage growth rates based on a very small base- the result would still be well short of surpassing the United States and becoming the largest holder of business planes in the world as predicted by Walsh (above).
According to a report from Bombardier on the AsBAA website- the market (which includes Hong Kong- Macau- Taiwan and mainland China) could grow to 2-100 new aircraft over the next 20 years which is very impressive by any standard. For now- though- Table B shows that there are nine pre-owned business jets for sale in China from the current fleet (or 9.2%) which is right about where industry professionals in the Worldwide pre-owned industry would love to be. Unfortunately the global pre-owned fleet for sale is sitting at 14.3%. On the bright side- that’s down from a recession high of 17.7%.
CHINA FLEET IN FOCUS
Gulfstream has the largest number of business jets in China- with Cessna and its broad line of Citations coming in second (as shown in Table C). Note: Absent from this list is Boeing- which has no Business Aircraft based in China yet. However- Beijing Airlines- a business jet subsidiary of Air China- has taken delivery (May 2011) of a New BBJ aircraft that will enter service after the extended range fuel system has been installed and the interior is completed.
Table D displays the ‘Top 12 BizJet Models’ (with three or more aircraft) in China. Again- Gulfstream models form five out of the Top 12 models.
As the fourth largest country in the world- based on square miles (after Russia- Canada- and U.S.)- it surprised us that China is actually smaller than the United States. The sheer size and population of China supports the demand for aviation and an expanded airport structure. As we mentioned above- however- the further development of infrastructure- including airports is key to the success of Business Aviation in the country.
The true benefits of Business Aviation really come to fruition when we consider the general aviation airports not served by commercial airlines providing access and economic growth to other parts of the country.
Map A exhibits the benefits of accessing the entire group of 5-300 general aviation airports versus the 550 commercially served U.S. airports. Similar to the United States- China will experience economic benefits from the increase in airport access- thereby providing their travelers more choices.
CHINA’S POPULATION AND AIRPORT PLANS
• China has about one fourth of the total population of the world and many of those people live in the big cities on the Eastern side of China.
• By 2010- China was expected to have 186 new airports- which included three national hubs- seven regional hubs- 24 medium hubs- 28 medium airports and 124 small-size airports. It is yet unknown if these targets have been met.
• The total investment will be $17.7 billion.
• It is estimated that the number of airports with scheduled airlines will number 260 by 2015.
Map B depicts the 32 current airports existing in China and references the plans for expansion that will bring the total to 165+ airports that most Business and General Aviation aircraft will have access to.
PRE-OWNED BUSINESS AIRCRAFT SALE CONDITIONS
From a report- “Chinese business jet finance 2011” by Corporate Jet Investor- we learned that as a result of an agreement between China and the U.S. it is much easier to export aircraft that have been FAA registered compared to aircraft registered in other countries. The CAAC- China’s aviation regulator (similar to the FAA)- restricts imports to aircraft that meet the following conditions:
• The aircraft has to be less than 10 years old at entry;
• It can have had no more than three previous owners.
Operators of foreign registered aircraft need to submit flight plans much earlier and pay double the landing fees of aircraft on the Chinese register. Also- most of the pre-owned business aircraft are paid for by cash in China.
China’s growth and potential for Business Aviation success seems obvious. Although the inventories may not exceed the business aircraft numbers in North America any time soon- the demand from this part of the world will certainly expand our industry into the future.