Business jet boom in China

In late June, Boeing Business Jet delivered its first BBJ 2 – based on the 737-800, with additional fuel tanks giving it a range of about 5,520nm – to an unidentified Chinese customer. Steve Taylor, BBJ’s president, says the great distances between Chinese manufacturers and their Western markets has created a need for a spacious cabin to accommodate a large support team.

“Buoyant demand for business jets, coupled with growth potential in the lucrative large-cabin, long-range market, ensures China remains one of the most important markets in the world,” he says.

These sales highlight what everyone prays will eventuate, that China’s skies will become as packed with executive jets as they already are with the fleets of commercial operators.

Indications of spectacular growth are certainly bright. According to the Civil Aviation Administration of China (CAAC), China’s business jet sector grew 28 per cent in 2011 and the trend accelerated last year. No official statistics are yet available for 2012, but Hong Kong-based aviation consultancy Asian Sky Group, in a recent report, says the business jet fleet in Greater China – Hong Kong, Taiwan, Macau and Mainland China – grew by 96 aircraft to a total of 336, or 40 per cent, last year. Some 57 per cent of those were in China and 33 per cent in Hong Kong. The PRC fleet alone grew 40 per cent to 193 jets.

Interestingly, the report found large, ultra long-range corporate jets accounted for 91 per cent of the growth, clearly reflecting the aim of China’s corporate high flyers to spread their business influence well beyond China’s borders.

“There is huge pent-up demand for business jets in China. We have barely scratched the surface,” says Asian Sky’s general manager Jeffrey Lowe.

China clearly offers rich pickings, although forecasts vary. Some predict it will need more than 1,000 new business jets over the next 10 years. Embraer puts the figure at 635, worth $21 billion. Bombardier, which claims about a third of the Chinese market, says it expects the number of business aircraft to soar dramatically by 2030 with the delivery of more than 2,300 new business jets.

But before the corporate jet manufacturers’ start counting their takings they need to consider several factors that could put the brakes on.
The first is political. China’s new president Xi Jinping, elected in November, is spearheading an austerity drive as part of a campaign to eliminate corruption. The purchase of private jets, costing from around $17 million for Bombardier’s Learjet to $50 million for a Dassault Falcon 7X and more than $100 million for a larger Airbus or Boeing jet, is the biggest luxury item being bought by the country’s corporate and private elite, after artwork. Trimming this kind of spending is on Beijing’s radar.

There are other, more practical reasons slowing down uptake of business jet operations. Import taxes (there is a 20 per cent tax on imports) and value-added taxes on corporate jets are already high and there has been a great deal of speculation they may even be doubled by the end of this year. And in terms of actual flying, the ability to operate freely lags far behind the operating landscape in the West. There are ongoing restrictions on the use of lower level airspace because the military still controls most of the country’s skies.

Getting permits from the regulatory authorities, which still have to clear proposed flight tracks with the military, takes time and causes delays.

Outside the major hubs of Beijing, Shanghai and Guangzhou many airports in China are simply not equipped to handle business jets.

Finally, there is a severe shortage of pilots because newly-trained cockpit crew are quickly snapped up by fast-growing commercial airlines.

None of these barriers seems to be dampening the enthusiasm of business jet salesmen, although manufacturers are having mixed fortunes. Gulfstream topped last year’s deliveries with 36 aircraft, 22 G550s and 12 G450s, and Bombardier came second, delivering 22 Challenger types and nine Global business jets.

In contrast, Cessna has seen no net growth in its fleet from 2011 to 2012. “In fact, Cessna has seen little growth over the last three years, with only one net aircraft added in 2010 and two net aircraft in 2011,” according to Sky Asia.

There is another factor in play that will impact on future sales. *******China has no intention of allowing Western manufacturers to corner the business jet market.******* The country’s state-owned airframer AVIC wants to produce a range of aircraft, initially in partnership with the likes of Cessna and Embraer but eventually on its own.

“We can’t only allow Western companies to sell aircraft in China. We want this business too,” said Wang Yawei, president of AVIC’s business aviation division, AVIC Aviation Techniques.

“China has no intention of allowing Western manufacturers to corner the business jet market.”

“AVIC has the mandate to manufacture several types of business jets and establish its presence. The rapid development of China’s economy has resulted in a boom in business aviation here and we want to be competitive in the global market too,” he declared.

These are comments that should be taken more than seriously by competitors.