China has begun to make some of the biggest changes in decades to its state-run aerospace sector and has set it big goals as Beijing seeks to make an impact on the international aviation stage.
The country has embarked on a mission to become a world-class aircraft-maker with a line-up of world-beating aviation products such as a 150-seat commercial jet aircraft. To help it achieve this aim Beijing has merged the country's two aviation industry conglomerates Aviation Industry Corporation I and II.
Once a single entity, they were divided in 1999 because it was thought splitting the company into two would boost competition and as a consequence drive efficiencies. Now the two are coming together again because the government has realised that operating the two separately split resources and led to redundant projects.
© Tim Bicheno-Brown/ Flight International
Merging the two creates a conglomerate with more than 420,000 employees spread across more than 100 companies. Subsidiaries in the group include manufacturing plants and research institutes involved in making Chinese civil and military aircraft, parts for Western aircraft makers and even production of Chinese cars and buses. The future success of AVIC is important to China because it makes military aircraft as well as commercial aircraft.
Industry sources in China say the merged entity will be structured into five main businesses. These will include an air transport manufacturing, helicopter, aviation engines and systems company. The restructure means the businesses are based on areas of expertise, allowing AVIC to create centres of excellence and draw on skills across the country.
COMMERCIAL JET DEVELOPMENT
Besides merging the two AVICs, the Chinese central government has created a new company, Commercial Aircraft Corporation of China (Comac), to oversee development of the 150-seat commercial jet. Comac's biggest single shareholder is the state-owned Assets Supervision and Administration Commission of the state council.
AVIC is the next major shareholder and the others are the Shanghai government, Aluminium Corporation of China and steel producer Baosteel.
Even though AVIC is a major shareholder, Comac stands apart from AVIC and in the pecking order of state-owned enterprises ranks higher, reporting direct to the Assets Supervision and Administration Commission rather than to AVIC.
The reason for its high standing is the people who head it. Comac's chairman is Zhang Qingwei, previously minister of China's Commission of Science Technology and Industry for National Defence (COSTIND). President Jin Zhuanglong was a vice minister of COSTIND and both are standing committee members of the Communist Party Congress.
AVIC is much larger in terms of assets, but the businesses Comac has are significant and industry insiders say its asset base will grow - its current assets are AVIC 1 Commercial Aircraft (ACAC), Shanghai Aircraft (SAC) and First Aircraft Institute (FAI).
FAI is based in Xian and has a branch in Shanghai. It is the country's leading design institute for commercial aircraft. ACAC is the Shanghai firm that oversees the ARJ21 regional jet programme and SAC performs the ARJ21 final assembly.
APPEASING THE WEST
Comac is also based in Shanghai, although Xian is arguably a more qualified centre for aircraft manufacturing because its factories have more experience. The Chinese government chose Shanghai because it wants a clear separation between the country's civil and military aircraft sector - Xian has the contract to develop and build China's large military cargo aircraft. This separation is partly to appease Western governments concerned that assisting China with development of commercial aircraft could result in a transfer of technology that might aid the country's weapons arsenal.
Basing Comac in Shanghai also means it can draw on the resources of ACAC and receive funding from the Shanghai government. It is already apparent that some ACAC senior people involved in the ARJ21 project now have dual responsibility for development of the 150-seat commercial aircraft, although having resources within Comac split between two different aircraft programmes could pose challenges, particularly when the ARJ21 programme is experiencing delays.
China has some ambitious targets for the 150-seat jet. When the programme was announced, China set 2020 as the service-entry target, but some industry sources say the government now wants to bring the deadline forward, a move seen by some Western suppliers as fortuitous since it means China might be more predisposed to using Western products for key systems such as the avionics, engines and landing gear.
Some Chinese industry players such AVIC II president Zhang Hongbiao argue that China should develop its own manufacturing expertise, and in particular its own commercial engines. He says for a nation to develop its aviation manufacturing industry without developing its engine capabilities "is not a complete development or perfect solution".
But some Western suppliers contend that China lacks the expertise to develop these systems in such a tight timeframe. In addition, some industry sources say the Chinese are no longer content to simply buy off-the-shelf systems from Western suppliers, but want to work with Western companies to develop these systems.
A US source says this could put US suppliers at a disadvantage because of their government's technology-transfer restrictions, which are more stringent than those of Europe.
China is also in a hurry to get the 150-seater produced before 2020 because it wants to be in the market before Airbus and Boeing have a chance to come up with replacements for the Airbus A320 and Boeing 737, say industry sources.
China has downplayed the issue of competition by saying publicly that Chinese-built aircraft will cater primarily to the Chinese market. But the nation already accounts for a significant proportion of the global market and it is set to grow even larger.
Boeing last year forecast that China over the next 20 years will require 3,400 new aircraft and 2,200 of these will narrowbodies. This means that China's new large commercial aircraft has the potential to sell well over 1,000 aircraft domestically.
Industry sources also say that China plans to export its 150-seat aircraft. The big question is whether the aircraft can generate sales in developed countries or whether the commercial jet will appeal only to China's allies in the developing world.
To break into Western markets, China wants US Federal Aviation Administration and European Aviation Safety Agency certification. The FAA has embarked on a shadow certification programme for the ARJ21, whereby the US authority will monitor and assist the Civil Aviation Administration of China (CAAC) to ensure the Chinese certification programme is in line with FAA standards. The hope is that once the ARJ21 receives Chinese certification then the FAA will help ACAC achieve US certification, and this could set a valuable precedent for the 150-seat aircraft.
So far the FAA has remained non-committal, but says that only after the ARJ21 receives Chinese certification will it look at whether to help the regional jet receive US certification. China also needs to sign a bilateral agreement with the US government to make it possible for the FAA to approve Chinese aircraft.
Western suppliers in the ARJ21 programme have been lobbying the US government to have the ARJ21 certificated by Western authorities. But any protest by Western manufacturer against China's 150-seat programme could cloud the situation.
The USA has already taken the European Union to the World Trade Organisation on several occasions, complaining that Airbus receives government subsidies. China's 150-seat aircraft is clearly bankrolled by the Chinese government, so the USA, encouraged by Boeing, could decide to take Comac to the WTO. Possibly foreseeing this may be an issue, "Comac has left its options open to take in private investment", says one industry source.
This may occur via a public listing, but the government would always retain majority control, says the source.
There is no doubt that China's 150-seat aircraft programme has the full backing of the Chinese government and China's domestic market is large enough to support such a programme. Whether China can develop a product that can generate sales in Western markets is the real challenge.