New Delhi, february 02, 2018: A high-level research report has concluded that Chinese investment in U.S. aviation and aerospace is limited to general aviation (GA) and thus provides little threat to the large commercial aircraft (LCA) market.
The report, Chinese Investment in U.S. Aviation, was compiled by researchers at Santa Monica, California-based Rand Corporation and was released to raise awareness of the issues and possible threats. It builds on previous Rand studies, such as Ready for Takeoff: China’s Advancing Aerospace Industry and The Effectiveness of China’s Industrial Policies in Commercial Aviation, which similarly were undertaken for the U.S.-China Economic and National Security Review Commission (USCC), as part of ongoing investigations aimed at guiding policy decisions.
The report acknowledges that the U.S. aerospace and defense manufacturing sector is a “major contributor” to the U.S. economy, accounting for an estimated 13 percent of total U.S. manufacturing and, in 2015, generating a $67 billion trade surplus for the U.S. As well as acknowledging Boeing’s significance in the LCA market, it also recognizes that “U.S. companies are also integral elements of global supply chains supporting regional jet (RJ) manufacturers Bombardier and Embraer.”
In March 2016 China issued its 13th Five-Year Plan, in which it reiterated support for the development of the aviation industry. “The plan specifically mentioned LCA, RJ, and GA,” notes the Rand publication, which also highlights to possible threat from the new C919 airliner, currently in flight testing, to Boeing’s position with its 737 family.
While Rand says the U.S. should be concerned about threats to its future competitiveness from the C919 and from “future Chinese LCA designs, such as widebody aircraft development with the Russians,” it qualifies this by stating that “U.S. competitiveness is unlikely to be threatened in the near term because production of China’s LCA–the C919–may be further delayed and operate less efficiently than current Western narrowbody aircraft on the international market.” But it acknowledges that “some experts remain concerned about the transfer of engine or avionics technology.”
In the RJ sector China has been making steady progress, however; in June 2016, Chengdu Airlines began the first commercial operations of the ARJ-21 RJ manufactured in China, noted that Rand report.
Rand notes that by “aviation” it means the industry of manufacturing aircraft rather than operating airlines, a sector which is “not currently threatened by Chinese competition.”
Part of the aim for this research was to assess the implications of technology transfer on U.S. national security and aviation industry competitiveness, it adds.
The report concludes that China is likely to account for up to one-fifth of global demand for LCA “and is trying to grow its domestic GA industry, which is currently underdeveloped.” It further concludes that it has “an unambiguous policy driving a whole-of-government effort to develop a globally competitive aviation industry by producing LCA and expanding China’s domestic GA market;” and that Chinese investment in U.S. aviation has grown in scope and quantity over the past decade but is “limited to smaller GA companies with technologies not particularly relevant to commercial or military aircraft, likely because of effective U.S. export and foreign-investment regulations according to ainonline.com.”
GA CATCH-UP PLAN
Over the past decade Chinese investors have acquired several U.S. aviation companies, “although CFIUS [Committee for Foreign Investment in the United States] or export controls appeared to have been followed in all cases.” However, it does note that these investments “raise concerns of inadvertent technology transfer that might undermine U.S. national security and competitiveness.”
One major driver for China’s push to find GA investments has been its underdeveloped domestic GA market, caused partly by “[restrictive] flight regulations and limited small airport infrastructure.” Rand points out that the Chinese State Council “hopes to double its size by 2020.”
Tracking this growth in GA investment, Rand reports: “Since 2005, Chinese companies have steadily increased investment in U.S. aviation by acquiring, merging, or establishing joint ventures with more than a dozen U.S. aviation companies without directly running afoul of U.S. regulation.
“Over the past decade, we identified from open sources on average one to two investments in U.S. aviation per year, including 12 mergers and acquisitions, three joint ventures, and nine other agreements or failed deals. The combination of Chinese government policy to become globally competitive in aviation and the availability of capital drives these investments, but they are constrained by U.S. government foreign investment and export laws as well as classic business concerns about return on investment.”
According to ainonline.com rand suggests that the investment in GA manufacturers, with their “less advanced technologies…do not pose competitiveness challenges or national security concerns.”
The report concludes also that “given the GA nature of most of the investments by Chinese firms to date, there are few technology-transfer concerns. The main benefits to China’s industry would be on the business-process side, such as international marketing, achieving FAA safety certifications, and product support.