Latest overview of market potential for the aerospace sector in China.
ACCESSING INTERNATIONAL MARKETS
1 EXECUTIVE SUMMARY 2
2 INTRODUCTION 7
3 OVERVIEW OF AEROSPACE MARKET IN CHINA 8
4 GOVERNANCE & STRUCTURE OF AEROSPACE SECTOR IN CHINA 9
5 CHINESE CIVIL AIRCRAFT PROGRAMMES 19
6 RESEARCH FINDINGS 22
7 CONCLUSIONS & RECOMMENDATIONS 26
Avic Subsidiaries Visited
Project Objectives & Methodology
China?s dynamic economy and continued growth has already seen it become the
largest air transport market outside of the United States. While international
traffic in China remains subdued because of the global economic slowdown,
domestic traffic continues to see impressive growth, with increases of almost
20% seen in the first half of 2009. This impressive growth is set to continue as
China?s overall economy is forecast to be the fastest growing in the world over
the next two decades, with GDP growth averaging over 7%. This should mean
that in the next decade it will surpass Japan to become the world?s second
The large and fast growing economy, coupled with impressive domestic demand
for air travel and the expected global economic recovery, has led the major
aircraft producers to conclude that China is their most important future market.
Boeing forecasts that China will need to more than triple its aircraft fleet by
2028, requiring 3,770 new aircraft valued at over $400million. Single-aisle
aircraft serving the domestic air travel market are expected to account for 70%
of the new deliveries. China?s own state-owned aerospace conglomerate, AVIC, in
September (2009) forecast that the country will increase its commercial aircraft
fleet size to 4,233 by the end of 2028. This equates to demand for 3,796
aircraft, with the 150 seat aircraft being the largest category with 1,572. This
illustrates the future potential for aerospace manufacturers, but in fact this
potential is already being realised; this year it is expected that China will take
delivery of 243 new aircraft which will be the largest of any one nation.
It is clear that China is already the most important market for aerospace
manufacturers outside of North America and that this importance is increasing
The major aircraft OEMS have long recognised the strategic significance of the
China market. Airbus this year rolled out its first A320 assembled at its final
assembly line in Tianjin. It is expected that a total of 11 aircraft will be
assembled in China by the end of this year. In July 2009 it also started
construction of a $350million facility in Harbin for the manufacture of
composite parts for A320 and the new A350XWB aircraft. This is part of a
commitment it has with the Chinese government to manufacture 5% of the
airframe of the A350XWB in China. It is reported that Airbus already procures
around $100million from China, and this is expected to rise to $200million in
2010, and to $500million by 2015. Similarly, Boeing is thought to have around
$600million in supplier partnerships with China. For example it has a deal with
AVIC Shenyang Aircraft Corporation to build an assembly for the new 787
vertical fin. It is estimated that Rolls-Royce already has more than $1billion of
business with China and it is expected to grow its sourcing of materials from
around $200million at present to $800million within three years, and $1billion
over the next five years.
2 Aerospace Supply Chain In China
1It is evident that all the aerospace OEMS have reflected the emergence and
importance of China?s aviation in their own manufacturing strategies. This has,
and will continue, to influence their purchasing policies and, as a consequence,
there will continue to be a profound effect on their supply chains.
However, it is not only the existing major OEMS that are increasing their
investment and purchasing spend in China. China has ambitions to establish its
own civil aerospace development and manufacturing capability. This is also
having a profound effect on the industry.
China?s Aerospace Industry
In May 2008 a new company, China Commercial Aircraft Company (COMAC) was
set up by the Government with the aim of developing China?s own indigenous large
aircraft producer to rival Airbus and Boeing. This is part of a wider Government
initiative to develop the aerospace sector in China. In 2007 The State Council - the
highest executive organ of state - approved a new large aircraft project alongside
plans for lunar exploration and manned space flight. This demonstrates the priority
the Government affords to the advance of aerospace within its overall economic
development agenda. The project is known as the C919 and the objective is to
produce a single-aisle, 150 seat aircraft by 2016 to compete with the B737 and
A320. These are ambitious plans given the high barriers to entry into the
commercial aircraft industry. However, the Chinese Government has clearly
demonstrated its intent for the long term by re-organising the state-run aerospace
sector and supply chain in China to better prepare it for these challenges.
China recognises it needs input from overseas companies with the technological,
managerial and commercial acumen that will be crucial to the successful
development of a commercial aircraft that will be attractive to overseas, as well
as domestic airlines. As well as the formation of COMAC, which will be
responsible for the overall C919 programme, the Government has also merged
the country?s two big aerospace industrial conglomerates - AVIC I & II - into a
single ultra-large state-owned enterprise. They were originally a single entity, but
were divided in 1999 in order, it is thought, to boost competition within the
aerospace sector and so drive efficiencies and improve management. However,
there is now a realisation that splitting the operation divided resources and led
to effort being wasted on redundant and failed projects. The newly merged
China Aviation Industry Corporation (AVIC) was formed in November last year
(2008) in order to address this situation and to consolidate and strengthen
China?s aerospace manufacturing capabilities.
3 Aerospace Supply Chain In China
1AVIC has over 420,000 employees spread across more than 200 subsidiaries and
20 listed companies. The operation covers manufacturing plants and research
institutes with capabilities across all aspects of the aerospace supply chain from
airframe, aero-engine and airborne systems, through to the production of
military fighter and transport aircraft, and civil regional turbo-props. By July of
this year (2009) AVIC had entered the Fortune 500 Global List, with sales
revenue of $21.738 billion and profits of $568 million. It was the 11th largest
Aerospace & Defence Company, which placed it ahead of Bombardier.
This fundamental restructuring of the industry within China and the launch of
the C919 programme has resulted in an acceleration of foreign engagement in
China?s aerospace sector which already had some momentum. Overseas aerospace
OEMs and Tier 1 suppliers have recognised the opportunities that the market
presents and have been building on, and expanding their relationships with the
aerospace supply chain in China.
GE recently agreed a major 50:50 joint venture to develop and sell Chinese-made
equipment for commercial aircraft. The partnership with AVIC is to be begin
operation in the middle of 2010 and focus on bidding to supply the avionics
system for the C919. The partnership will be based in China but is also targeted
at the US and global markets, according to a framework agreement signed by
the two companies. It is reported that it will create approximately 200 jobs in
the US, in addition to creating bilateral industrial co-operation with China. In
August, Goodrich and AVIC Xi?an Aircraft International signed agreements to
form two joint ventures to produce landing gear and components for the C919.
As well as international partnerships in country, China is also looking to overseas
investments and acquisitions in order to boost its capabilities. As recently as
December 2009, AVIC Xi?an Aircraft Company concluded the purchase of a 91%
stake in Austria?s Fischer Advanced Composite Components (FACC), a $393
million turnover enterprise which supplies Boeing, Airbus, Bombardier, Embraer
and Gulfstream. Back in 2007 AVIC also made enquiries regarding the Airbus
facilities in Europe that were being sold at the time. There were also reports that
AVIC also bid last year for the experienced German composite aircraft
manufacturer, Grob Aerospace, and has looked at Piper Aircraft in the US.
It is clear that AVIC is proving an attractive partner to major foreign aerospace
companies looking to exploit the market opportunities in China. It is also evident
that AVIC also has the desire, and importantly the financial resource to acquire
the expertise and technology it needs to become a truly global player in the
sector. Its stated strategic corporate goal of 22% revenue growth to reach sales
of one trillion RMB by 2017 is a measure of its bold ambition.
AVIC is much larger than COMAC in terms of assets - and is in fact a major
shareholder of COMAC ? and both report direct to the State-owned Assets
Supervision and Administration Commission (SASC). COMAC has influential
senior management. The Chairman is Zhang Qingwei, previously minister of
China?s Commission of Science Technology and Industry (COSTIND), and its
4 Aerospace Supply Chain In China
1President is Jin Zhuanglong, a former vice minister of COSTIND. Both are or
have been standing committee members of the Communist Party Congress. The
business units that COMAC inherited are also very significant - AVIC I
Commercial Aircraft (ACAC) is the Shanghai based company that manages the
ARJ21 Regional Jet programme; First Aircraft Institute (FAI) is based at Xi?an,
with a branch in Shanghai, is China?s leading design institute for commercial
aircraft and was responsible for the majority of the design work for the ARJ21;
and Shanghai Aircraft (SAC) is responsible for the ARJ21 final assembly.
Locating COMAC in Shanghai means that it can assemble the resources of these
pre-existing organisations into a viable commercial operation, as well as being
eligible for financial support from the Shanghai government. It has also helped
to establish a clearly separate identity from AVIC, its much larger counterpart,
and the traditional centres of China?s military aircraft production. This helps the
government to demonstrate clear separation between the large military aviation
sector and the emerging commercial sector and so, it is thought, make it more
open to engage with international partners to accelerate the development of its
own aircraft programmes.
This is particularly relevant to the C919 single-aisle programme which has been set
an ambitious target of 2016 for service-entry. This has been brought forward from
the original 2020 date, because it is believed that China wants to exploit this
market segment before Airbus & Boeing look to develop replacements for their
A320 & B737 families. This accelerated timescale necessitates engagement with
foreign suppliers, particularly in the areas of propulsion, avionics and materials.
However, in procuring equipment in these areas China will not be content with
straight forward off-the-shelf solutions; it will want to work with suppliers to
develop its own long term capability. It has already established a new aero-engine
company in Shanghai with the ultimate aim of developing and producing engines
for the C919. AVIC, the Shanghai Municipal Government and Shanghai Electric are
its principle shareholders and it has been reported that it is open to further
investment from either domestic or foreign investors, for a stake of up to 30%.
In May 2009 COMAC signed C919 agreements with a number of domestic
fuselage suppliers - AVIC Xi?an Aircraft company, AVIC Chengdu Aircraft company,
AVIC Shenyang Aircraft company, AVIC Harbin Aircraft Company and AVIC
Hongdu company as well as CASIC. COMAC was reviewing bids from a number of
overseas tier-one suppliers for the engine and airborne systems towards the end
of 2009. In late December 2009 it announced that CFM International (the GE-
Safran joint venture) had been chosen for the powerplant with its advanced
LEAP-X1C engine. The selection of lower tier suppliers will start in 2010, with
COMAC?s R&D centre producing a catalogue of potential suppliers and their
products from which the tier-one suppliers will select. It is important that UK
component and material suppliers interested in the programme are be prepared to
engage with the COMAC R&D centre early in 2010.
5 Aerospace Supply Chain In China
1Responsibility for selection and managing lower tier suppliers is expected to rest
with the selected tier-one suppliers. However, in the selection of tier-one
suppliers COMAC admits that potential bidders who were in partnership with a
Chinese company would be given preference. This sentiment may have, at least
in part, had some influence on some recently announced deals where companies
such as GE, SAFRAN, Goodrich and others revealed new or extended joint
ventures, principally with AVIC companies.
To raise awareness of the specific opportunity on the C919, and the wider and
longer term opportunities within the Chinese aerospace market, it is
recommended that a roadshow programme should be organised in the UK, by
UKTI, in the early part of 2010. This needs to be co-ordinated with existing
planned activity to ensure maximum impact. For example, the roadshow should
be organised to a lead up to, and link with, activity planned at the Farnborough
Airshow in 2010 and aerospace trade missions to China during the year,
including those linked to the Shanghai Expo.
In developing its aero-industrial capacity, China is looking to develop
international partnerships to improve its technological base, management
expertise and customer service capability. It is willing to work with international
partners with these capabilities looking to enter or expand in the market.
However, it is also willing to invest in foreign companies, whether by acquisition
or taking stakes in these companies. The strong economy in China means that
there is the financial resource to do this at a time when the availability of
finance still remains difficult in the UK and other western nations.
During one meeting, an AVIC subsidiary highlighted an example where they had
learned of a UK lower tier supplier who had ceased trading because of financial
difficulties. They stated that if they had been made aware of this they would
have been interested in investing in the company. It is worth considering that as
part of the roadshow programme, some appropriate reference to the potential
availability of investment from the Chinese aero-industry could be highlighted.
An understanding of the scope and scale of the UK?s aerospace industry
capability is by no means comprehensive across China. Those Chinese suppliers
who have relationships with UK industry do recognise the UK?s capability.
However, those who have little previous engagement are ignorant of the UK?s
aerospace capabilities and judge the capabilities of some European competitors
more highly. Therefore, there is a need for more proactive promotion of the UK?s
aerospace capabilities across China. To be effective there will be a need for
strong supported by the UK aerospace industry to reinforce the message that the
UK is committed to developing its business with China. The possibility of
opening a UK industry representative office should be investigated further.
6 Aerospace Supply Chain In China
Industry forecasts show that the China?s commercial aviation is already one of
the largest outside of the USA and it is predicted to be the fastest growing
market over the next 20 years. The Chinese Government, through the National
Development & Reform Commission (NDRC), has identified the development of
the aerospace industry as a key objective of its 11th Five-Year plan (2006-2010).
The UK is one of the largest aerospace manufacturing nations globally with an
annual turnover of around £20bn in 2008 (up around 1% on 2007). It is a key
part of the UK?s manufacturing capability and accounts for a significant amount
of export revenues, with close to 70% of the 2008 turnover derived from exports.
Given the importance of the aerospace industry in the UK and the increasing
global significance of the Chinese commercial aerospace sector this study was
commissioned. It has been undertaken by UK Trade & Investment (UKTI) to
improve the understanding of the aerospace supply chain in China in order to
assist UK Aerospace to better exploit the opportunities presented by the rapidly
growing civil aerospace sector in China. The study was commissioned by UKTI?s
Advanced Engineering Sector teams in China & the UK, to inform the
development of an effective strategy to support both the growth of trade with
China in aerospace, as well as the promotion of the UK as a prime location for
aerospace related investment. The study focused on the aerospace supply chain
in China. This is large and evolving segment that has developed from a largely
military focus to one which is gaining increasing volumes of business as a
supplier and partner of the major civil aerospace Original Equipment
7 Aerospace Supply Chain In China
OVERVIEW OF AEROSPACE
MARKET IN CHINA
While many regions around the world have struggled with falling demand in the
aviation sector, China?s domestic air travel resumed its growth after a slowdown
in 2008, due largely to the government?s substantial stimulus action. According
to Civil Aviation Administration of China (CAAC) data, the Revenue per Passenger
Km (RPKs) of mainland China?s airlines grew by 13 percent in the first half of
2009. Domestic traffic, which has seen passenger embarkations increase by
almost 20 percent to 100 million for the first six months, has driven this growth.
Conversely, international traffic has continued to decline to 7 million passengers,
a reduction of 17%.
China?s overall economy is forecast to be the fastest growing in the world over
the next 20 years, with conservative estimates of GDP growth averaging 7.2
percent per year. Within the next decade China is expected to surpass Japan to
become the second largest economy, and by 2028 it will account for 42 percent
of Asia Pacific?s total economic activity, a giant leap from 24 percent in 2008.
This underlying strength of the economy will be a key driver of the growth of air
travel in China.
Boeing?s latest market outlook predicts that over the next two decades 29,400
new civil aircraft worth $3.2 trillion will be required worldwide. To accommodate
the projected growth in demand, Boeing estimates China will need to more than
triple the size of its fleet to 4,610 aircraft by 2028. This requires China to take
delivery of 3,770 new aircraft - constituting 42% of the entire Asia Pacific
market - valued at over $400 billion. Single-aisle aircraft serving the domestic
market will account for 70 percent of the new deliveries.
In addition, the China Aviation Industry Corporation, or AVIC, estimates there
will be demand for 3,796 aircraft in China, up to 2028. The highest demand will
be for 150 seat aircraft, but it also predicts there will also be significant demand
for smaller regional aircraft as China seeks to develop infrastructure and links to
its western provinces. It estimates that there will be demand for nearly 1,700
aircraft between 30-110 seats. It also says there will be a need for 3,000 civil
helicopters - at present there are less than 200 in China.
It is clear from the above forecasts that China is already a key market for
aerospace and over the medium term it will become the most important aviation
market outside of North America with the potential to offer substantial future
8 Aerospace Supply Chain In China
GOVERNANCE & STRUCTURE OF
AEROSPACE SECTOR IN CHINA
In setting its strategy for the development of its aerospace industry China has
acknowledged Boeing and Airbus have an absolute market share in terms of
large commercial aircraft, and to a lesser degree, Embraer and Bombardier in
regional aircraft. It also recognises that countries such as Russia and Japan are
promoting their own civil aviation industry to obtain a share of the global
China understands that it has accumulated some experience in civil aircraft
manufacture, but it recognises it still has a long way to go in comparison with
what it describes as the ?aviation industry superpowers? such as the USA.
The State Council
The State Council is the highest executive organ of State power. It is composed
of a Premier, Vice-Premiers, State Councillors, Ministers in charge of Ministries
and Commissions, the Auditor-General and the Secretary-General.
The National Development and Reform Commission (NDRC)
The NDRC is the macroeconomic management agency under the State Council
which has broad administrative and planning control over the Chinese economy.
The NDRC?s functions are to study and formulate policies for economic and
social development, maintain the balance of economic development, and to
guide restructuring of China?s economic system. The NDRC has twenty-eight
functional departments/bureaux/offices, staffed by over 1,000 civil servants.
One of the key roles of the NDRC is to formulate the five-year national
economic & social development plan that is the key policy driver for the
economy and industry. The latest five-year plan (2006-2010) has set the
following objectives relevant to aerospace with the aim of optimising and
upgrading the China?s industry:-
Civil aeroplane: developing planes for trunk and feeder lines, general-purpose
planes and helicopters, as well as advanced engines.
New materials: building demonstration projects for commercial production of
high-performance new materials badly needed in information, biological and
9 Aerospace Supply Chain In China
4The State-owned Assets Supervision and Administration
The SASC is authorised by the State Council to perform investor?s responsibilities,
supervise and manage the assets of the State-Owned Enterprises (excluding
financial enterprises) under the supervision of the Central Government. The
SASAC is responsible for the reform and restructuring of SOE?s, to improve and
modernise their management and corporate governance, and drive through the
strategic changes to the structure of the state economy.
Civil Aviation Administration of China (CAAC)
CAAC is the state body with responsibility for the supervision of air safety,
airworthiness certification, airline regulation, airport development and civil air
traffic management. It is broadly similar to the FAA & CAA. In December 2008,
in response to the global downturn in air travel and the consequent effects on
China?s civil aviation sector, including heavy losses for the airlines, the CAAC
announced a ten point plan to stabilise the industry and encourage a return to
growth. The wide ranging measures included controls on new airline approvals,
introduction of subsidies on specific air routes, some tax incentives, efficiency
measures and bringing forward investments in new airports and infrastructure
development. One of the measures proposed greater controls on aviation
capacity through a more stringent approvals process for new aircraft, together
with encouraging the airlines to cancel or defer aircraft deliveries scheduled in
2009. The same measure also expressed a desire to reduce the number of aircraft
purchased from foreign countries.
State Owned Enterprises
Commercial Aircraft Corporation of China Ltd. (COMAC)
In May 2008 a new aircraft company, China Commercial Aircraft Company Ltd,
(COMAC) was registered in Shanghai. The establishment of this company
demonstrates China?s Government ambition for an indigenous civil aircraft
development and manufacturing capability with its own intellectual property
(IPR). COMAC has a registered capital of RMB 19 billion with 6 shareholders. The
State-owned Assets Supervision and Administration Commission (SASAC) of the
State Council is the largest shareholder with over 30% of the shares, with the
Municipal People?s Government of Shanghai, China Aviation Industry Corporation
(AVIC), Aluminum Corporation of China (CHINALCO), Baosteel Group Corporation
and Sinochem Corporation, holding the remaining shares.
COMAC has brought together, under one organisation, the expertise of the
former AVIC I Commercial Aircraft Co. Ltd., (ACAC), Shanghai Aircraft Design and
Research Institute (SADRI), Shanghai Aircraft Manufacturing Co. Ltd. (SAMF),
Shanghai Aircraft Customer Services Co. Ltd., and Shanghai Aviation Industrial
(Group) Corporation. It is responsible for the research, development manufacture
and marketing of a new large aircraft project which was approved by the Chinese
10 Aerospace Supply Chain In China
4State Council early in February 2007, and included in ?The Eleventh Five-Year
Plan? (2006-2010). It will also manage single-aisle and regional aircraft programs
over 100t & 150 seats, which includes the ARJ21, and be the main driver for the
industrialisation for civil aircraft manufacturing in China.
As an OEM/Prime manufacturer, COMAC will focus on the design, final assembly
and production, marketing and sales, customer service and airworthiness
certification of its aircraft. An outline of the organisational structure of COMAC
is presented in the figure below.
COMAC is establishing three centres ? Design R&D, Final Assembly and Customer
Service. The Design R&D centre will be based upon the former Shanghai Aircraft
Design & Research Institute with a new R&D centre being established in
Zhanjiang, Pudong District, Shanghai. The new R&D centre started its
construction in early July 2009 and COMAC aims to establish it as a first-class
aircraft research centre, with total employees of about 5,000.
11 Aerospace Supply Chain In China
4The Final Assembly & Manufacture centre includes the former Shanghai Aircraft
Manufacturing Factory and a new facility near to Pudong airport. The annual
production capacity of the new facility, including Pudong & former Shanghai
Aircraft Manufacturing Factory is expected to be around 50 aircraft per annum.
The Pudong Final Assembly centre is expected to employ 15,000 staff.
The Customer Service centre was launched last year, and is located in Minhang
High-tech district, Shanghai. The first phase is in operation and the complete
project is scheduled to be ready by 2010, when the first ARJ 21 aircraft are
scheduled to begin deliveries.
China Aviation Industry Corporation (AVIC)
AVIC is an ultra large state-owned enterprise and investment institution
authorised and managed by the Central People?s Government. It was formed in
November 2008 from the merger of the former AVIC I and AVIC II, in order to
consolidate and strengthen the China?s aviation manufacturing capabilities. The
Corporation has over 200 subsidiaries and 20 listed companies which are located
in 19 provinces and cities including as shown in the figure below.
12 Aerospace Supply Chain In China
4In July 2009 it was ranked 426th in the Fortune Global 500 list, with sales
revenue of $21.738 billion and profits of $568 million. It was the 11th largest in
the field of aerospace and defence, placed ahead of Bombardier.
It is managed through the following 10 business units:-
General Aviation Aircraft
Aviation Research and Development
Trade & Logistics
A significant amount of AVIC?s business is military. It develops fighters, fighter-
bombers, bombers, transport aircraft, trainers, reconnaissance aircraft, helicopters,
attack aircraft, general aviation aircraft, Unmanned Aerial Vehicles (UAVs) etc.
such as J-10, FBC-1, FC-1, L-15, JL-9 etc. It also has the capacity to develop a
wide range of aero-engines, including turboprops, turbo-shafts, turbojets,
turbofans, such as Taihang, Qinling, Kunlun etc. Air-to-air missiles, air-to-surface
missile and ground-to-air missiles are also in its product range.
AVIC has expressed its commitment to develop synergies between its civil and
military business and to develop new and innovative civil and military transport
aircraft. At present key civil aircraft programmes include MA-60, MA-600, MA-
700, as well as the Y-8 & Y-12 utility transport aircraft, and Z-9 utility helicopter.
It is also is a major developer and supplier to the ARJ21 regional aircraft
programme and will also play a key role in the C919 large aircraft programme.
AVIC already has extensive international links under the principle it describes as
?just partner but not competitor?. International programs include FC-1 fighter
and K8 trainer with Pakistan, the EC120 helicopter with Eurocopter & Singapore
Technologies Aerospace, and the ERJ145 Regional Jet with Embraer. It also has
significant sub-contract manufacturing business with major aerospace OEMs. It
is also developing its non-aerospace business in automobiles, motorcycles and
engines, spare parts, industrial gas turbines, refrigeration equipment, electronics,
environment protection equipment etc. It is also provides services such as;
aircraft leasing; general aviation; air transportation; medical services; civil
engineering design; survey; contracting and construction; real-estate and
13 Aerospace Supply Chain In China
4Foreign OEMS In China
Airbus China opened its Beijing office in 1990. It now employs more than 270
people ? the majority of whom are Chinese nationals. The Airbus Beijing training
centre was set up jointly with the China Aviation Supplies Import & Export
Corporation (CAS) in 1998, and is the most modern such facility in the country ?
containing two full simulators, one for the A320 Family and one for the
A330/A340 Family. The centre has trained thousands of maintenance engineers,
cabin crew and pilots, many of whom come from outside China. Nearby is the
Airbus customer support centre, which stocks approximately 25,000 spare parts
available for dispatch to airlines in the Asia-Pacific region and was the first
organisation in China to earn EN9100 approval. In addition, more than 20
European and American vendors supporting Airbus customers operate out of the
centre, which also has a dedicated avionics repair workshop.
The first Airbus final assembly line to operate outside of Europe, located in
Tianjin, officially opened on 28 September 2008. This production site for A320
Family aircraft is a joint venture between Airbus and a Chinese consortium of
Tianjin Free Trade Zone (TJFTZ) and AVIC. On 18 May 2009, the facility marked a
milestone when the first A320 to be rolled-out completed its maiden flight,
taking off from Tianjin International Airport for a 4hr plus airborne evaluation
flight. Then On 23 June 2009 the aircraft was delivered to Dragon Aviation
Leasing, for operation by Chengu-based carrier Sichuan Airlines. This marked the
first customer hand-over of an Airbus produced outside Europe and it is expected
that a total of 11 aircraft would be assembled in China by the end of 2009.
In October 2009, Airbus signed a Memorandum of Understanding with TJFTZ to
establish a Logistics Centre in Tianjin that would optimise the supply chain
management for all of Airbus? industrial co-operation projects in China. The
Centre ? expected to be fully operational during the first part of 2010 ? will
serve as a transportation hub and help sustain the growth of Airbus? industrial
activities in China.
The Airbus (Beijing) Engineering Centre (ABEC), which first opened in early 2006,
is a joint venture between Airbus and AVIC. ABEC?s engineers work on specific
design packages for new programmes, including the design and development of
the A350 XWB. In July 2009 it also started construction of a $350million facility
in Harbin for the manufacture of composite parts for A320 and the A350XWB.
This is part of a commitment it has with the Chinese government to
manufacture 5% of the airframe of the A350XWB in China.
14 Aerospace Supply Chain In China
4More than 470 Airbus aircraft are already in operation with airlines in China,
Hong Kong and Macau. China Southern Airlines has ordered five A380s, and the
potential for further Airbus growth in the region is huge. In 1985, Shanghai-
based CAAC, now China Eastern Airlines, became the first airline in the country
to operate Airbus aircraft. It is now Airbus? biggest customer in China with a
fleet of more than 140 aircraft. Guangzhou-based China Southern Airlines also
operates more than 130 aircraft ? flag carrier Air China operates more than 75
and Chengdu-based Sichuan Airlines has a fleet of more than 35.
Airbus not only has strong relationship with airlines in China, it also looks to
exploit the enormous potential offered by Chinese industry. In addition to the
Airbus fleet in China, over half the Airbus fleet in service world-wide has parts
produced by Chinese companies with whom Airbus already enjoys strong
relations. These include:
AVIC Chengdu Aircraft Corporation supplies the rear passenger door and parts of
its nose section for the A320.
AVIC Shenyang Aircraft Corporation produces and assembles the emergency exit
doors and manufactures fixed leading edges, wing inter-spar ribs, cargo doors
and skin plates for the A320 Family.
AVIC Xi?an Aircraft Company produces electronic bay doors for the A320 and
A330/A340 Families, as well as the fixed trailing edges on wings for the A320
and the brake blades and medium air ducts for the A330/A340.
Hong Yuan Aviation Forging & Casting (HYFC) produces titanium forging parts
to mount powerplants on to wings.
AVIC Guizhou Aviation Industrial Group produces maintenance jigs and tools for
In March 2009, Airbus AVIC Xi?an signed a co-operation agreement to have the
A320 wings to be fully equipped and tested in China.
The success of such projects means that as Airbus increases production, it can
continue to expand in the region. By 2010, the company expects to be spending
around $120 million of its procurement budget in China.
Boeing and China have a history of more than 90 years. In 1916, the first
engineer hired by Boeing to design the Model C bi-wing airplane was Beijing-
born Wong Tsu. In recent history, Boeing has established a longstanding
relationship with a number of Chinese airlines, the Chinese aviation industry, the
Civil Aviation Administration of China (CAAC) and the Chinese government.
Today there are more than 4,500 Boeing airplanes flying throughout the world
with parts and assemblies built in China.
15 Aerospace Supply Chain In China
4China plays a large role in the manufacture of all of Boeing?s existing
commercial airplane models?the 737, 747, 767, and 777. For the new 787
Dreamliner, Chinese suppliers will build the rudder, wing-to-body fairing panels,
leading edge panels for the vertical fin, and other composite parts. Today,
Boeing and its suppliers have active supplier contracts with China?s aviation
industry valued at well over $2.5B US.
Boeing has significant investment in China in a variety of forms including
procurement, equity, facilities, joint ventures, alliances and training. Boeing?s
equity investment in China is considerable and it claims that its procurement
from China is significantly greater than other aviation companies.
Rolls-Royce has had a presence in China for more than 40 years, and it is a
significant market for the company?s aviation, marine and energy products, as
well as a manufacturing partner of growing importance. Currently it has offices
in Beijing, Shanghai, Dalian and Hong Kong, as well as a representative in
Guangzhou to support China Southern, its largest customer in China.
Rolls-Royce has a number of collaborative relationships, including two joint
ventures - Hong Kong Aero Engine Services Limited (HAESL) in Hong Kong, and
Xian Rolls-Royce Aero-components (XRA) in Xian. The latter is a high-tech joint
venture with the Xian Aero Engine Company. It has also opened a marine facility
In November (2009) Rolls-Royce won an order for Trent 700 engines to power
20 Air China Airbus A330 aircraft. The contract, worth $1.5bn with the aircraft,
to be delivered from 2011. This takes Air China?s Rolls-Royce powered A330 fleet
to a total of 43. In China, the Trent 700 has now been selected fourteen times
by nine customers to power a total of 178 A330s in service or on order. In 2006,
it won an order for the Trent 1000 to power 15 Boeing 787s ordered by Air
China. The Trent 700 has maintained its 100 per cent market share on the Airbus
A330 in China, following Hainan Airlines? selection of the engine. More than 300
Rolls-Royce powered aircraft are currently operating with twelve Chinese airlines,
including those in Hong Kong, and Macao. China Southern is Rolls Royce?s
largest customer in China with 122 aircraft powered by its engines.
Rolls-Royce also develops top-quality technical and managerial training
programmes with a range of Chinese organisations including CAAC, AVIC and a
number of central government ministries. 2006 saw the 10th anniversary of
Rolls-Royce working with the CAAC on the Senior Executives ?Top 300?
development programme and a 10-year extension was signed. There is a joint
facility in Tianjin operated by Rolls-Royce and the CAAC, which opened in 1997,
for the training of technicians, engineers and managers.
16 Aerospace Supply Chain In China
4Rolls-Royce also has a successful turbine component joint venture in Xian; and is
growing its component and materials purchasing in China. Xian XR Aero-
components Ltd (XRA) is a high-tech joint venture with the Xian Aero Engine
Company that last year celebrated its fifth anniversary. In 2002, XAE also became
an approved classified parts supplier to Rolls-Royce and in October 2009 it was
awarded approvals for further parts production. XRA was built and equipped in
1997, on a site within the massive XAE complex, to cast and machine turbine
nozzle guide vanes (NGV) for use in the BR710 for the Gulfstream V and
Bombardier Global Express, and the BR715 for the Boeing 717. In addition, the
plant makes NGVs for the Tay engine powering the Gulfstream IV and Fokker
100. In 2001, low-pressure turbine blades for the BR715 also entered production.
A number of other Chinese companies are also important suppliers. Sichuan
ChengFa Aero Science and Technology Ltd is a strategic supplier to Rolls-Royce
for rings, sheet metal and fabrications. Beijing Aero Lever Precision Limited
produces VSV levers for Trent, V2500 and BR700 series engines. Shenyang
Liming Aero-Engine Group Corporation became an approved Rolls-Royce plc
supplier in 2002 and produces heat shield rings for the BR700 series.
In early 2009 Rolls-Royce signed a Memorandum of Understanding (MoU) with
the Chinese Academy of Sciences (CAS) to undertake a joint research project.
Work will focus on developing manufacturing techniques and utilising new
materials for use in low pressure turbine blades for the Group?s gas turbine
engines. The MoU will enable further co-operation between Rolls-Royce and the
Institute of Metals Research (IMR) at CAS, on advancing techniques in titanium
aluminide casting technology. Jiang Mianheng, Vice President, Chinese Academy
of Sciences and Sir John Rose, Chief Executive, Rolls-Royce attended the signing
ceremony at Downing Street in February 2009 the presence of Prime Minister
Gordon Brown and the Chinese Premier Wen Jiabao. IMR, located in Shenyang is
one of more than 90 institutes managed by CAS and specialises in research in
innovative materials. Among the Institute?s focus areas are nano-scale
manufacturing technology for electronics, advanced materials, advanced nano-
measurement and nano-processing technology.
Bombardier has a long history of collaboration with the China Aviation industry.
In the 1980?s the Xi?an Aircraft Company (XAC) produced structural components
for Bombardier 415. In the 1990?s Shenyang Aircraft Company (SAC) began work
on the Q-Series Doors. In July 2006, Bombardier announced a major cooperation
agreement with the Shenyang Aircraft Company (SAC) for Q400 ? Forward & Aft
fuselage and Empennage packages, representing 12% of total aircraft by weight.
17 Aerospace Supply Chain In China
4In 2007 Bombardier entered a long term strategic cooperation with a
Memorandum of Understanding (MOU) being signed with the China Aviation
Industry covering the five-abreast, 90- to 149-seat commercial aircraft market.
The MOU strives to develop synergies between the ARJ21 program and the C-
Series, and confirmed Bombardier?s technical assistance in the development of the
ARJ21, while recognising China Aviation Industry?s goal is to become a major
international Tier 1 structural supplier for C-Series. Under the proposed
agreement, SAC would be Bombardier?s biggest partner on the C-Series program.
Bombardier is keen to build on its supplier relationships to develop deeper
collaboration. It believes it is the first international OEM to provide China?s
Aviation Industry design authority on major supplied parts (fuselage). And there
are plans for an IT system to link Bombardier Aerospace?s activities in Montreal to
SAC?s Shenyang offices for online, live knowledge sharing. Bombardier?s
Commercial Aircraft Market Forecast for 2009-28 predicts a requirement for 2,230
aircraft in China in the 50-149 seat category. This compares well with the 4,780
predicted for North America, 2,230 in Europe and 1,550 across Asia-Pacific.
Bombardier Aerospace currently has 6 Regional Aircraft operators with
36 CRJ aircraft and 28 Business jets in greater China. Overall Bombardier,
including its transportation business, has approximately 3,000 employees, and
Bombardier Aerospace has offices in Beijing, Shanghai and Hong Kong, with
subcontract and JV relationships in Shenyang, Xi?an and Nanjing.
Embraer, has been involved in China since 2003, through its joint venture with
Harbin Aircraft. Harbin-Embraer assembles the Embraer ERJ-145s, and is the
only assembly plant outside Brazil. None of the aircraft assembled are for export
and as at August 2009 Embraer had 8 customer operators in China, with over
100 firm orders and 58 deliveries ? mostly ERJ145?s. Embraer also has an office
18 Aerospace Supply Chain In China
CHINESE CIVIL AIRCRAFT
Single-Aisle Airliner - C919 ?Trunk Liner?
The State Council approved a new large - aircraft project in February 2007 and
incorporated it into the 11th Five-Year Plan alongside Lunar Exploration and
Manned Space Flights. The large commercial aircraft project is named C919 and
aims at the domestic and overseas single-aisle aircraft market, in competition
with the Boeing B737 and Airbus A320. Premier Wen Jiabao wrote an article in
?People?s Daily? named ?Let China?s own trunk liner soar into the blue sky?. This
expressed how the Chinese consider the Trunk Liner Program as an important
strategic decision made by the government for the development of a world class
science and technology base, and for the overall modernisation of China. It is
seen as a landmark for establishing China as an innovative country and its
implementation will promote the development of the economy, and science and
technology in China.
The basic design of the initial C919 includes supercritical low wings, three-point
type retractable landing gears, regular empennage and powered by two wing-
mounted advance high bypass ratio engines. The range is 4,075km for the
standard range version and 5,555km for the extended range version. Three
variants are planned - 156 seater (mixed class), 168 seater (all economy), and
180 seater (high-density), and is scheduled to make the first flight in 2014 and
first deliveries in 2016. It will be equipped with a new generation aero-engine,
more advanced than existing aircraft. It was recently announced that CFM?s new
LEAP-X1C engine would be the powerplant. The design has been set the
ambitious target of achieving a 10% less cost of ownership than B737/A320
models, and a 50% reduction in carbon emissions. In March 2007 while
announcing the strategy & programme, the central government clearly stated
that China would seek international co-operation. As noted above the engine is
being sourced internationally and it is expected that airborne systems and
materials will be open to international partners and selected by competition.
The C919 is planned to have its maiden flight at the end of 2014, and to be
delivered to the users after achieving Airworthiness Certification in 2016. The
engineering mock-up began in September 2009 and the sections of the major
structure of are expected to be finalised soon.
Some estimate that the development programme should take about 10 years,
with a budget of RMB 30-50 billion (£2.1-3.5 billion). The flight test would take
3 years. Therefore, it will be a significant challenge if the first aircraft is to be
operational much before 2020, let alone the planned 2016.
COMAC signed MOUs with 9 domestic fuselage suppliers, including AVIC, in May
2009. These included AVIC Xi?an Aircraft company, AVIC Chengdu Aircraft
company, AVIC Shenyang Aircraft company and AVIC Harbin Aircraft Company
as well as AVIC Hongdu company. CASIC is also one of the suppliers.
19 Aerospace Supply Chain In China
5The 1st tier suppliers of engines and airborne systems will be foreign, in order to
assist with meeting the ambitious in-service date. The RFI for this was given to
overseas suppliers in late February 2009. COMAC at the moment is reviewing all
the RFIs that have been submitted by foreign suppliers and a decision on the
successful bids will be made by the end of 2009. Once the system suppliers are
chosen, they will start to conduct joint concept design work. The selection of
lower tier suppliers will start in 2010 with COMAC?s R&D centre producing a
catalogue of lower tier suppliers and their products. First tier suppliers will be
responsible for choosing the lower tier suppliers from those listed in the COMAC
catalogue. UK lower tier suppliers looking to supply to C919 should be ready to
make proposals to COMAC?s R&D centre in 2010 to enable their company and
products to be included in the C919 catalogue.
Advanced Regional Jet ? ARJ 21
The ARJ programme started with ARJ21-700, a regional jetliner with a total
seating capacity of 70-90. The first model aircraft was revealed in late 2007. As
of September 2009 there were 211 orders received - mainly from domestic
airlines - GECAS (GE?s Aircraft Leasing arm) and Laos airlines are the only
confirmed foreign buyers. Following the restructuring of the aerospace sector
COMAC has now assumed responsibility for the programme from AVIC. General
design was completed by the First Aircraft Institute in Xi?an, with the design of
components and parts done by AVIC companies such as Shenyang Aircraft
Industry Group, Chengdu Aircraft Industry Group, and Jinan Special Aircraft
Structure Research Institute. Production of components will be through AVIC
with Xi?an Aircraft, Shenyang Aircraft and Chengdu Aircraft being the main
suppliers. Flight test is being undertaken by China Flight Test Establishment.
ARJ21-700 is the baseline of the ARJ21 series, powered by two GE CF34-10A
high bypass ratio turbofan engines. It can provide 78 seats in mixed class
configuration or 90 seats in all economic class configuration. ARJ21-700 consists
of two versions: The Standard Range (STD) version is mainly aimed at the
operating requirements for spoke air routes from the hub to smaller airports; The
Extended Range (ER) version can meet the requirements for the ?slim? point-to-
point air routes. The electronics, flight control system, and some airborne
equipment were supplied by US and European suppliers.
ARJ21 has a two-crew cockpit with an avionics system that adopts the bussing
technique and highly integrated LCDs for flat panel displays. It incorporates an
electric flight control system with signal control and electro-hydro/mechanical
actuators, thus reducing the operating load of the flight crew and providing
maximum commonality with mainstream airliners.
20 Aerospace Supply Chain In China
5Development of the stretched version of the ARJ21, the ARJ21-900, began in
2008. According to a previous announcement made by AVIC senior management,
development will be undertaken jointly with Bombardier. The ARJ21-900 is
powered by two GE CF34-10A high bypass ratio turbofan engines and can
provide 98 seats in mixed class configuration, or 105 seats in all-economic class
configuration. ARJ21-900 will also have STD & ER versions.
A freighter version, the ARJ21F, is currently in the planning stages and will be
designed to meet the rapidly increasing needs of the cargo transportation
market. The main hold is 19.033 metres long, which can arrange about 5 LD7
containers or 4-5 PIP pallets. The maximum payload is 10,150kg. A business jet
variant (ARJ21B) is also under consideration.
MA60, MA600 & MA700 Regional
The MA60 is an advanced regional turboprop aircraft developed by AVIC Xi?an
Aircraft Company. It meets the regulations of CCAR Part 25 and FAR Part 25 and
is certified by CAAC. The MA60 is suitable for short and medium-haul commuter
operations as well as multi-role applications.
According to forecasts of Bombardier and China Aviation Industry Development
Research Center, the next 20 years the total global demand for regional aircraft
will be 5,300-5,500, of which 1,900 will be turboprop regional aircraft. Currently
there are three major turboprop regional aircraft manufacturers in the world:
ATR, Bombardier and Embraer, with AVIC XAIC hoping to join them.
The MA60 is part of AVIC XAIC Xinzhou series of aircraft. The first MA600
(Xinzhou 600) is scheduled for delivery in 2009 and the MA700 (Xinzhou 700) is
The major customers of MA60 are from Africa, Asia and Latin American,
including - Zimbabwe, Congo, Zambia, Laos, Indonesia, Bolivia. Africa is
expected to be a priority market where there is a projected need for about 500
new aircraft in the next decade.
The MA600 is an upgraded of MA60. Compared with MA60, the MA600 has
improved structure and integrated avionics systems and enhanced comfort and
improved economy through better energy efficiency. The price of MA600 is
expected between 100 to 120 million RMB. This is lower that similar foreign
aircraft which sell at $18-20 million (about 124 to 138 million RMB). In terms of
the operating costs, MA600 is expected to be 40 per cent lower than jet aircraft.
The MA700 is a new generation of turboprop and in the early stages of
development. It is being designed for EU and U.S. markets and hopes to become
a mainstay regional aircraft in the world market.
21 Aerospace Supply Chain In China
To gain an understanding of the environment, structure and relationships within
the aerospace supply chain in China a series of meetings were arranged with a
number of key organisations. The full list of meetings is detailed in the table in
the Annex. They can be subdivided into 5 major categories - Central
Government; Provincial/Municipal Government; State Owned Enterprises; Wholly-
Owned Foreign Enterprises (WOFE?s) & Joint Ventures (JV?s), and Chinese Private
sector. They also cover the supply chain tiers from OEM/Primes, through Tier 1
and lower Tier suppliers, and also material suppliers and Maintenance Repair &
Overhaul (MRO) providers.
Meetings with the Central Government bodies ? MofCom, MIIT and CAAC were
arranged in order to gain buy-in from the authorities and enlist their support for
the project and its objectives. In addition the intention was to understand the
key policies and drivers for the aerospace industry in China and ascertain how
these were implemented. It was also an opportunity to obtain a Government
perspective on the perception of UK Aerospace capabilities and comparisons with
The discussions with Provincial & Municipal Government bodies focussed on
their aims and strategies for developing the aerospace industries in their
localities, an outline of the incentives that may be available and to gain their
support for arranging meetings with local companies.
The research concentrated on discussions with Chinese aerospace supply chain
companies, both State-Owned Enterprises (SOEs) and Private sector companies.
These discussions were directed to obtain detailed background knowledge of the
individual company, its place in the supply chain, identify its key markets,
customers and suppliers, to build up an understanding of the aerospace supply
chain in China. This also presented the opportunity to gain an insight into how
Chinese suppliers engaged with domestic aircraft programmes, in particular the
C919. Companies were also asked for their perspective of UK aerospace
capabilities and how they compared with competitor nations. The final category
was Wholly-Owned Foreign Enterprises (WOFEs) and foreign Joint Venture (JV)
companies who have established a base in China. The aim here was to learn the
motivations for setting-up in China, the key benefits that have been realised and
the challenges faced in establishing, building and maintaining an aerospace
business in China.
22 Aerospace Supply Chain In China
6Perceptions of UK Capabilities
During the study Chinese Government and Industry contacts were asked about
their perceptions of the capabilities of the UK Aerospace Industry and
comparison with other leading aerospace manufacturing nations.
A variety of responses were obtained. Most recognised the UK as a major
aerospace manufacturing nation. However, underlying this there appeared to be
some indication that the capabilities were not as recognised as might have been
expected and that in a number of cases the comparisons drawn against other,
mainly European nations, did not place the UK in a position of strength.
The responses received from AVIC companies who had existing, or previous,
relations with UK customers or suppliers did generally provide a more positive view
of the UK?s capabilities. However, those who had had little or no engagement with
the UK did display some ignorance of the UK industry and generally viewed the
capabilities of nations such as France & Germany more highly. While it is difficult
to quantify the responses it is reasonable to conclude that in general the
perception of UK Aerospace capabilities in China is below that we should expect.
There was also some anecdotal information that where companies had knowledge
of a range of international partners/customers/suppliers that in small number of
cases the perception of the UK suffered as it was felt other nations industry?s
(notably the US) had been more supportive than the UK counterpart. This should
be treated with caution as it was not a common view but it is worth recognising it
as a perception held in some areas. The perceptions gained from Government &
Provincial bodies were generally positive and perhaps displayed a better awareness
of the scope of UK capabilities.
In a number of instances the Chinese industry contacts raised the issue of export
controls as a possible barrier to international collaboration. There was little
elaboration on the specifics when asked, but it appears the main concern regards
controls on technology transfer in some areas and on some exotic materials. The
only specific instance was referred to by a UK supplier in China. This related to a
specialist Titanium alloy used for aero-engine applications.
Benefits & Challenges Faced by
UK Companies in China
During the research a number of UK-based aerospace companies who had an
established a presence in China were interviewed. Most had been established in
the market for a number of years. The majority had retained a non-Chinese
national in the Senior Manager/General Managers role. In almost all cases the
reason for establishing in China was primarily related to low cost manufacture.
In some cases market access was cited as a secondary consideration but the clear
labour cost advantages were identified as the major driver for the decision to
locate in China.
23 Aerospace Supply Chain In China
6All acknowledged the need to reflect a ?total-cost of acquisition? in their
manufacturing strategies, but in spite of this there were still clear cost
advantages in locating specific packages of work in China. Although the recent
decline in sterling had changed the cost structures none reported that this had
altered the basic economics of low cost manufacture in China. In one case it was
reported that energy costs were currently higher than the equivalent in the UK
but despite this, and the currency situation, production costs remained below the
UK. A number of participants reported difficult trading conditions as a result of
the economic slowdown and the severe effect it had on the global aerospace
business. Although some saw this continuing for the near term others expressed
the view that some recovery appeared to be on the horizon. Indeed, although
many reported reduced business activity in their China operations none had
plans to re-evaluate their operations and in many cases they had plans to
expand in the medium term depending on the recovery.
When asked about the challenges faced when setting-up operations in China
almost all cited the need to undertake thorough research on the market, the
need to get to grips with some of the bureaucracy in provincial/municipal
Government procedures and to have access to the right people in these areas.
The availability of local staff or advisers who were experienced in these areas was
seen as important. It was also acknowledged that there were occasions where the
authorities needed to be challenged on the application of some procedures and
it was felt that sometimes a foreign national might be more effective. There were
some indications that staff retention could be an issue in some localities but in
general both the availability of well-qualified and motivated staff and their
retention was not seen as problematic. It was acknowledged that significant staff
training was needed dependent on the business needs, but it was recognised that
the availability and quality of staff was improving fast in China. In some cases
the return of ?expat? Chinese from overseas was seen to be increasing due to the
strength of the economy, and this could be a valuable future resource.
The issue of IPR protection was raised and although it was acknowledged as a
potential issue the general view based on the experience of the participants was
that it was not markedly more problematic than that experienced in other markets.
The UK companies were asked what specific areas of assistance they would value
from organisations such as UKTI when setting up operations in China. Most
indicated the need for companies to fully research the market before deciding to
enter the Chinese market and considered that UKTI was a good source of
support in this area. A number mentioned assistance in gaining access to the
right people in Chinese government bodies.
24 Aerospace Supply Chain In China
One of the objectives of the research was to identify opportunities which UK and
Chinese aerospace companies could exploit. In each meeting with Chinese
supply chain companies they were asked to identify specific opportunities for
which they were seeking suppliers or partners.
For the majority of companies who already had international subcontract
operations the unanimous response was for further subcontract work. All were
eager to highlight their existing business with OEMs and major programmes etc.
and the quality systems approvals that were in place for both generic quality
system awards, special processes (NADCAP), and specific OEM approvals (RR,
Airbus, Boeing GE etc.). Companies were keen to promote their cost advantages.
On a number of occasions the view was expressed that Chinese partners could
work with UK suppliers to provide them with a cost competitive subcontract
manufacture option on large production volumes. It was stated that this could
allow the UK partner to concentrate their efforts and expertise on new product
introductions and low volume manufacture of specialist parts.
Many of the companies with dedicated international subcontract divisions had
experienced problems reliably sourcing aerospace standard alloys, specialist fasteners
and other components and wanted to explore other sources of supply in the UK.
One AVIC subsidiary expressed a desire to co-operate with UK suppliers who
could offer expertise in the design and development of cockpit layout and
systems for regional transport & multi-role aircraft. Another, which came under
the AVIC General Aviation Division, wanted to partner with suppliers with the
necessary expertise to develop a General Aviation (light) aircraft for China and
25 Aerospace Supply Chain In China
The Chinese aviation market is already large and is growing fast compared to
others due to the continued strength of its economy. Many forecasts show that
it is already the most important market outside the US and this position is set to
strengthen further in the medium and long term.
This underlying growth is driving the rapid development of the aerospace
manufacturing & MRO sector in China. The major aerospace OEMs and Tier-one
suppliers have long recognised this and have grown their procurement spends
and presence in the China in order to fully exploit the opportunities. To date this
has largely been driven by the desire to take advantage of China?s low cost
manufacturing capability. However, developments within China, and the strong
government support to develop an indigenous commercial aerospace capability,
has resulted in an increasing number of strategic partnerships and joint ventures
being formed in order to capitalise on the opportunities.
Recommendation: SME?s/lower tier suppliers should consider partnering with
Tier 1 & 2 suppliers to gain market entry and to establish and develop a long
term position in the market.
The Chinese Government has identified aerospace as a key strategic capability to
be developed as part of its overall economic development plans. An important
element of this strategy is the development of China?s own indigenous twin-
engine, single-aisle, 150 seat commercial aircraft (C919) to compete with Airbus?
A320 and Boeing?s B737. To help realise this ambition the government has
restructured the aerospace manufacturing sector within China by forming a new
company charged with the responsibility of producing the 150 seat airliner by
2016, in parallel with a regional airliner by 2010. In addition, it has merged the
main two state-owned enterprises into a single entity, AVIC, that is better able to
compete in the global aerospace market. These developments offer the potential
for significant opportunities for UK companies to partner with the Chinese
aerospace sector as it develops its capability and improves quality. In the longer
term it is likely that as the Chinese aero-industry develops, those companies who
have not developed effective partnerships with Chinese companies or alternate
manufacturing strategies face the potential of increased competition from China.
Recommendation: UK aerospace suppliers who have not already done so need to
re-evaluate their business and manufacturing strategies to take account of the
significant opportunities available in the market, and the potential increased
competition, as the Chinese aerospace supply chain builds its capability and
Recommendation: There are opportunities for UK SMEs build a presence and
gain entry into the China aerospace market by working with some AVIC
companies in the supply chain to develop quality management and product
quality. Similarly, there are a growing number of privately owned aerospace
suppliers in China who also offer the opportunity to partner with UK lower
26 Aerospace Supply Chain In China
7Although the C919 programme is still at the early stage of development the
selection of international tier-one suppliers for propulsion has recently been
announced (CFM) and for airborne systems it is expected imminently. The
opportunity for lower tier suppliers will then become clearer.
It appears that the responsibility for selecting lower tier suppliers on C919 will
rest with the successful tier-one suppliers. However, COMAC stated previously
that in the selection process for tier-one supp