ANALYSIS: China bids to boost airliner manufacturing presence

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The Farnborough air show provides a platform for China to showcase its ambitions to become a global force in airliner manufacturing, but significant challenges remain

At the 2010 Farnborough air show, China's state-owned aircraft manufacturer Comac showcased models of its indigenous projects - the ARJ21 regional jet and the C919 commercial narrowbody - for the first time.

A year later, at the Paris show, it displayed a full-scale cabin mock-up of the C919, a move the company's president said at the time signalled its commitment to the international market.

The airframer is expected to have an evaren larger presence at this year's Farnborough show, where organisers have revealed Comac is "buying up more space than ever", as the 2014 first-flight target for its C919 draws nearer and it tries to woo foreign customers.

China is taking its ambitions of becoming a power in the aerospace industry seriously.

In April, the airframer opened a civil aircraft flight test centre in Shanghai, aimed at accelerating the development of large aircraft projects. Located at Pudong airport, the centre will be involved in the two high-profile local projects.

About a month earlier, the country also broke ground for its first aircraft engine assembly and testing centre in Shanghai's Lingang Industrial Park. Spanning 1,200 acres, the yuan 8 billion ($1.3 billion) facility, owned by AVIC Commercial Aircraft Engine (ACAE), will conduct research and development, testing, assembly and maintenance of engines.

Analysts estimate that state-owned AVIC, Comac, Xi'an Aircraft International and the big three carriers - Air China, China Eastern Airlines and China Southern Airlines - have close to 600,000 employees under them.

The country's focus now is on the successful completion of its first indigenous commercial and regional jets programmes.

Developing its own aircraft is not only a calculated move to put China in the elite club of civil manufacturing nations, but also a project aimed at showcasing its engineering capabilities and ability to challenge established European and US manufacturers.

Doing so successfully could also help transform its economy from low-end to high-end manufacturing.

"Success in the aerospace industry is a key strategic goal for China. Aircraft manufacturing is a highly complex business and so achieving global success will signify that Chinese manufacturing is the equal of anywhere else in the world," says Paul Sheridan, Ascend's head of consultancy for Asia.

MARKET MIGHT

China's manufacturing ambitions, coupled with its forecast high demand for aircraft over the next two decades, make it hard for industry players to overlook the country.

All eyes are now on the ARJ21 and C919 and how Comac will overcome the challenges stacked against it.

The 150-seat narrowbody passenger aircraft entered the detailed design phase last year. This year, it has to roll out detailed design work, release production drawings and also begin trial manufacture of the jet.

The target is for the aircraft to realise its first flight in 2014, obtain airworthiness certification and enter service in 2016. However, given China's performance on the ARJ21, which is years late and still undelivered following design and certification issues, industry players foresee that the C919 could be delayed by at least two years.

The ARJ21 project, started in 2002, is still undergoing crosswind test flights. Officials have said it is unlikely to get regulatory approval before 2013, pushing it five years behind its original schedule.

CERTIFICATION DELAYS

Faults have been identified in its wings, wiring and computer systems, and Comac is still trying to convince the US Federal Aviation Administration, which is conducting a shadow certification on the project, that the aircraft meets its standards, sources say.

Getting the programmes certificated by the FAA and the European Aviation Safety Agency, although vital to allow China to sell the aircraft overseas, could cause further delays. And getting those certifications does not guarantee success in Western markets.

Besides being a blow to China's pride, the ARJ21's problems and delays are also likely to push back the C919's schedule.

This would be a major setback, given the aircraft, pitted against the Airbus A320 and Boeing 737, is already facing an uphill battle, as foreign carriers are expected to stick to aircraft from the duopoly based on their proven track record and strong global after-sale support.

The well-established manufacturers are also upgrading their own product lines, considerably intensifying the competition, says Ray Jaworowski, senior aerospace analyst at Forecast International.

Airbus plans entry into service (EIS) for the A320neo in October 2015, seven months ahead of the C919. Boeing has an EIS for the fourth quarter of 2017 and wants to advance this date.

"The main market for the ARJ21 and the C919 will be in China and other Asian countries," adds Jaworowski, explaining that besides Western carriers, most leasing firms also tend to stick to established manufacturers, whose aircraft are more in demand and show more predictable residual values.

This is already showing in Comac's order book of 235 C919s, most of which are commitments from the Chinese market and leasing companies, raising questions about the robustness of its order book.

Ascend's Global Fleet Forecaster estimates 80 deliveries a year for the C919 once production reaches full steam by 2021 - a figure that, although "relatively successful", is still a long way off the 737 and A320.

"The two largest challenges for Comac are to sell the aircraft internationally and to deliver on schedule. The two are linked because airlines will be reluctant to order until they have a firm idea about delivery dates," says Sheridan.

Airbus, meanwhile, has said that the A320neo will keep potential competitors including the C919 in check as although the latter is funded by deep pockets, the project brings nothing new to the party.

"Comac needs to go back to their engineers and try and differentiate the C919 from competitors," says Airbus chief operating officer for customers John Leahy. "Airbus and Boeing have a full family of aircraft; why would airlines want to go to Comac? It is very hard for them to make a dent in our sales."

The projects, however, will at least allow the Chinese to acquire technology transfers from the many Western partners involved.

For the C919, Comac required foreign suppliers to work with Chinese companies in joint ventures on each section to allow domestic manufacturers to build their experience and knowledge. The rule, however, has also made the C919 a more complicated programme from the onset.

FINAL ASSEMBLY

Partners in the project include CFM International, which is providing the Leap-X1C engine to power the aircraft. In 2009, the engine maker inked an agreement with ACAE to study the feasibility of setting up a final assembly line in China.

Both parties are, however, still in the process of "validating the business case", and no further updates are available, says CFM.

Other partners include GE Aviation, Rockwell Collins, Honeywell, Parker Aerospace and Eaton, all of which are partnering with Chinese firms. Bombardier and Comac are also working together to establish commonalities between the CSeries and the C919 in four areas of their programmes.

How effective and useful such joint ventures are to the Chinese company is yet to be seen.

Mandating technology transfer with no intellectual property protection "is a great way of guaranteeing second-rate equipment", warns Richard Aboulafia, Teal Group's vice-president for analysis. "That's the simplest explanation of what went horribly wrong with the ARJ21," he adds, describing the programme as "a complete failure" and saying it is troubling that the same approach is being taken with the C919.

Other analysts, however, argue that working with Western partners will accelerate China's learning curve and at least bring benefits of learning about international practices such as marketing planning, sales support and after-sale care, vital for when Comac starts selling the aircraft outside China.

In a 20-year forecast released last year, Comac said China's fleet will amount to 5,367 aircraft by 2030, up from 1,616 in 2010 and accounting for 15% of the world's total airliners. Its target is to grab a third of the domestic market over the next 20 years.

Flightglobal's ACAS database shows no backlog for any of China's new generation of narrowbodies, except for a 17% share for the C919. The challenge now is for Airbus and Boeing to sell their re-engined narrowbody variants to the Chinese market. If the duo succeeds, attention would be on Comac's response and where that leaves the C919.

PARTNERING

In this high-growth market, the local product is bound to have some success. OEMs know they need to get a foot in the door and have been eager to establish their presence in China.

"China is massively important in global aerospace," says Sheridan. "OEMs of all sizes from general aviation to large airframes have started joint ventures with various AVIC companies to ensure they can be part of the market. The demand for aircraft in China means that the established OEMs will want to protect their own sales within China and domestic manufacturers will threaten that."

Airbus, for one, has an A320 final assembly line in Tianjin, its first plant outside of Europe, which it has also said could soon be involved in the production of its re-engined variant. Five percent of the Airbus A350 airframe will also be manufactured in China.

Embraer's Harbin plant, a joint venture with AVIC set up in 2003 to produce ERJ-145s, has produced the last of the aircraft type and will soon switch to producing the Legacy 600/650s.

Cessna, too, will set up a joint venture with AVIC Aviation Techniques to manufacture its Sovereign and Latitude midsize business jets in Chengdu. The target is for the first Sovereign to roll off the Chengdu production line by end 2013 and to start assembly of the Latitude by 2014, after it receives certification.

China also has its eyes on the business jet market. In 2014, AVIC and Cessna could begin studying the design of a large-sized business jet, which they will jointly develop and manufacture.

AVIC has voiced its ambitions to produce an entire family of business jets in the country by the end of the decade, to take a share of a market dominated by Western airframers.

DOMESTIC DEVELOPMENTS

"We can't only allow Western companies to sell the aircraft in China," AVIC Aviation Techniques president Wang Yawei said in April. "We want the business too."

And the country may actually find more success in business aviation, says Aboulafia. "China may have better luck with business jets. Western business jet manufacturers are less healthy than their jetliner cousins, and are more open to transferring the latest and best."

Developing and building its own engines is also one of China's priorities.

The country's demands for commercial and business jets translates into a need for nearly 16,000 commercial turbofan engines in the next 20 years - a market ACAE plans to tap, says a report by think tank China SignPost.

ACAE has committed to spend about $300 million annually on engine research and development over the next five years to develop a truly indigenous commercial jet engine.

The C919, although initially powered by the CFM International Leap-X1C, will switch to home-grown engines when they are fully developed. ACAE has completed the comprehensive design is now working on its components.

For now, Comac still has its work cut out given its rookie status in the field, especially as it has yet to have its first metal cut for the C919.

Aboulafia adds: "Ultimately China needs to privatise, or at least arrange for public/private partnerships. Until then, the country's state-run approach to aerospace will have little impact on the world commercial aviation markets."

CFM POWERS AHEAD FOR C919 PROGRAMME

The engine programme is also now in the detailed design phase, after its design was recently locked down. CFM will start fabricating engine components to build the first full engine for testing scheduled for the third quarter of 2013.

"In the next 18 months or so, we will complete another core test (eCore Demo 3), the first full engine test, and ­continue to conduct ­component and rig tests to further refine the design," says CFM International.

It adds that the engine has also completed a 5,000-cycle endurance test, in which the blades were purposely damaged.

MITSUBISHI COY ON MYSTERIOUS DELAY TO MRJ

Although the first flight of the Japanese Mitsubishi Regional Jet (MRJ) has been pushed back a year to the fourth quarter of 2013, details of the causes for the delay remain vague.

Mitsubishi Aircraft says only that the programme has met with challenges and that it needs to "confirm respective fabrication processes" and "provide sufficient time for technical studies".

Sources say that the airframer needs more time to review industrial processes involved in aircraft production, and that Mitsubishi had underestimated the time needed for validation. More time also has to be factored in for the Japan Civil Aviation Bureau to approve these processes before further work can be done.

Its latest schedule shows that the first MRJ90 will be delivered in the summer of 2015, pushed back from the first quarter of 2014. A 70-seat MRJ70 is expected to be delivered a year later.

For the first time, Mitsubishi has also disclosed that the stretched version of the aircraft, the MRJ100X, is expected to enter into service in 2017 or 2018. It has identified European airlines as its target market for the type.

Pratt & Whitney's engine certification schedule for its PW1217G geared turbofan, which will power the MRJ, has not been affected, despite delays in the aircraft programme. Ground tests of the engine have been completed and a year-long flight testing phase started in May.

Assembly work of the MRJ began in April 2011, while production of its individual parts commenced earlier in 2010.

Variants of the MRJ, however, have been slow to attract orders. The most recent was in June 2011, when Indonesia's ANI Group Holdings signed a MoU for five MRJs. All Nippon Airways, which helped launched the MRJ programme, has a firm order for 15 jets, with 10 options, while Trans States Holdings has 50 orders, with 50 options. Vietnam Airlines, meanwhile, is considering ordering the aircraft.

Mitsubishi will be showcasing an 8m cabin mock-up of the MRJ for the first time at the Farnborough air show.