China's Bizjet Market Makes A Big Impact

WARREN Buffett has appeared in a series of print advertisements for the US National Business Aviation Association's (NBAA) 'No Plane No Gain' campaign, posing the question: 'Do you really know what's on the table if you're not at the table''

The ad could be just as aptly used in China to promote travel by business jet (bizjets). Wealthy Chinese businessmen and head honchos of large companies have been flying on bizjets in recent years, travelling the world in pursuit of business opportunities.

Some weeks ago, as I myself was on a bizjet that landed in Manila due to bad weather, I noticed Chinese-registered bizjets at the airport. I assumed that this followed from Chinese President Hu Jintao's meeting with Philippine President Benigno Aquino in Beijing in August where the Chinese government promised more investments in the country. My guess proved correct when the ground handler told me there has been more Chinese bizjets arriving in Manila - a sure sign of Chinese FDI (foreign direct investments) coming into the country.

Today, to meet Chinese investors' growing interest in Africa, Russia, the Middle East and Latin America, several large Chinese airlines offer bizjet services that take their passengers to remote or less-travelled routes to seal their multi-million dollar deals. Air China, for instance, has in its business aviation fleet, one aeroplane each from Airbus Commercial Jet, Bombardier Challenger and Gulfstream.

Last month, at NBAA's Las Vegas business aviation airshow, the Chinese market was in the limelight. At the sidelines of the event, there were also discussions on the growing Chinese market for aircraft, parts and related services. But deals speak louder than words. At the airshow, Minsheng Bank inked a memorandum of understanding (MOU) to acquire 20 French Falcon Dassaults, adding to the five already delivered. Earlier, the bank had also ordered 17 bizjets that included the Cessna, Dassault Falcon and Hawker Beechcraft, while inking another MOU that covered up to 50 Gulfstreams worth US$2.6 billion. Apart from Minsheng Bank, other lenders like China Development Bank, Industrial & Commercial Bank of China (ICBC) and Bank of China (BOC) also offer aircraft financing.

In spite of the country's strict regulation on general aviation, China has the fastest growth rate in business aircraft. Its business aviation fleet has grown from just 28 in 2008 to 46 in 2009 and will cross the 200 mark by 2012 (including Hong Kong and Macau). Jason Liao of China Business Aviation predicts that in 10 years the country will have 1,000 business aircraft. According to Bombardier's market forecast, China will have close to 10 per cent of the 10,000 business aircraft expected to sell worldwide between 2011 and 2020 for a total estimated value of US$260 billion. The Chinese would definitely contribute a large proportion in dollar value as buyers from this market usually go for the larger and longer-range bizjets.

The possible internationalisation of the yuan could fuel the growth of bizjets. In August, Airbus accepted payment for its 42 commercial aeroplanes valued at 20 billion yuan (S$4.1 billion) with a cross-border yuan settlement by ICBC Leasing Co - the first such purchase settled in the Chinese currency.

China supports aviation under its 12th Five-Year Plan (2011-2015), offering financial support and incentives for general aviation, aero-parts manufacturing, training and skills upgrading for pilots and engineers, and medical air evacuation. The number of civil airports is expected to grow from 156 in 2009 to 244 by 2020. Many aeronautical-related parts manufacturers are expanding production lines while an increase in the country's spending in R&D in several Chinese cities is boosting the number of engineers and skilled workers in the industry.

The current headwinds in China's business aviation sector are the snail's pace revamp of civil aviation administrative issues and the plethora of regulations. This is hardly conducive to the optimum growth of the industry.

Take, for example, the ground-handling fee of between US$4,000 and US$9,000 which makes it costly for a foreign-registered bizjet to land. In the US, the fee can be small because money is made from refuelling the jets.

Only a handful of Chinese airports offer bizjet-dedicated facilities like the one next to Hongqiao Airport, a joint venture with Australia's Hawker Pacific, that provides maintenance, repair and overhaul (MRO) and handling services for bizjets that land in Shanghai.

China also imposes heavy taxes on imported bizjets, which adds 20 per cent to the total purchase price. Hangar and parking fees are generally higher and space to shelter the bizjets is limited and costly at facilities in Shanghai, Beijing, Hong Kong and Zhuhai.

In the US, some economists and aviation analysts would use the rate of bizjet utilisation in the country as an indicator of business activity. This is similar to measuring economic activity with the marine sector's Baltic Dry Index. While not precise, tracking the number and activity of bizjets could be a useful forecast of the direction of Chinese investors' FDIs. For example, Singapore sees about 120 bizjets a month landing at Changi International Airport's CIP (commercially important persons) Terminal. About 40 per cent of them come from China and Hong Kong, so an increase in such arrivals could translate into more investments from China, if this is a reliable gauge of China's FDI direction.

The writer is group managing director of China Knowledge

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