China Reorganizes Aerospace Industry

China Reorganizes Aerospace Industry (NSI News Source Info) Source; Forbes - December 5, 2008: New operations and company mergers aim to increase China's global competitiveness. China is reorganizing its aerospace sector again in a bid to increase competitiveness and raise its profile. This reflects national ambitions to develop a range of world-class indigenous products and to take on more challenging collaborative programs. The reorganization has seen the merger of the two state aerospace companies, AVIC I and AVIC II, effectively returning the industry to where it was in 1999, when the original state monolith was divided to encourage competition and increase efficiency.

Activities. The new AVIC will be responsible for both civil and military aircraft, and have five main businesses, namely: --air transport manufacturing --general aviation --helicopters --engines --aircraft systems

These will be more clearly focused on discreet product and sectoral activity. The aim is to create distinct centers of excellence, facilitating the development of 'national champions.' AVIC will now control the bulk of Chinese aerospace research activities, including the provision of civil and other market forecasts for manufacturing subsidiaries. Comac. A separate operation--the Commercial Aircraft Corporation of China (Comac)--now oversees the development of China's $7.1 billion indigenous 150-seat jet airliner program. China hopes to have its new 150-seater airliner in service by 2020 and is aiming at a potential domestic market of 2,200 narrow-bodied airliners. This would provide a massive launch pad to attack world markets, although it would face stiff competition from Airbus and Boeing. Military production. Military production is located in Xian, retaining a separation of civil and military development activities. (This could help China work more closely with Western companies affected by political constraints on technology transfer.) The Defense Division remains under the full control of AVIC, and it will be fully responsible for programs such as the Chengdu J-10 fighter as well as AVIC's guided weapons business. Longer term, China appears to want to develop a defense systems company comparable to BAE Systems or Lockheed Martin, and in the future AVIC's Defense Division may incorporate other aspects of China's defense industrial base. Outlook. The future for China's general aviation and helicopter sector appears promising. The economy is still growing strongly, which should raise commercial flying. Business flying is likely to develop, as should activities such as search and rescue operations or in support of exploration and the extractive industries. China's main weaknesses lie in engine and systems technology, although international collaboration on the 150-seat airliner will go some way to raising capabilities. The U.S. government will continue to oppose transfers of sensitive, dual-use technology associated with engines and systems. However, the creation of a single center for engine development will help China meld its collaborative and indigenous experiences. The new systems division faces the hardest task in merging existing firms comprising over 40 factories and research centers. It is also an area where the extensive links between civil and military development may make collaboration with Western suppliers more difficult.