Military contracts boost profitability, but non-defence business continues to struggle

Taiwan has postponed the sale of Aerospace Industrial Development Corporation (AIDC) for at least another year as the state-owned manufacturer struggles to reverse losses at its civil aircraft unit.

"Our target is the end of this year, but I think we'll postpone by a year or two," says AIDC executive office director Mike Lee.

Lee says AIDC is profitable again, boosted by local military contracts that account for about 60% of its NT$10 billion ($290 million) annual revenues. But industry observers question AIDC's figures - including a NT$300 million profit for 2002 and projected profit of NT$500 million for 2003 - and Lee acknowledges the company's civil business will remain in the red for at least the next few years.

AIDC is trying to build its non-defence business through supplier contracts for commercial and business aircraft and joint ventures with general aviation manufacturers. But most of its projects have not yet entered the full production phase and so to date the capital invested outweighs revenues.

For example, AIDC has so far only delivered a handful of wings for the Ibis Aerospace Ae270 utility aircraft, empennages for the Bombardier Challenger 300 business jet and cockpits for the Sikorsky S-92 helicopter.

"Commercially, we lose money, but we use the military and engine area to balance that," says Lee.

Taiwan's ministry of economic affairs (MoEA), which has controlled AIDC since 1996, says union challenges and a poor investor climate are behind the delay in privatising AIDC rather than the losses in the commercial sector.

"The AIDC union is against privatisation and with this an election year, this is very sensitive," says MoEA aviation and space development committee director David Chu. "The second issue is you need an investor, either a bank or venture capital. But after 11 September, everyone looks down on aviation."

As well as the Ae270, Challenger and S-92 projects, AIDC's civil aviation unit supplies empennages for the Boeing 717 and Bombardier Learjet 45 and rudders for the Dassault Falcon family. On the military side it supplies empennages for the Alenia/Lockheed Martin C-27J and is developing upgrades for the Northrop Grumman F-5. AIDC's defence unit is primarily profiting from maintaining and modifying aircraft it has manufactured, including the AT-3 trainer and IDF fighter.

Source: Flight International