Chinas commercial aircraft industry cleared for take-off
By Dilip K. Das
Xiangfeng in mandarin stands for a soaring phoenix. It is an apt name for China’s twin-engine single-aisle ARJ-21 commercial airliner, which is indigenously designed and developed.
The Shanghai-based state-owned Commercial Aircraft Corporation of China (COMAC) is manufacturing it. The name is appropriate because Asia’s past forays into the commercial aircraft industry have all been ill-fated, known for being expensive failures. This includes attempts made in China, Indonesia, Japan and Korea.
Will Asia, led by this Chinese initiative, succeed this time? It does seem well within the realm of possibility because contemporary Chinese economic and high-technology manufacturing capabilities are appreciably higher than those of two decades ago.
China has risen exceedingly fast to be a manufacturing global power. It is now a successful exporter of a range of high-technology products. According to the US-based HIS Global Insight, China may supersede the US as the world’s pre-eminent manufacturer in 2011, forcing the US to relinquish the title it held for over a century.
According to the OECD, China’s exports of IT products, which include laptop computers, mobile phones and digital cameras, increased to $180 billion in 2004, outstripping for the first time US exports of $149 billion.
Technological prowess of today’s China made it a global leader in consumer electronics, automobiles, semiconductors, personal computers and shipbuilding. Scientists in China can also remind the world of their manned spacecraft flights in 2003 and 2005. The Three Gorges Dam (2008) is regarded as a construction landmark. These were no mean accomplishments.
Modern commercial aviation industry in China is about a decade old. COMAC was set up in 2008 to build two commercial aircrafts, the ARJ-21 and C919. The commercial aircraft industry has enormous glamour and cachet.
By making commercial airliners, China wants the world to know that it can produce sophisticated, high-end, innovative products. It is more than an area of commercial success but that of national pride and national esteem. The ARJ-21 project was launched in 2002 during the Tenth Five Year Plan (2001-2005) in a modest manner. However, it could be the launch of a new high-technology industrial sector in Asia.
Challenging Western powerhouses
At present, the commercial airliner industry is totally dominated by four firms, all in the Western hemisphere. Airbus and Boeing are the established and renowned firms that are technology leaders in this industry and produce large size state-of-the-art passenger jet liners. Bombardier of Canada and Embraer of Brazil, are the two largest manufacturers of regional aircrafts. They also are highly successful companies in their own right in the smaller passenger aircrafts.
Given this backdrop of the commercial aircraft industry, China has taken on a challenging task. The entry cost in commercial airliner industry is known to be exceedingly high. It works as a veritable entry barrier. ARJ-21, a 70 to 110 seat regional jet, will be in direct competition with the aircrafts produced by Bombardier and Embraer. Their products are valued for their world-class performance and flown by airline all over the world. These competitive firms will not cede sales easily and give COMAC tough competition.
Global supply chains are common in the aviation industry. One noteworthy achievement of Asian companies is that they are an important part of the value chains in the commercial aircraft industry. They are sub-contractors and suppliers of Airbus and Boeing. In particular, large parts of both Boeing 777 (20 percent) and Boeing 787 (35 percent) are made by Japanese firms. Also, China makes final assembly of Airbus 320 in Tianjin. This assembly line is identical to that in Hamburg, Germany. Embraer also has a joint venture with the Harbin Aircraft Industry Group to manufacture small regional ERJ aircrafts with a capacity of 35 to 50 passengers. However, none of the Asian companies so far manufactures commercial airliners. The ARJ-21 was tested in 2009, completed its maiden flight in April 2010. So far no Asian commercial aircraft has completed so many stages of design, development, test and manufacture as the ARJ-21.
The Chinese government is strongly committed to its success. It has the political will and determination to see the project through. When President Nixon visited China in 1972, the political leadership in China was awed by the a-la-mode Boeing 707 he flew in. Not only capital is made adequately available for the ARJ-21 project, the domestic market for the aircraft is large. The domestic airlines are the initial potential buyers, which in turn may establish the aircraft’s global market and competitiveness.
Over 20 major European and US aerospace component suppliers are supporting the ARJ-21 project. This includes General Electric which will supply engine, Honeywell fly-by-wire system and Rockwell Collins avionics. The ARJ-21 has a range of 3,700 kilometers and it can travel at an altitude of 11,900.
So far COMAC has received orders and options of 340 aircrafts from the domestic Chinese airlines and Lao Airlines. The delivery is scheduled to start in September 2011. It must however be noted that the delivery schedule was delayed from September 2010 to September 2011. By 2015, COMAC plans to produce 30 aircrafts per year.
C919 a real contender
Even before making the delivery of the ARJ-21, COMAC unveiled a scale model of another single-aisle 156-seat aircraft in 2009. This larger aircraft was christened the C919. With the launch of the larger C919, China is taking on one of the most famous duopoly in the world, Airbus and Boeing.
This aircraft will potentially compete directly with the Airbus 320 and Boeing 737. Initially it will do so in the domestic Chinese market, but China’s global ambitions are not hidden. The two global giants in the commercial aircraft business are known for their formidable technological and financial muscle.
In 2010, China was a large market for these two global companies. Airbus received 22 percent of all its orders from China in terms of value and Boeing 15 percent. Apparently the C919 is intended to make China and its commercial aircrafts a player in the global commercial aircraft market.
The C919 is at an advanced design stage. In September 2009, a prototype of C919 was flown in Hong Kong Asian Aerospace show. In December 2009, a contract was signed with the French firm the CFM International for the aircraft engines. LEAP-X1C was selected for this purpose. The CFM International is a joint venture between GE Aviation of the US and Snecma, a division of French conglomerate Safran.
The French company agreed to set up an assembly line for the LEAP-X1C engines in China. Progress in C919 was relatively more rapid. At the eighth Zhuhai air show in Guangdong province in November 2010 a full-scale model the aircraft was displayed. According to the schedule, the C919 will have its first flight in 2014 and deliveries will commence in 2016.
It was announced that COMAC has received 100 firm orders and options from the four domestic carriers, Air China, China Eastern, China Southern and Hainan Airlines. Two airplane leasing companies also placed orders. They were: General Electric Capital Aviation Services of the US and a Chinese leasing firm. Details regarding price and how many aircrafts each of the buyers ordered were not revealed.
Some of the biggest names in the world of aviation will be responsible for the most crucial systems in the C919. For instance, Honeywell will supply power units and on-board computing systems, Rockwell Collins navigation systems, GE Aviation avionics, Eaton fuel and hydraulics and Parker Aerospace flight controls. The advantages that the C919 has over comparable aircrafts are: It operates on a new generation of engine. Also, its fuselage is made of a new material. It is environmentally sounder because its fuel consumption is 12 percent to 15 percent less than that consumed by similar aircrafts. It also boasts of reduced carbon emission.
China’s commercial aircraft market is huge and is growing at the fastest pace. According to estimates made by Boeing, Asia will lead demand over the next 20 years. The Chinese demand is estimated to grow at the annual rate of 9.2 percent and Asian demand by 7.9 percent. At present Airbus and Boeing each controls half of the Chinese market for the big aircrafts. According to the projections made by COMAC, by 2029 China will purchase 4,439 aircrafts, valued at $480 billion. Majority of these aircrafts will be in 120-200 seat range.
Producing these two aircrafts will reduce China’s dependence on Airbus and Boeing in the short- and medium-term. Not many foreign airlines will initially place orders for the two Chinese aircrafts. It will take time for COMAC to prove its aircrafts to the global airlines industry before they can enter the large commercial airliners market. That said, China’s commercial aircraft industry is in a take-off stage and COMAC may grow into the third large company to enter this important market after the European Airbus and American Boeing.
In due course of time China is expected to make a niche in this global market and COMAC is capable of becoming an aviation major, manufacturing large passenger airliners, regional and business jets, propeller planes and helicopters. On the whole this is a healthy development. COMAC will compete with the existing well-established industry leaders.
The commercial aircraft industry is on a rapid expansion path, particularly in North America, Asia and Latin America. COMAC will eventually reduce the dominance of the present heavyweight companies in the commercial aircraft industry and provide a larger variety of product choices to the potential global buyers.
Dilip K. Das is the deputy director and professor of International Economics and Finance at SolBridge International School of Business in Daejeon, Korea. He can be reached at firstname.lastname@example.org.