China aerospace special report

CHINA

Special report

GLOBAL REACH

CONTENTS

26 CR929 Widebody momentum 28 C919 Comac’s single-aisle dream 30 Finance Leasing firms go global 32 Investment Cash flows overseas 36 Air superiority Military ambition

Cirrus Aviation Imaginechina/REX/Shutterstock

Ding Ting/AP/REX/Shutterstock

BillyPix

The biggest event in what is arguably the world’s most dynamic aviation market takes on added importance this year, with all-new airliners making development headway.

Our special report previews Airshow China in Zhuhai

Early celebration is in order for C919 (above), with Chinese efforts also felt in twin-aisles, regional jets and overseas (top, left to right) flightglobal.com

30 October-5 November 2018 | Flight International | 25

CHINA

BillyPix

Special report

UAC and Comac have now finalised the proposed long-haul aircraft’s shape and submitted proposals for certification to their regulators

Poised for take-off

Analysts are forecasting strong domestic markets for the CR929 from its partner nations, provided lessons from earlier programmes are learned and a US-China trade war is averted AARON CHONG SINGAPORE

D

evelopment of the CRAIC CR929 is gathering pace, as its Sino-Russian manufacturers look for more parts suppliers having finalised its external shape.

In July, Russia’s United Aircraft (UAC) and China’s Comac put out a formal request for an undercarriage supplier. This followed an announcement in May that the joint venture had received bids from seven domestic and foreign engine suppliers. A month earlier, CRAIC had submitted proposals relating to

certification procedures for the CR929, with Russian federal regulator Rosaviatsia in charge of certification responsibilities, in collaboration with the Civil Aviation Administration of China (CAAC).

Also in June, CRAIC finalised the external dimensions and shape of the long-haul aircraft, clearing another major hurdle in the design process.

UAC lists the -600 variant with a capacity of up to 280 seats. The CR929 also has a shrink variant (the -500) with 250 seats, and a stretch variant (-700) with up to 320.

Richard Evans, senior consultant at Flight

26 | Flight International | 30 October-5 November 2018

Ascend Consultancy, expects the CR929 to have a higher empty weight than the Boeing 787 and Airbus A350, while having the same level of engine technology – presumably using derivatives of the GE Aviation GEnx or Rolls-Royce Trent 1000-TEN/7000.

This, he explains, is consistent with the -600’s quoted range of 6,480nm (12,000km), which is similar to the 242t variant of the A330300, which uses lower thrust and higher thrustspecific fuel consumption engines. The -500 is expected to have an operational range of up to 7,560nm, the -700 up to 5,400nm.

UAC and Comac have previously indicated that the aircraft is expected to be initially powered by an engine from one of the major Western manufacturers, with an indigenous powerplant to be developed later. Reports suggest that GE and R-R responded to the engine request for proposals in July 2017. Pratt & Whitney has also proposed to build a new widebody aircraft engine based on its geared turbofan system.

On the indigenous engine front, Moscow awarded a $1.13 billion contract in January to United Engine and Aviadvigatel to develop a demonstrator powerplant named the PD-35-1 by 2023. It is expected to have over 70,000lb (312kN) of thrust and mimics the structural configuration of the 787’s GEnx1B. It will feature several state-of-the-art flightglobal.com

CHINA

Civil programmes

APPROACHING HURDLES The selection of suppliers for key aircraft systems and equipment is part of CRAIC’s “Gate 3” milestone that is expected to be cleared by mid-2019, says UAC. The other next steps involve completing windtunnel tests and choosing structural materials.

With the CR929 scheduled for entry into service in the late-2020s, Ray Jaworowski, senior aerospace analyst at Forecast International, believes it “would not be a surprise” if there were delays, as with any new aircraft programme.

Nonetheless, UAC will be hoping that the CR929 will be more successful than its last widebody, the Ilyushin Il-96. Flight Fleets Analyzer shows that only 25 Il-96s have entered commercial service with six airlines, with the last aircraft delivered in 2016. Just 15 remain in service today.

Analysts say the development of the CR929 means more than just national pride for China and Russia.

Jaworowski says manufacturing the aircraft would give Comac “another stepping stone to future inroads into the global commercial aerospace market”. The Chinese manufacturer will hence find it easier to form partnerships with Western suppliers and establish a sales, marketing and product support infrastructure.

On the other hand, Western manufacturers involved in the CR929 programme could have another avenue into a “market of considerable potential,” he adds.

But global trade tensions, namely those between the USA and China, could represent “a wild card in the situation”, says Jaworowski.

He elaborates that an escalating trade war, with retaliatory tariffs between the respective countries, could make Western systems more expensive for CRAIC to install on the CR929.

There could also be a disruption to CRAIC’s supply chain.

Nonetheless, he is confident that the CR929 could see substantial sales.

“Rapid economic and air traffic growth in China promise a burgeoning market for new airliners. Russian airlines will also engage in substantial fleet modernisation in the years ahead. Barring trade complications, much of this demand will be met by aircraft from ­Airbus and Boeing, but the market will be sizeable enough to find room for the CR929.” flightglobal.com

Rob Morris, global head of consultancy at Ascend, notes that aircraft programmes are “long-term enterprises”, and that “today’s increasing trade tensions could hopefully be a relatively short-term phenomenon”.

“It would be high risk for Comac and UAC to view the present tensions as drivers to their selection process, because once they have selected a key supplier it will be challenging to change at any point in the programme.”

That said, he expects more involvement to come from Western OEMs because there are relatively few new commercial aircraft programmes in development.

Potential trade wars are far from the only challenges CRAIC faces, though.

At the 2018 Farnborough air show, UAC subsidiary Sukhoi Civil Aircraft (SCAC) alluded to FlightGlobal that its customer support could be improved. It is looking to invest heavily in European customer-support facilities, as it seeks to boost sales of Superjet 100s to airlines outside Russia.

“It is a lesson we have learnt, to make sure that airlines are fully satisfied with our aircraft. This includes training facilities, improved spare-part supplies and MRO facilities,” said SCAC president Alexander Rubtsov.

He added that such facilities would be part of a larger network that would also support fellow Russian-built commercial aircraft like the MC-21 and CR929 when these enter service.

Underlining the sub-optimal after-sales support from Russian suppliers is the experience of Mexico’s Interjet with the SSJ100. In September, the carrier said it will phase out an unannounced number of the airliners and take 20 more A320neos in a fleet restructuring that is part of a new three-year strategic plan.

FlightGlobal had previously reported that the cuts to Interjet’s SSJ100 fleet follow several operational challenges the airline has encountered since beginning operations with the type in 2013. Defects to the aircraft’s stabiliser nodes forced the carrier to ground half of its fleet in early 2017, and aircraft have been cannibalised for parts.

Meanwhile, a source close to develop-

Aviation Images/REX/Shutterstock

technologies, including wide-chord composite fan blades and a composite fan case, ceramic matrix composites and advanced cooling systems.

The dual-engine supplier option is also found on the Russian-made Irkut MC-21, which is scheduled for delivery in the first quarter of 2020. Customers can select either the Aviadvigatel PD-14 or PW1400G.

As with Irkut’s MC-21, domestic customers will likely dominate the CR929 orderbook

ments says Interjet’s support experience with the SSJ100 “amply illustrates” the challenge faced by any new aspiring OEM. The source adds that Interjet’s cannibalisation of aircraft to maintain the operations of others “indicates a failure in [Sukhoi’s] spares support”, causing other potential export customers to seek guarantees from the company and other Russian OEMs before even considering an acquisition of aircraft.

Morris says that UAC and Comac can learn lessons from Sukhoi in creating a global support network that covers spares, maintenance and training, should they hope to penetrate international markets.

According to FlightGlobal’s 2018 Flight Fleet Forecast, CRAIC stands to break the widebody duopoly of Airbus and Boeing in a decade with the launch of the CR929. It is forecast that deliveries of the CR929 and other in-development twin-aisles will have a potential combined value of $110 billion.

READY MARKETS Most demand, inevitably, will come from Russia and China, if the Comac ARJ21, C919, SSJ100, and MC-21 are any guide. Of 305 C919 orders, 255 are from Chinese airlines and lessors, as are 206 of the 223 ARJ21s on order. UAC’s entire backlog of 175 MC-21s is for Russian operators, with the bulk of SSJ100 orders also from Russia.

In terms of domestic deliveries among the four aircraft types, Sukhoi leads the way with 100 in-service SSJ100s in Russia, while there are nine ARJ21s in service in China, shows Fleets Analyzer.

The Flight Fleet Forecast sees the bulk of demand for the CR929 coming from China (61%), with Russia/CIS taking 11% of deliveries.

“Small quantities” of deliveries are expected for Africa, Asia-Pacific and the Middle East.

Fleets Analyzer also indicates that there are around 225 A330s in service with Chinese airlines, along with 67 787s and A350s. Analysts expect the CR929’s closest competitors to be the A330 and 787, based on seat count and range.

Furthermore, Morris says that instead of airlines placing orders for the CR929, early deliveries are most likely to come from Chinese operating lessors. These buyers will “be heavily involved”, given their prominence in the orderbooks for the ARJ21 and C919. Still, the CR929’s unproven status could pose a worry for them.

“Lessors and financiers will be uncertain about the CR929’s liquidity and residual value outlook, and will be nervous about financing it until [it is] proven”.

At the forthcoming Airshow China in Zhuhai, the aerospace world will be looking to learn more about this ambitious Sino-Russian programme. ■

30 October-5 November 2018 | Flight International | 27

CHINA

Special report

Comac is exercising caution in development of its narrowbody, allocating 4,200 flight hours and three years to move it into service

Testing times

China’s bid to challenge the Airbus-Boeing single-aisle duopoly hinges on two critical questions: can Comac deliver what it promises, and will the C919 be competitive?

FIRDAUS HASHIM SINGAPORE

Imaginechina/REX/Shutterstock

W

ith the establishment of the Commercial Aircraft Corporation of China in May 2008, China declared its intention to become a world player in aircraft manufacturing. While Comac was launched specifically to build a narrowbody jet – the C919 – the company also inherited the ARJ21 regional jet programme from AVIC. More recently, Comac formed a joint venture with Russia’s United Aircraft (UAC) to develop a widebody, the CR929.

The ARJ21, then an AVIC programme, was first launched at the 2002 edition of Airshow China, with the aim of having the regional jet enter service four years later, in 2006.

Despite AVIC’s best efforts, and although the ARJ21 was far from state of the art, the first flight only took place in November 2008. It

“China has been relatively slow to develop a network of regional feeders” Flight Fleets Forecast

took another six years to obtain Chinese type certification. By the time the ARJ21 was approved, the aircraft had accumulated more than 5,000 flight hours: double the time for a similar programme in the West.

It took three more years for the ARJ21 to obtain a production certificate from the Civil Aviation Administration of China (CAAC), allowing batch production to move forward.

Between its receipt of production and type certifications, however, the aircraft entered commercial service with launch customer

28 | Flight International | 30 October-5 November 2018

Chengdu Airlines on 28 June 2016. Despite these milestones, the ARJ21 was still conducting flight tests well into 2017 and 2018, following some design optimisation. Tests conducted in 2017 included crosswind trials, testing upgraded flight control system software, and evaluating the vibration of its VHF antenna during flight. Testing done in 2018 covered crosswind validation and high temperature performance.

Even with a shadow certification conducted by the US Federal Aviation Administration during the aircraft’s development, the ARJ21 still has yet to receive Western certification.

Since the initial delivery made in November 2015 to launch customer Chengdu Airlines, Flight Fleets Analyzer data shows there have been only five additional deliveries. All six aircraft are now in service with the carrier.

Fleets Analyzer indicates that as of 31 Auflightglobal.com

CHINA

Civil programmes

TOUGH COMPETITION Rob Morris, global head of consultancy at Flight Ascend Consultancy, notes that while the ARJ21 could be competitive with the current generation of Bombardier CRJs and Embraer E-Jets, it will struggle to compete with the next generation of regional jets.

Based on recent flight tracking data, the six ARJ21s in service appear to have an average monthly utilisation rate of around 30h. The only exception is the most recently delivered aircraft, which has a higher utilisation rate – suggesting, says Morris, a more mature and reliable build standard.

The small orderbook also matches the Flight Fleets Forecast prediction that, of the 10,200 aircraft that Chinese carriers are expected to operate by 2037, only 460 will be regional jets.

The forecast expects around 79 ARJ21s to be delivered over the period, mostly to the Chinese market. The future focus will likely instead be on the C919 narrowbody.

“China has been relatively slow to develop a network of regional feeders, with only around 140 aircraft, and with mostly 85and 100-seaters currently used. The 50-seater fleet is being rapidly phased out. Deliveries of the new Chinese-built Comac ARJ21 programme, although delayed, began in 2015, and we believe that the development of airports in smaller cities will lead to growth of regional connections,” states Flight Fleets Forecast.

To boost ARJ21 sales, output will have to be raised, along with an increase in utilisation rates. While the orders from Genghis Khan Airlines and five other operators “will be pivotal to broadening the breadth of operation”, these aircraft need to be delivered and in service in order to further build a reputation for delivery and reliability, says Morris.

Drawing on lessons from the ARJ21, Comac took a more conservative approach with the C919 narrowbody programme. On 5 May 2017, the day the C919 made its maiden sortie, flight test manager You Li Yan told FlightGlobal that the company had allocated 4,200 flight hours for the C919 programme. Comac is allocating three years for certification and moving the aircraft into commercial service.

The 4,200h figure is lower than the 5,000h the ARJ21 logged before obtaining certification from the CAAC, but higher than the 3,000h Airbus and Boeing typically log for their own narrowbody programmes.

The second C919 prototype took flight in December 2017, but then Comac went quiet flightglobal.com

for six months. It was only on 22 June 2018 that the two prototypes flew again, when both jets underwent stability tests and systems checks.

During the first half of 2018, aircraft 101 underwent modifications and load calibrations in Xian, while aircraft 102 had its functions and systems checked, along with tests and other modifications.

In mid-July, Comac conducted the bending of static test aircraft 10001’s wings by nearly 3m (10ft) for 3s, simulating a 2.5g manoeuvre, and an ultimate wing load of 150%. A separate test also examined the aircraft’s limit load, which reflects the maximum expected load.

“To succeed both in domestic and export markets, the C919 must offer the most competitive possible solution” Rob Morris Global head of consultancy, Flight Ascend Consultancy

Comac has set a 2020-2021 target for the C919 to achieve certification and service entry. But Morris says the track record of new manufacturers suggests that any certification and entry-into-service targets could be “challenged”.

Asked about the significance of Comac’s selection of Western suppliers for the C919, Morris explains that these suppliers were chosen for their ability to “offer the most appropriate solution to the requirement, whether it be engines, avionics, systems or structure”.

The most important such contribution is the CFM International Leap-1C engine, which will serve as the type’s powerplant until an

indigenous engine option – the CJ-1000AX – becomes available.

“To succeed both in domestic and export markets, the C919 must offer the most competitive possible solution, and this must have been a key driver to the partner selections,” he adds.

REACHING CAPACITY Comac’s website states that the aircraft will have a range of between 2,200nm (4,075km) and 3,000nm. This falls short of the 3,400nm range flown by an Airbus A320neo, and 3,550nm of the Boeing 737 Max 8.

In terms of capacity, it will seat between 156 passengers in a two-class configuration and 168 in a single class. Again, this is less than the A320neo or 737-8.

As of 31 August, Fleets Analyzer data indicates that Comac has 305 C919s on order, with options for 45 more aircraft. Letters of intent have been signed for 658 additional units.

Flight Fleets Forecast predicts delivery of 1,209 C919s: 687 standard and 522 stretched variants. China will account for 85% of all deliveries, as the country’s domestic market will require a substantial number of single-aisles and is large enough to support the C919, as well as 737s and locally assembled A320s.

Morris notes: “From what little detail we have, the C919 appears to offer broadly similar payload-range and economic performance propositions compared to the existing single-aisle programmes. Yet it will end up competing with the Neo and Max. The strength will of course be its indigenous design and manufacture, but that hasn’t proven enough to create a successful programme to date with ARJ21.” ■

Ding Ting/AP/REX/Shutterstock

gust, Comac has outstanding orders for 221 ARJ21s, up from the 196 it had on 31 December 2017. The increased number reflects an order placed by start-up Genghis Khan Airlines for 25 examples.

ARJ21 regional jet entered commercial service with Chengdu Airlines in June 2016 30 October-5 November 2018 | Flight International | 29

CHINA

Special report

Capital growth Since China permitted its banks to open financial leasing businesses a decade ago, many have become global forces in aircraft finance – and are now reshaping the industry ELLIS TAYLOR PERTH

F

WIDENING FIELD A number of other investors in China have also moved into the space, including large insurance companies such as Ping An Group, and provincial governments through vehicles such as the Henan Civil Aviation Development Investment Corporation.

David Yu, an adjunct professor of finance at New York University Shanghai says the proliferation of smaller lessors focused on the domestic market has caused some of the larger, more politically connected leasing companies to go abroad in search of better deals.

“The number of lessors domestically obviously is geared towards the domestic airline market, which is growing at a very fast clip.

Jerome Favre/EPA-EFE/REX/Shutterstock

rom a standing start in 2007, China’s aircraft leasing companies have become major players in the global aerospace scene – even though many are closely tied to Beijing’s policy agenda.

Since the central government allowed banks in China to open financial leasing businesses just over a decade ago, a range of aircraft leasing companies headquartered there have become major providers of capital to airlines through sale-and-leaseback transactions.

They are also becoming major customers for Airbus, Boeing and homegrown airframer Comac.

FlightGlobal’s top 50 aircraft lessor rankings show that in 2017 the value of the fleet managed by Chinese lessors rose by more than 15% on the previous year, to over $40 billion. ICBC Financial Leasing, a unit of the Industrial and Commercial Bank of China, is the largest of those players.

Further underpinning that is the activity of

Chinese banks in providing loans and financing for new aircraft. Boeing Capital’s current aircraft finance market outlook, released in January, forecast that Chinese banks would provide around 28% of all bank financing for its deliveries this year, representing by far the largest source of debt.

Hong Kong wants to be the “Dublin of the East”, supported by tax breaks from Beijing 30 | Flight International | 30 October-5 November 2018

But there is a lot of competition domestically, so some lessors want to go abroad to diversify themselves,” he says.

Yu notes that many government approvals are necessary for leasing companies to establish overseas operations, which can be challenging for new players, especially if they do not have the right backing.

Closer to home, Beijing has also backed Hong Kong’s efforts to become the “Dublin of the East”. Last year saw the implementation of significant tax incentives, which have the potential to effectively reduce the duty on operating leasing to around 4%. That has drawn Orix Aviation to establish a platform in Hong Kong, while ICBC Leasing delivered its first aircraft through a platform there in late 2017.

“Hong Kong is a fantastic location to collaborate with both mainland players, as well as a great destination for international players to set up to serve customers across this booming, dynamic, wider Asian region,” said Stephen Phillips, director-general of Invest Hong Kong, during an industry conference late last year.

Thanks to its deep finance market, Hong Kong is a major centre of aircraft capital. BOC Aviation and China Aviation Leasing (CALC) both have their shares listed on the bourse flightglobal.com

CHINA

Aircraft leasing In addition to the direct orders, Chinese lessors are likely to be strong players in the sale-and-leaseback market for Chinese aircraft. ICBC Leasing, for example, has executed two sale-and-leaseback transactions on the ARJ21, completing a transaction on a Chengdu Airlines-operated jet. Thus far, it is the only lessor to have conducted those transactions on that model.

REX/Shutterstock

Political connections pay dividends for players in China’s leasing industry

there, while Hong Kong is also home to conglomerates such as CK Hutchison Holdings, NWS Holdings and Chow Tai Fook Enterprises, which have invested in lessors Accipiter and Goshawk Aviation.

EVOLUTION AND CHANGE From starting out doing finance leasing, Chinese lessors have mostly now moved into standard operating leasing, where they acquire an aircraft and lease it over a period of time.

That has often made them a target for scorn among established lessors. Yu admits that Chinese lessors are the “new kids on the block” that have disrupted a market long dominated by Western names, often by cutting shrewd deals: “It is definitely true that since 2007 when the Chinese lessors started to be established that lease rate factors have gone down.”

Some feel the Chinese presence in the global market is starting to reshape how lessors do business. At the ISTAT Asia event in Singapore in May, BOC Aviation chief executive Robert Martin appeared to allude to the role that Chinese lessors, many of which came from finance leasing backgrounds, have had on changing some of the practices of the operating leasing market: “Finance lessors don’t take maintenance returns. Finance lessors don’t worry flightglobal.com

about return conditions and whether it’s fulllife or half-life at the end of the lease as much as traditional operating lessors.

“As the size of the new competition grows relative to the traditional lessors, some of their heritage is influencing the market,” he said.

A number of Chinese lessors gained their entry into the aircraft finance market through sale-and-leaseback. More recently, however, a number are now moving into the placement market by ordering directly from Airbus and Boeing. “Chinese lessors have started to order as well as starting to receive those orders, and placing them into airlines. That is a big difference from before when they were doing trading and sale-and-leaseback,” says Yu. To date, those have mostly been the larger lessors like CDB Aviation, BoComm Leasing and CMB Leasing, and almost exclusively for narrowbody aircraft.

While China’s leasing companies are increasingly important to Toulouse and Seattle, they are also playing a crucial role in supporting China’s aerospace industry and some other policy directions set by Beijing.

Flight Fleets Analyzer shows that local leasing companies account for 270 orders and commitments for Comac’s ARJ21, and 585 for the C919. That accounts for 49% of the ARJ commitment backlog, and around 61% of the C919.

SPECIALISED SERVICES Comac also recently signed an agreement with HNA Group, under which the two companies intend to launch support services targeting the ARJ21 at potential operators in Africa. That includes the possibility of establishing a specialist leasing unit for the aircraft, Comac says.

It is the second agreement between the manufacturer and HNA, which in June signed a “strategic co-operation” agreement with Comac; that deal will see it add 200 C919s and 100 ARJ21s to its group fleet.

Some observers interpret these deals as HNA seeking to win favour with Beijing. The company is struggling to meet its debt ­obligations following years of costly global acquisitions.

Major aviation conglomerate AVIC also has its own leasing unit, AVIC International Financial Leasing, which supports a number of its products. Fleets Analyzer shows that the lessor manages 22 Xian MA60 turboprops and nine Harbin Y-12s, among its portfolio of 112 aircraft. It also has letters of intent to order 30 ARJ21s and 20 C919s, as well as 10 Avicopter AC313 helicopters.

Another major policy area that Chinese leasing companies have been throwing their support behind is the so-called belt and road initiative of president Xi Jinping. Under the policy, Beijing is establishing major infrastructure investments towards Europe along the ancient Silk Road trading routes, and through Asia and Africa.

Most Chinese lessors make a large show of their support for the belt and road initiative, especially when engaging in deals involving airlines based along the target countries. In January, CALC and its 32% shareholder China Everbright signalled that they were planning to establish a fund dedicated towards financing belt and road projects, which would also cover aircraft. While little detail was given, the two companies were reportedly in talks with various Chinese government departments to explore opportunities.

Yu is, however, sceptical about the role aircraft lessors will play in the belt and road initiative, given that most of the focus will be on funding major infrastructure projects. “For the most part I feel that, size-wise, the deals that Chinese aircraft lessors do under belt and road are going to be under the radar,” he says. ■

30 October-5 November 2018 | Flight International | 31

CHINA

Special report

Prized assets

China has been a major investor in the West’s aerospace industry over the past seven years, following purchases of key US general aviation names with a slew of acquisitions in Europe

Cirrus has certificated the Vision Jet and expanded the business since its takeover in 2011 by AVIC subsidiary CAIGA MURDO MORRISON LONDON

W

hat do a pair of seating manufacturers, four light aircraft manufacturers, an aerostructures specialist, and one of Europe’s top maintenance, repair and overhaul houses have in common? They are among around a dozen Western aerospace companies that now effectively have the name of a Chinese owner over the door.

China – the biggest emerging market for commercial aviation products and services – has been busily creating its own indigenous industry over the past 20 years, attracting investment from Airbus, Boeing, Embraer and others. However, at the same time, money has been flowing the other way in arguably even greater amounts, creating a mini Chinese aerospace empire in the USA and Europe.

Earlier this decade, Chinese entities bought US general aviation brands Cirrus Aviation,

Enstrom Helicopter and Mooney. In the past two years, the focus has switched to Europe, with Austria’s Diamond Aircraft, Gardner Aerospace of the UK and Switzerland’s SR Technics all coming under Chinese control, together with UK cabin interiors specialists Acro, AIM Altitude and Thompson Aero Seating.

The background to each of the acquisitions differs. Most of the Western firms have been family-owned or backed by equity holders keen to exit at a profit. The Chinese investors range from private entrepreneurs to statebacked conglomerates making strategic additions to their portfolios.

Their game plans differ. In some acquisitions, the strategy has involved replicating in China the company’s successful production model, bringing assembly closer to local manufacturers and maintenance providers, while giving the business access to lowercost labour. In other instances, investors have funded expansion at home, or appear

32 | Flight International | 30 October-5 November 2018

content to let the business motor along more or less as before.

For Derby-based Gardner, mining group Shaanxi Ligeance Mineral Resources has ticked the first two boxes. Soon after its £326 million ($431 million) acquisition by SLMR in June 2017, Gardner began work on a 42,000m2 (450,000ft2) factory in Chengdu – a “cut and paste” of its UK operation. This July, funds from SLMR helped Gardner buy another UK company, Northern Aerospace, which specialises in large machined aerostructures.

REVENUE BOOST The addition of the County Durham-based firm takes Gardner’s revenues to more than $300 million, and “broadens our portfolio”, with new product lines and customers, including Embraer, Gulfstream, Pilatus and RUAG, says business development executive vice-president Nick Guttridge. The two also share Airbus as a customer, and the airframer flightglobal.com

CHINA

Overseas investment

has been “very encouraging” about the coming together of the two businesses, he says.

Together with the Chinese factory, the acquisition will also push Gardner towards its ambition of becoming a $1 billion-turnover concern by 2022. “That was always going to involve diversification by territory and into new sectors, particularly engine components and other equipment,” says Guttridge. “We were never going to do it only organically.”

A more recent swoop has seen a rising star of the airliner interiors market come under Chinese control. Early this year, Zhejiang Science and Technology Investment (ZTC), a maker of seats for trucks and construction vehicles, acquired Acro Aircraft Seating, a decade-old start-up, for £55 million. The London Gatwick-based company says the move will “accelerate [its] access to the Chinese market”.

Acro – which made its name in the retrofit market and was added recently to the Airbus buyer-furnished equipment, or line-fit, cataflightglobal.com

STAYING PUT While the Chinese site will bring Acro closer to those end-customers, there is no prospect of it moving its main assembly and design centre from the UK. “It’s just not on the agenda,” says McInnes. “We have made commitments to Airbus that we will remain close to Hamburg and Toulouse. The Chinese factory will provide additional capacity to meet their

AIM Altitude

Cirrus Aviation

logue – intends to open a second production site in Shanghai next year, exploiting ZTC’s “connections” to win deals with Chinese and other Asian airlines. In “due course” it plans a third assembly line in the USA. The acquisition gave ZTC a “ready-made aircraft seat division”, says Acro’s senior vicepresident sales, Alan McInnes, part of a management team that is staying in place. As well as providing an inroad to China, the new owner will allow Acro to invest in the necessary research and development and production to realise some of its ambitions, including a move into the widebody market, he says.

“We need a committed and long-term shareholder to provide the millions we need to invest in R&D and develop at least one new product a year for the next five years,” says McInnes. “The fact that our new owner is Chinese is not important. What is important is that we now have a shareholder that recognises the potential of the aviation market.”

The Shanghai factory will come at a time when demand for cabin refurbishments is growing in China, as aircraft acquired in the early years of the industry boom move onto the secondary market, says McInnes, who believes that the country’s retrofit market will be “equivalent to the factory-fit market there today” within three years. “We want to be ready.”

AIM Altitude says the manufacture of its bespoke cabin fittings will stay in the UK

needs, as their single-aisle fleet in particular expands.”

Another Chinese name better known in the aviation world has also been expanding its footprint in the cabin interiors market. Two years after buying Bournemouth-based premium cabin monuments specialist AIM Altitude and Northern Ireland’s Thompson Aero Seating, AVIC announced at July’s Farnborough air show that it is merging them into a new unit called AVIC Cabin Systems.

“We now have a shareholder that recognises the potential of the aviation market” Alan McInnes Senior vice-president sales, Acro Aircraft Seating

The division will also include a Chinese seat-maker and cabin fixtures manufacturer, FACC of Austria, which AVIC has owned for almost a decade. According to Richard Bower, chief executive of AIM Altitude, the combined entity will allow the companies to merge their capabilities.

Although each business will remain independent, there will be “some co-ordination” in terms of research and development and customer marketing. “We are already working closely with Thompson Aero Seating to provide front-row monuments that integrate seamlessly with the seating,” he says. The first fruit of that co-operation was unveiled at April’s AIX show in Hamburg, where the two companies had a joint stand.

AIM Altitude’s acquisition by AVIC “changed our business”, insists Bower. “Now, for the first time, we are owned by a strategic shareholder with a long-term vision. The shape of the business will change.” However, he agrees with McInnes that this is unlikely to involve moving production to China. “Cabin interiors are not the products to do that, they are highly bespoke and high value. It’s not a commodity industry,” he says.

Perhaps the most significant Chinese acquisition of the past 12 months has been the sale of a majority stake in Diamond Aircraft of Austria – a business that includes a sister company in Canada and the Austro engine manufacturer – to Wanfeng Aviation by founder Christian Dries. Dries has described Diamond – a small business that he bought in the early 1990s and turned into one of the world’s biggest producers of training aircraft – as “my life’s work”.

New chief executive Frank Zhang says Wanfeng did not “buy Diamond simply as an investment opportunity” but because it could develop the company into “the leading brand and producer of fixed-wing light aircraft in the general and business aviation market, but also in the fields of special mission”. ❯❯

30 October-5 November 2018 | Flight International | 33

CHINA

Special report

“We would never have dreamed of giving ourselves a target of going from $200 million turnover to $1 billion in five years” Nick Guttridge Business development executive vice-president, Gardner Aerospace

However, the biggest prize in the GA world has arguably been Cirrus, which was acquired

by AVIC subsidiary CAIGA in 2011. Since then, the Minnesota-based company has seen its fortunes soar. Last year marked the fourth in succession that Cirrus delivered more than 300 SR Series aircraft. It has built a training centre in

Wanfeng Aviation wants to grow Diamond Aircraft business into special missions sector

Gardner Aerospace

PLAIN SAILING Having a Chinese company owning a manufacturer of aircraft marketed to military customers has not met with any objections from the Austrian or Canadian governments, insists Wanfeng. “Since the takeover, we have not experienced one single situation reflecting to the new ownership and can say that there is no impact on any business of Diamond,” it says. All research and development activities will remain in Austria.

Earlier this decade, Chinese investors made a move for two US GA names: piston aircraft manufacturer Mooney and helicopter firm Enstrom. Since coming under the ownership of Meijing Group in 2013, Texas-based Mooney, which had been in bankruptcy protection since 2008, has been working on a second aircraft design, called the M10, and has discussed adding a production line in China’s Henan province.

However, since July 2017, the company has not provided any updates on the project.

Chongqing Helicopter Investment bought Michigan-based Enstrom Helicopter, a manufacturer of two piston models, the F28F and 280FX, and the turbine-powered 480B, in late 2012, with the intention of helping it push into the Asian market with fresh capital. At the time, president Jerry Mullins described it as a “major step in moving Enstrom to a new level”. The company expanded its production site in 2014 and is developing a fourth model – the TH180 trainer – with certification expected next year.

Diamond Aircraft

❯❯ Interestingly, Diamond’s strategy under Dries had been for the past few years to move steadily into the higher-margin special missions market, and away from the more pricesensitive flying school sector. Israel’s Aeronautics Defense Systems, for instance, uses the DA42 as the platform for its Dominator unmanned air vehicle. At the Farnborough air show, Diamond debuted the latest version of its aerobatic trainer, the Dart 550.

Gardner will mirror Derby plant in China Tennessee and added 300 staff. In 2016, its Vision Jet, the only single-engined personal jet on the market, was certificated, and earlier this year the aircraft won the prestigious Collier Trophy.

OPPOSITION CAIGA’s takeover of Cirrus was controversial.

Already the world’s biggest manufacturer of piston aircraft, many opposed an icon of US aviation coming under Chinese control, although attempts to block the takeover foundered. Cirrus’s success since 2011 appears to have endorsed then president Brent Wouters’ dismissal of “anti-Chinese sentiment” and promise that the purchase was a “terrific opportunity for Cirrus to grow around the world and strengthen its balance sheet”.

Back in Europe, SR Technics has gone through several owners since being spun off from former flag-carrier Swissair in the 1990s.

In 2016, sole shareholder Mubadala – the Abu Dhabi sovereign investment house – sold an 80% stake to China’s HNA Group, a conglomerate that owns Hainan Airlines. The Chinese company has promised to support the longterm strategy of the MRO provider, which has included opening lower-cost facilities in Malaysia, Malta and Serbia.

34 | Flight International | 30 October-5 November 2018

China’s interests have even extended to supersonic jet developments. In April, an online travel agency, Ctrip, took a stake in Boom, one of several start-ups planning passenger aircraft capable of supersonic flight and which has won order commitments from Japan Airlines and Virgin Group. Ctrip predicts high demand for “the travel of tomorrow” in the Chinese market. The tie-up will see the Chinese company secure up to 15 seats on one of Boom’s first commercial flights.

Chinese money has helped small and ­mid-sized European and US aviation companies realise aspirations that would have been unrealistic had they had to seek capital from private investors or banks in the West. The industry’s record of failed projects has made financiers very wary, and even companies with a strong track record of bringing aircraft to market have struggled to raise funds for expansion, more so since the 2008 financial crash.

Chinese investors are not philanthropists offering a sentimental helping hand to cashstrapped aerospace brands. China’s aerospace infrastructure lags far behind its demand for aviation products, and acquiring established businesses overseas is one way of importing that know-how into the domestic industry. The beneficiaries of this largesse are not complaining. Guttridge sums up what SLMR’s takeover has meant for the once-ailing Gardner: “We would never have dreamed of giving ourselves a target of going from $200 million turnover to $1 billion in five years under a different ownership. We would have had no chance of expanding into a market that will represent 20% of the demand for all passenger aircraft in the next 20 years,” he says. “It has opened a huge door for us. It has moved us into a whole new era.” ■ flightglobal.com

CHINA

Two J-20s made a brief flying appearance at the 2016 Zhuhai air show, adding to the mystique of a type first revealed in 2010 and reportedly now in limited operational use

Superiority complex

Imaginechina/REX/Shutterstock

Special report

Chinese efforts to build an air force that matches its dream of superpower status are bearing fruit – and highlighting true scale of the challenge facing its aerospace industry GREG WALDRON SINGAPORE

T

he long-awaited appearance at Airshow China 2016 of the Chengdu J-20 was anti-climactic, but served to bolster the mystique around one of the 21st Century’s most iconic fighter designs.

Supporting the opening ceremony, two J-20s roared down the runway at several hundred feet and performed a vertical split. One aircraft departed immediately, but its partner stuck around to perform a few high-g turns before a high-speed climb out, disappearing into China’s hazy skies. The type did not ap-

36 | Flight International | 30 October-5 November 2018

pear in the static display, there were no models or pictures in the exhibition hall, and no comment from AVIC officials.

Apart from the J-10As of the August 1st display team, other fighters kept a low profile at the 2016 show. The AVIC J-31 prototype, which appeared in the flying display in 2014, made no repeat appearance, although a large model of an updated version, the FC31, was displayed in the hall. One notable attendee was the J-10B, making its first appearance at Zhuhai in the static park. The aircraft on display was surrounded by a broad range of air-to-air and air-to-surface weapons and sported an infrared search and track (IRST) sensor – one of several improvements over the original J-10A. Despite the secrecy around China’s fighter programmes, news has continued to trickle out both in China Daily stories posted on the defence ministry’s web site, and via online forums in China – a lively source of debate and speculation about Chinese military aircraft.

Although these sources throw up interesting angles, they can be contradictory and tinged with patriotism.

Despite being just one element in a broad modernisation of the People’s Liberation Army Air Force combat fleet, the J-20 commands disproportionate attention. There are many unknowns, but more details are emerging as the aircraft, first revealed in 2010, enters low-rate production.

In March 2017, the China Daily quoted an official of Aero Engine Corporation of China, Chen Xiangbao, as saying: “It will not take a long time for our fifth-generation combat plane to have China-made engines.” He was likely referring to the WS-15, a 30,000lbthrust (134kN) engine in development since the 1990s. Despite the J-20’s status as a Chinese aviation icon, early models are powered by the NPO Saturn AL-31, the same powerplant as the Sukhoi Su-35, of which Beijing is believed to have 12 examples from a 24-unit order.

The official added that China has produced single-crystal turbine blades and powder metallurgy superalloy turbine disks. Both technologies allow fighter engines to operate at extreme temperatures. That said, mass production is still an issue, and “quality is not very satisfactory”.

“The road to success is filled with setbacks and failures,” says Chen. “Each of the world’s engine powers has walked this road.”

Figuring out what engine, exactly, powers photographed examples of the J-20 greatly exercises defence chat rooms. One or two aircraft are believed to have been fitted with the Chinese engine, owing to differences spotted on nozzles powering the jets. The Chinese WS-15 engine protrudes slightly more from the rear fuselage and has a wider nozzle. flightglobal.com

CHINA

Military aviation

AIR SUPERIORITY

In a war, said Zhang, the “J-20 would make way for other aircraft in an air battle.” This suggests an aerial superiority mission similar to that of the Lockheed Martin F-22 – a type to which the J-20 – accurately, or not – is often compared. He went on to say the J-20 would eventually become a “large family” of aircraft, with Beijing focused on continually improving its “information processing and intelligence capabilities”.

Apart from a plan to develop more J-20 variants, the story revealed that China’s air force will not allow exports of the type. It also said the fighter has participated in beyondvisual-range test engagements.

Malcolm Davis, senior analyst, defence strategy and capability at the Australian Strategic Policy Institute and an expert on Chinese air power, says: “The media often directly compare the J-20 to the F-22, and this is not quite right. The F-22 is an air dominance fighter, whereas I get a sense that the J-20 is more designed to do long-range interception and counter-air, as well as strike. The latter in terms of maritime strike would be particularly important in an A2/AD [anti-access, areadenial] context.

“The F-22 can deliver air-to-ground munitions, but really, it’s optimised for the air superiority mission. The J-20 has frontal aspect stealth, rather than all-aspect stealth, long range and high payload, so it’s more designed for offensive strike, whether it’s offensive counter-air or maritime.”

A2/AD is a cornerstone of Chinese war planning, and designed to force potential foes, namely the USA, to operate too far from the mainland to be effective. Obliging allied flightglobal.com

forces to operate far from China’s coast would be essential should a conflict erupt over Taiwan, which Beijing views as a breakaway province. Long-range strike aircraft, as well as cruise and ballistic missiles, are important components of its strategy.

Darling adds that apart from its direct combat missions, the J-20 will be part of a “familyof-systems” approach being adopted by the Chinese military, allowing it to serve as a source of real-time information for the nation’s broader combat effort.

Posts on Chinese chat rooms recently have shown a J-20 in Chengdu performing what appears to be practice for an air show flying display. It is rumoured that the J-20 will appear daily on this year’s schedule at Zhuhai.

Though it garners less attention than the J-20, which is clearly headed to full deployment with the Chinese air force, the FC-31 is another programme of interest. Dubbed “Gyrfalcon” by AVIC, the type is designed for missions such as offensive/defensive counter-air, deep strike, suppression of enemy air defences, interdiction and close air support, as well as intelligence, surveillance and reconnaissance.

In a video shown during a brief presentation at the Dubai air show in 2015, a squadron of FC-31s communicates with each other through secure datalinks. Another slide showed how the aircraft’s small cross section reduces the threat radius of enemy sensors and weapons. No details were given about the FC-31’s sensor suite or weapons, but AVIC says all equipment and communications can be tailored to customer requirements.

The aircraft has six external hardpoints, with an internal weapons bay that can carry a further four munitions. Payload is 8,000kg (17,600lb), of which 2,000kg can be carried

internally. Combat radius with internal weapons is 648nm (1,200km), and maximum takeoff weight is 25,000kg.

“In terms of fifth-generation platforms, it’s worth keeping an eye on the FC-31, which might end up on the deck of China’s third aircraft carrier [and subsequent vessels] as a [Lockheed] F-35C-type capability, alongside the J-15,” says Davis. “The J-31 – which was the forerunner to FC-31 – had a troublesome start, but these [issues] seem to have been resolved in an updated design – the FC-31 – that is also being aimed at the export market.”

PARTNERS SOUGHT

Indeed, at the Dubai show, AVIC officials admitted they wanted a partner to help with the programme. Unfortunately, it is not clear that Beijing’s limited client list for military aircraft has the deep pockets to fund such an ambitious aircraft. While Pakistan may eventually be interested, it is still busy developing the Chengdu/Pakistan Aeronautical Complex J­F-17. Beijing has enjoyed some success selling aircraft overseas, but is a noshow in the world’s major fighter competitions, which attract European, Russian and US manufacturers.

It is not clear what engine the FC-31 uses, but it is believed to be the Klimov RD-93 that powers the RAC MiG-31. A few examples of the FC-31 have been produced and spotted airborne. Also in Zhuhai during 2016, a large model of the FC-31 was displayed in the hall, near an “advanced avionics concept cockpit” with a sidestick controller, conventional head-up display and large multifunction touchscreen display.

As Davis notes, one line of thought around the FC-31 is that it will be adopted for use aboard China’s growing fleet of aircraft ❯❯

Imaginechina/REX/Shutterstock

“It is difficult to truly ascertain how much progress is in fact being made with the WS-15 engine,” says Forecast International analyst Dan Darling. “While reports indicate improvement in the engine’s development and Chinese military officials state that the engine should be ready for serial production by the year’s end, the Chinese market is so opaque that any outside determination may prove premature or unreliable.

“Nonetheless, progress with the WS-15 would indicate a major step for China in fighter development, as it has previously been reliant upon Russia for sophisticated engines. It would provide the J-20 with sustained supercruise capability and bring Chinese enginemaking capabilities up closer to par with Western rivals.”

In March, another China Daily report quoted Zhang Hao, who heads an air force fighter test centre, discussing the J-20. Coming shortly after a Xinhua report that the J-20 has entered service, his remarks were notable because he explicitly referred to J-20 missions.

Indigenous J-31 flown at 2014 event could be transformed into aircraft carrier-based asset 30 October-5 November 2018 | Flight International | 37

CHINA

Special report ment and production purposes”.

Indeed, two of the Chinese air force’s most important aircraft have foreign ancestry.

Some observers believe the J-10 series is based on the Israel Aerospace Industries Lavi project from the 1980s. Though the J-10’s layout resembles that of the Lavi, with a single engine intake under the fuselage and canards, Chinese officials have insisted that the J-10 is an indigenous design. The J-11, on the other hand, is regarded as a reverse-engineered copy of the Su-27. Irrespective of their progeny, the two types are key to filling out the service’s modern fighter ranks.

The J-10 has three variants, the A, B and C. The J-10B has a number of major updates from the J-10A, including an intake optimised for low observability, the IRST sensor, and other new systems. The J-10C sees the type receive an active electronically scanned array radar. Davis believes this variant is comparable to Lockheed’s F-16C Block 52.

In addition to several variants of the J-10, the air force has also deployed an advanced variant of the J-11, designated the J-16. With tandem seats, the type is powered by the WS-10A, and is viewed as a multirole aircraft in the style of the Boeing F-15E. An electronic warfare variant, the J-16D, is being developed, which will give China a similar capability to that offered by the Boeing EA-18G Growler.

“The J-16 is a true multirole combat air-

craft, unlike J-11B/BS, and has provision for in-flight refuelling,” says Davis. “It would also be able to carry the very long-range Chinese air-to-air missiles on missions against US airborne early warning and control aircraft to weaken the ability of US Navy carrierbased air power to operate within China’s A2/ AD envelope.”

DIVERSIFICATION

In addition to its fighter fleet, Beijing is working to create a well-rounded set of capabilities. This includes investments in its own AEW&C fleet, as exemplified by the KJ-2000, an Ilyushin Il-76-based platform that complements its KJ-200s, based on the Shaanxi Y-9 tactical transport. China has also developed a more advanced AEW&C platform, known as KJ-500. In addition, work continues on a ­Y-9-based anti-submarine warfare platform, and the Xian Y-20 strategic transport.

Beijing also continues to add capability to its H-6 bomber, derived from the Tupolev ­Tu-16, and is developing an advanced stealth bomber, the H-X, which is similar in design to the Northrop Grumman B-2.

Few nations have developed advanced air power capabilities as fast as China in recent years. While major gaps remain, namely in engine technology, Airshow China 2018 will show that Beijing is determined to develop an air force worthy of a true superpower. ■

The J-10 – as flown by Beijing’s August 1st display team – has been upgraded, with a B-model getting new sensors and C variant an active electronically scanned array radar 38 | Flight International | 30 October-5 November 2018

flightglobal.com

Narong Sangnak/EPA/REX/Shutterstock

❯❯ ­carriers. The country has one operational vessel, the Liaoning, that was converted from a Russian hulk, the Varyag. A locally built sister ship is undergoing sea trials, and a third, larger, carrier is planned. For the time being, the People’s Liberation Army Navy operates the J-15 – a copy of the Su-33. The type has the dubious distinction of being the heaviest carrier-borne fighter in operation globally, and reportedly has significant safety and mechanical issues.

Beijing is also in the process of taking deliveries of the Su-35 from Russia. Following a long procurement process, it started receiving the advanced Russian type in early 2017. A full complement of 24 aircraft should be delivered by the end of 2018.

“The Su-35 acquisition is one of the most important developments for the PLAAF,” says Davis. “The Su-35 represents the pinnacle of [Su-27-family] design, and China can now learn a great deal from its technology and manufacturing to perfect designs like J-11D and J-16, or to develop other combat aircraft in the future. Expect to see the Chinese studying the Su-35 down to the last detail, and then a future PLAAF aircraft to incorporate its systems.”

Indeed, Darling notes that Russia was originally wary of selling the type to Beijing, owing to the “latter’s penchant for harvesting Russian technologies for domestic develop-