Tuesday, May 13, 2008

China takes up the challenging task to build jumbo commercial jetliner

By China Watcher

China has recently announced the establishment of a company, Commercial Aircraft Corporation of China Ltd (CACC), to build jumbo jet, competing with big and established commercial jet makers like Boeing and Airbus. The company will start off with an initial capital of US$2.7 billion, of which the State owned Assets Supervision and Administration Commission will take up about US$852 million as the biggest shareholder. Shanghai City government will take up another US$700 million in the equity of the company, making it the second largest shareholder.

The company will be entrusted with the responsibilities to perform research, conduct development, manufacturing and marketing of large passenger aircrafts.

According to the Chinese Premier at the launch, Chinese made-planes should encompass activities to design and assembly of aircraft, the research and development of engines and the production of airborne equipments and high-tech light materials for the plane’s body. For this to happen, China must be able to strive to lift its technological competence through research on mechanism innovation and cooperation with foreign business partners on the art of maintenance and delivery of after sales services. I am of the opinion that the development of aircraft manufacturing will also help to promote the making of advanced components use in the final assembling process, thus creating more jobs and enhancing the competencies of its people.

One particular advantage is the huge domestic demand for commercial passenger jets. According to Business Week, the Chinese aviation industry, alone, is estimated to require up to 2,800 new passenger airplanes worth $329 billion and about 1200 cargo planes, over the next 20 years to keep up with the country’s impressive air travel growth. China is now the second largest aviation market after the US. Although aircraft manufacturer must also rely on foreign demand to be profitable, the sizeable local demand (with special tax relief for made-in china planes) will allow the company to serve the local needs properly – tying up the “loose ends” - before embarking on the more competitive overseas market by taking on the big players in the industry.

It will not be so easy to challenge the dominance of Boeing and Airbus in the large passenger category and hence, China is focusing on the planes with a seating capacity of 150, at least up to 2020. Boeing and Airbus are now manufacturing planes that have 400 seats or more. The success of another small Chinese aircraft manufacturer, AVIC, in building the 80 seats capacity plane, ARJ-21, last year has given the Chinese the necessary confidence to build large aircraft with a capacity of 150 and above.

I salute China’s effort and determination to reduce reliance on Western planes in its aviation industry in its route to becoming a potential superpower. The plan is also part of China's wider drive to develop more sophisticated products, such as ships, cars and computers, to cut its reliance on overseas suppliers.

This time around with its given economic strength, the larger industrial base, and better planning facilities, there is less likelihood the Chinese government will repeat the same mistake 25 years ago, in building large aircraft.

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