The annual Asian Business Aviation Conference (ABACE), at a hangar adjacent to Shanghai’s Hongqiao airport is an essential stop on the world’s business jet show circuit. While a smaller show than its US and European equivalents, NBAA and EBACE, the long-term stakes are higher. ABACE sees the cream of the world’s private jet manufacturers fighting for what could become the world’s largest business aviation market – if Beijing allows it.

The fight has been hard the past few years. Following an epic show in 2014 that saw Minsheng Financial Leasing announce commitments for up to 60 Gulfstream private jets, in 2015 and 2016 things were far more subdued. This was in no small part a result of an anti-corruption drive by the Chinese government, which made even honest businesspeople wary of displaying too much wealth.

In the past 12 months, the fires of the anti-corruption drive seem to have cooled. Industry players are cautiously optimistic about the coming years – although myriad challenges remain.

Joanna Lu, head of advisory at Flight Ascend Consultancy, says the China B-registered fleet actually declined in 2016 to 230 aircraft, down from 241 a year earlier. She attributes the decline to several factors, such as jets being sold overseas, operators re-registering their jets in other jurisdictions such as the USA, Cayman Islands, and Hong Kong, and a dearth of new deliveries.

“There were more second-hand sales occurring – a slight improvement over previous years,” says Lu. “The market is still very much focused on long-range, large-cabin types.”

Brighter outlook

Industry players such as Dassault Falcon, Gulfstream, and Airbus Corporate Jets appear to have reached a more positive assessment of the China market than in the past few years. As with last year, all three manufacturers will have a large-scale presence at ABACE to showcase their latest products.

"It’s not fireworks and champagne like it was five years ago, but today we probably have more solid customers,” says Jean Michel Jacob, China general manager of Dassault Falcon. He is satisfied with his team’s progress in China last year, with six aircraft sales, of which three were for pre-owned aircraft.

Scott Neal, senior vice president of worldwide sales at Gulfstream, says customers are still interested, but activity has been “tempered a bit” with longer lead times to close deals.

“The country is home to more than 100 Gulfstream aircraft, which means the fleet there has more than tripled in the past five years,” says Neal. “We have a positive view about the potential for growth in the region and are optimistic about 2017.”

Neal adds that the company is seeing strong Chinese interest in new products such as the G500, due to enter service in 2017, and the G600, due to enter service in 2018.

Jacob and Neal both stress that China continues to become a more sophisticated market, with executives viewing jets as efficiency boosters, rather than luxury items. Both executives note that the large aircraft their respective companies produce are ideally suited for Chinese executives who need to reach increasingly far-flung business destinations on other continents. They also agree with Flight Ascend’s Lu that the market for second-hand jets is maturing. In years past, Chinese buyers took a dim view of used jets, insisting instead on brand-new aircraft.

“Pre-owned is an important part of the market for OEMs right now, because they want to control price points and residual values,” says Jeffrey Lowe, General Manager of Asian Sky Group. “In China, you are now regarded as a sharp, savvy consumer if you buy pre-owned. They realise there is great value in a used airplane.”

He observes particularly strong Chinese interest in pre-owned Gulfstream jets.

Despite the more upbeat talk this year, China is replete with challenges for business jets, and few immediate solutions are apparent.

Pilot shortage

One big headache is pilots. Charlie Mularski is chairman of the Asia Business Aviation Association (AsBAA), an advocacy group for the industry. He says the US economic downturn in 2008-2009 saw many US business jet pilots flock to Asia, but they have since returned to the USA. Even with the availability of foreign pilots, there is a significant shortage of business jet pilots, and poaching is not uncommon. This is an issue the business aviation sector shares with the airlines. For example, Hainan Airlines recently placed a want ad offering $24,000 per month for 737 captains.

Another industry insider points to the local media as a big challenge. The publications rack at previous ABACE shows had the usual assortment of aviation trade publications, but there were also numerous titles whose focus was not aircraft, but the luxury lifestyle and the glories of wealth – not the best publicity vehicles for manufacturers who take every opportunity to utter the words “business tool”.

“The negative perception of the business jet as a luxury toy and unnecessary item is growing, which has not helped the development of the business jet market in China,” says Lu. “A more positive image of the business jet is essential.”

Lu adds that the Chinese government also fails to understand the true role of business jets in a corporate context, and deems it essential that this be changed.

Mularski says a key role of AsBAA is working with governments and other stakeholders to develop business aviation around the region, including Greater China. A big part of the organisation’s role is also dealing with general media, which Mularski believes has a tendency to put a less-than-positive spin on business jet ownership.

This perception contributes to an even bigger problem: airport access. Major Chinese cities such as Beijing, Shanghai, Guangzhou and Hong Kong lack business jet-friendly secondary airports such as New York City’s Teterboro, Paris’s Le Bourget, or London’s Farnborough.

Business jets in China instead must compete with airlines for slots at highly congested airports. Hong Kong’s Chek Lap Kok is a prime example. Roughly 140 business jets are based at Hong Kong, but there are only parking spaces for 50 aircraft. Many owners are forced to store their aircraft overseas in countries such as the Philippines, Taiwan, and Vietnam. The situation is so bad that two of Lowe’s clients at Asian Sky Group have decided to sell their jets – a Gulfstream G450 and a Bombardier Global Express.

“Both owners say the jet is a business tool, but they just can’t use it effectively. They say they are not getting the productivity it is supposed to represent, so it’s hard to justify.”

Meanwhile, China’s Zhuhai Jinwan airport just across the Pearl River Delta is relatively under-used. Flight Schedules data shows that its 4,100m (13,400ft) runway sees 182 commercial aircraft movements on a typical day, compared with nearly 1,000 per day for Hong Kong’s two runways.

AsBAA has worked with the local government to set up temporary customs and immigration clearance at the airport. It is promoting a shuttle system whereby private jets can land in Zhuhai, and passengers can then fly to Hong Kong on a helicopter. It actually operated the first demonstration flight of this service during the last Airshow China event held at Zhuhai in November 2016. When a new bridge between Hong Kong, Zhuhai and Macau opens at the end of 2017, it could provide a way for flightcrew to return to Hong Kong by road.

Red tape

While the Zhuhai plan has potential to relieve Hong Kong, regulation is still an issue: it takes seven days to get a flight clearance to operate to or from Zhuhai. Other airports are equally vexing. Beijing is slot limited, has parking restrictions, and has turnaround costs of around $20,000. At Shanghai Pudong, business jets can only remain on the ground for one or two days. AsBAA’s Mularski says Shanghai’s Hongqiao, site of the ABACE show, has imposed a curfew on business jets operating between 7:00 and 22:00, because of the need to accommodate commercial traffic during the day.

“This is the airport hosting the biggest business aviation show in Asia,” he says. “It’s a big irony.”

Private investors are free to build airports and runways, and several have done so near Shanghai, Beijing, and other big cities. Unfortunately, runway length is restricted to 800m. The longer runways required for business jets require special military approval, which is all but impossible to obtain.

China’s vast and growing economy, strong business culture, and increasingly international multinationals bode well for business jet demand. Growth in the business jet sector, however, is hobbled by a lack of crews, negative perceptions of private aircraft, and a challenging regulatory regime. AsBAA and industry players can work to ameliorate the first two issues, but real change will only occur once Beijing recognises the value business jets offer to a sophisticated, world-class economy, and makes the changes that are so desperately needed.