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China hopes to start producing own civil aircraft in 2-3 yrs

13 October 2002

China hopes to start production of its own 120-seat aircraft in the next two to three years in Shanghai, and has already developed key technology needed to produce civil aircraft.

It quoted an official, Luo Zhen'an, as saying Chinese manufacturers of military aircraft needed to shift production over to civil projects, to avoid over-capacity problems. Luo said last year these companies exported US$80 million worth of parts for civil aircraft, and had the technology required to produce aircraft themselves.

Chinese aircraft manufacturers already have close relationships with several overseas counterparts. The Shanghai Aircraft Co makes horizontal stabilizers for the B737 in co-operation with Boeing Co (NYSE BA), while the Shenyang Aircraft Co makes cargo doors for the B757. The Xian Aircraft Co builds doors for European aircraft manufacturer Airbus SAS' A300, A310, A330 and A340, as well as carbon fiber fin ribs for the A320.

But several bad experiences at producing or trying to produce aircraft in China in conjunction with foreign companies could have pushed Beijing to consider going it alone, analysts say. An Airbus plan to develop an ""Asian Express"" 100-seat regional jet in China was shelved in 1998 after arguments over technology transfers. McDonnell Douglas Corp lost hundreds of millions of dollars when the Chinese government abandoned a scheme to jointly produce MD-90s in Shanghai, and was afterwards forced to merge with rival Boeing.

This has not stopped Brazil-based Embraer from entering into a joint venture with China Aviation Industry Corp II (AVIC II) to produce 50-seat regional jets in the northeastern Chinese city of Harbin.

AVIC II's sister company, China Aviation Industry Corp I (AVIC I), is planning to invest five billion yuan (US$602.4 million) to develop 50-110 seat regional jets, and expects to begin test flights by 2005. Another aircraft manufacturer, Hafei Aviation Industry Co Ltd (SH A 600038), won approval last month to produce regional aircraft of up to 100 seats.

Analysts say although Hafei Aviation has a reputation for producing high quality products, high costs and doubts about the marketability of their new aircraft would not necessarily mean the venture would be successful. Hafei Aviation is in negotiations with prospective foreign partners, but names have not yet been publicly discussed.

Foreign aircraft manufacturers are upbeat about sales prospects in China at a time when orders from the rest of the world are falling off in line with the slowdown in the global economy. Boeing forecasts total market demand for 1,764 aircraft in China over the next two decades, including about 450 small regional jets. But Airbus predicts a need for just 763 70-85 seat regional jets globally by 2019, with demand strongest in the twin-aisle, 300-400 seat category. China's 50-70 seat regional jet market is still relatively underdeveloped. Hainan Airlines Co Ltd (SH A 600221; SH B 900945) has a fleet of 19 Fairchild/Dornier Do328JETs, while Shandong Airlines Co Ltd (SZ B 200152) and Shanghai Airlines Co Ltd both operate Canadian-made Bombardier CRJs.

Beijing wants to encourage airlines to offer more flights to, from and between secondary and tertiary cities, especially in the west of the country, where thin traffic makes using smaller regional jets more economical.






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