Andrzej Jeziorski/BEIJING

China's lumbering aerospace industry may have been restructured, but the impact of Beijing splitting state-owned Aviation Industries of China (AVIC) into two smaller, yet still enormous, enterprises remains unclear.

While some in China claim the move will lead to a major transformation, others suggest the sector has a long way to go before it can be taken seriously as a credible commercial force.

Beijing justified the July formation of China Aviation Industry I (known as AVIC I) and China Aviation Industry II (AVIC II) by suggesting it would foster competition within the industry. But AVIC I's director general of marketing and international co-operation, Tang Xiaoping, is not convinced that the split will have the desired effect.

"Frankly, I do not know how we will compete," he says, pointing out that the companies have different focuses, and that in competing for military contracts, "special relationships" with the powerful People's Liberation Army General Equipment Department are still likely to prove critical.

Moreover, civil aircraft procurement has traditionally been driven by new industry projects, with aircraft allocated to airlines by the government with little reference to their actual needs. Any moves towards truly competitive procurement methods must come from the government, says Tang, with industry having little influence.

His counterpart at AVIC II, Cui De Gang, believes however that the establishment of two businesses will have a positive impact in simple competitive terms. "I think the competition will not only be in products; I think it will mostly be in economic performance," he says. "If one gets rich, it will push the other company to work harder."

A look at the two firms shows the field is far from level. All military aircraft programmes, except the Nanchang Aircraft Manufacturing (NAMC) K-8 trainer and the three-decades-old NAMC Q-5 Fantan strike aircraft, have gone to AVIC I. AVIC II has taken over the Harbin and Changhe helicopter manufacturing sites.

AVIC I has more personnel - 281,000, compared with AVIC II's 220,000 - and also has the vast bulk of China's aerospace research capacity, taking over 31 of China's 34 research centres, says Tang. Cui estimates that only about 11% of AVIC II's business is in aerospace, the rest being in the automotive, construction and textiles sectors.

There is some overlap between the two, with both producing turboprop transports - AVICI taking over the Xian Aircraft Y-7 twin, and AVIC II the larger, four-engined Shaanxi Aircraft Y-8. Both also have engine and airborne systems manufacturing capacity.

Cui says the companies have fewer restrictions, with imports and exports no longer having to go through the China National Aero-Technology Import and Export (CATIC). CATIC remains in operation, however, with ownership divided between the AVICs.

Cui and Tang differ on implementing the restructuring. Tang says AVIC I's management recognises that major changes will be inevitable in the next two years. He says the company will run more smoothly, as plants will be taken over, removing their autonomy.

Workforce reductions will be more problematic, requiring the approval of the State Council. But moves will be made to sell smaller plants and spin others into joint ventures with foreign partners, Tang adds.

Cui says it is too early to estimate the likely size of the AVIC II workforce, but adds: "We will reduce the number of aviation employees. We will merge some plants, and introduce early retirement."

During the recent Beijing Aviation Expo, AVIC I released a 20-year Chinese civil aircraft market forecast predicting 8% annual growth in revenue passenger kilometres to 2008, then 9.2% growth from 2009 to 2018. This compares to an Airbus estimate released at the same time of 7.5%, averaged over two decades.

While AVIC I says China's airlines will need 1,474 new aircraft by 2018 (399 seating less than 80 passengers and 77% representing growth, rather than fleet renewal), the European manufacturer's more upbeat prediction anticipates a need for 1,587 new aircraft, seating 85 or more, over the same period.

Whatever the demand proves to be, the two AVICs still lack a major civil programme that will allow them to cash in. Following the collapse of the Boeing MD-90 TrunkLiner and AE31X programmes, the companies can only hope for more packages of work on Airbus and Boeing projects.



Beijing Aviation Simulator

Chengdu Aircraft Industry (fighters)

China Air-to-Air Missile Research Institute

Guizhou Aviation Industry (trainers, turbojets, missiles and launchers)

Shanghai Aviation Industry (civil airframer)

Shenyang Aircraft Industry (fighters and civil subcontracts)

Xian Aero-Engine

Xian Aircraft Industry (military and civil airframer)

104 enterprises, including 31 research institutes. 281,000 employees


Changhe Aircraft Industries (helicopters)

Chengdu Engine

China National South Aeroengine

Chinese Helicopter Research and Development Institute

Harbin Aircraft Manufacturing (helicopters)

Harbin Dongan Engine

Hongdu Aviation Industrial

Shijiazuang Aircraft Manufacturing (general aviation)

79 enterprises, including three research institutes. 220,000 employees

Source: Flight International