Aviation in China

 - December 17, 2007, 9:03 AM

In a recent speech on global harmonization, FAA Administrator Marion Blakey summed up the universal reaction to China’s booming aviation industry: “The world is watching.”

The world is indeed watching, for as the aviation industry grows, so do the business prospects. Airbus, Bombardier, Cessna, Dassault, Embraer and Gulfstream are among the manufacturers with recent sales in China, and Boeing Business Jets announced at the European Business Aviation Convention & Exhibition (EBACE) in May that Hong Kong businessman Joseph Lau had placed an order for a $153 million executive 787 Dreamliner.

“I think we all agree the potential is huge for China,” says Jason Liao, president of the Asian Business Aviation Association (AsBAA) and the Hawker Beechcraft sales director for North Asia. “Many people have the need and can afford the products.”

Chuck Woods, chairman of AsBAA, added, “The potential for business aviation in China is tremendous, with the country’s strong economy and the resulting [wealthy] people and companies. Chinese companies have aggressive growth models, requiring more and more intra-China and regional travel. And like executives in other leading markets, they’re finding that they can’t always get there from here, and that their time is valuable.”

Blakey predicts that China will have the second biggest market for aviation (behind the U.S.) within a decade. “While the U.S. and Western Europe remain the largest markets, India and China are the fastest growing,” she stated. “Airline travel is growing at about 8 percent per year [in China], and business [aircraft] travel is spiking as well.” She added, “The middle class, which can certainly afford to fly, is growing. That’s a group that has tremendous disposable income and ability, both for business as well as for pleasure, and they’re going to be doing a lot of traveling.”

“By 2010, the largest single market for aviation will be intra-Asia, accounting for nearly a third of all air travel,” International Air Transport Association (IATA) director general Giovanni Bisignani said at the recent China Civil Aviation Development Forum in Beijing. He added that China will be at the center of this growth. “Some describe China as a great market for the future. I see it as an important and growing player today and a future global leader for air transport.”

Infrastructure Problems Abound

The market is still comparatively small, however. According to Dennis Lau, research editor for aviation market information provider Ascend, only 15 business jets are officially registered for executive/corporate use in China (population 1.3 billion), with 62 on order. Eleven more jets are registered for calibration and flight inspection, and eight others are used by flight-training facilities. In contrast, there are approximately 11,500 business jets registered in the U.S. (population 300 million).

“There is tremendous potential in China,” said Donald Spruston, director general of the International Business Aviation Council, “but there are a number of issues that need to be resolved.” For the industry to grow, he said, Chinese companies need to recognize “the benefits of aircraft as a business tool,” which hasn’t happened yet. “It’s starting, but it still has a way to go yet,” he told AIN.

According to Steve Brown, NBAA senior vice president of operations, there are other reasons that explain why China is lagging behind, one of the foremost being the current air traffic system. With the nation’s numerous infrastructure shortcomings and strict regulations, as well as the steep taxes placed on foreign aircraft, individual and business aviation interests have not been able to prosper. Before joining NBAA, Brown was vice president of operations planning at the FAA. He also served as associate administrator of air traffic services, managing 35,000 air traffic controllers and the day-to-day operations of the national airspace system.

Liao agreed, saying the main reasons for the slow growth of business aviation have been “airspace restriction and high aircraft import and value added taxes.” The number of business jet owners in China could be higher than 15, for example, because by registering their aircraft in Europe, aircraft owners can avoid China’s import taxes and strict regulations.

“China’s Civil Aviation Administration [the CAAC] has made impressive improvement to processes that support the growth of business aviation, but much more needs to happen,” Woods said. “Permits are easier to obtain, but there is still a rigid process for applying. Access to certain airports is better than in the past, but there are still limited locations available, and airspace is highly regulated. And as Jason [Liao] noted, import and other fees make the purchase of new aircraft cost-prohibitive.”

One of the biggest problems, according to Brown, has been China’s “highly distributed [and] decentralized structure.” Rather than have one centralized aviation authority, such as the FAA in the U.S. and the Civil Aviation Authority in the UK, China places most of the authority and control within the various regions of the country, he said. Pilots must by law apply to the ATC bureaus of each region in which they’re planning to fly, and the bureaus must then forward the applications to the military. The necessary flight clearance authorization takes days in some cases. “We need the air traffic [in China] to be flexible enough to support on-demand operation,” Liao said.

“There’s shared control of the airspace between civilian aspects of ATC and the military, so a lot of permission and documentation needs to take place,” Brown added (see box on next page). The Chinese People’s Liberation Army controls the airspace over China and permits civilian aircraft to use only 30 percent of it.

“Each country has certain parts of its airspace that are restricted and only for military or national security purposes,” Brown explained. In the U.S., according to an FAA spokeswoman, the FAA controls the airspace and designates 17 percent for military use, much of which reverts to FAA control if the military is not using it.

Because of the strict airspace restrictions in China, pilots also have a severely limited number of routes and ports of entry into the country. According to the U.S.-China Business Council, flights from the west and north must fly over Urumqi or Xinjiang, China, or Ulan Baatar, Mongolia; flights from the south or east can fly in only over Guangzhou or Shanghai, China; and flights from Taiwan must first touch down in Hong Kong.

In addition, there are only nine points of entry into China: Beijing; Guangzhou; Hangzhou, Zhejiang; Kunming, Yunnan; Lanzhou, Gansu; Shanghai; Taiyuan, Shanxi; Tianjin; and Urumqi. CAAC rules state that another port of entry may be approved but only if there is “a compelling reason from a Chinese interest.”

“The airspace design is inefficient,” Bisignani stated. “Congestion delays in the Golden Triangle [a region in China encompassing the cities of Nanjing, Shanghai and Hangzhou] can be measured in hours, not minutes. Aircraft approaching Hong Kong from the north can waste up to 25 minutes of flying time. Implementing RVSM later this year will help, and better coordination with the military is essential.” He added that authorities need to “expand the limited number of entry points to Chinese airspace.” China’s next step, he said, should be “more liberalization and less government.”

Brown explained, however, that part of the reason for the lack of navigational routes within China is the sheer size of the country. “China has vast areas that are remote, areas that have no aviation traffic,” he said. “They may as well not have any population or airports, being so remote.” He added, “But there are other examples around the world: Australia, parts of Alaska and Canada. It’s driven by geography.”

Spruston compared China to other countries where business aviation is flourishing, such as Canada, Brazil and Mexico. “If you look at the geography, the types of industry, the remote communities, [you will see] there are reasons why business aviation is so big in spite of the smaller GDPs [gross domestic product],” he said. “China fits that mold quite nicely. It’s a large geographic area, and there are a lot of remote areas that demand good air transport access. These are the incentives that Chinese companies need to build a good business aviation program.”

In addition to the limited number of routes within the country, there are also a limited number of so-called “polar routes” into China, according to Brown. “Because a lot of traffic to China comes from great distances around the world, we’d like to see more use of polar routes, down through Russia into China,” Brown said. “These have been advantageous. There are about half a dozen of these routes, but as traffic grows, so does the demand for using those routes. We’d like to see more of those routes made available.”

Infrastructure Improvements Needed
Another reason the aviation industry has been slow to improve is a shortage of airports within the country. As of last month, there were fewer than 500 airports in China, some still under construction, according to People’s Daily, China’s State newspaper. Liao added that approximately 170 are authorized for civil use. There is also a shortage of parking space and facilities at the airports that do exist. “As they experience traffic and growth, they need more parking space,” Brown said. “In many places, they run up against parking limits.”

“There is still some work to be done on increasing the number of facilities that will serve business aviation,” Spruston added. “For those that do exist, we get good reports from flight crews; they are provided with good service. But for business aviation to be widespread throughout China, the key will be whether the services [aircraft and crews need] will be provided.”

Finally, private property rights within communist China have hindered sales of privately owned aircraft. “Based on their type of government in China, they’ve had restrictions on the ownership of all kinds of private property, whether it’s real estate, airplanes or boats,” Brown said. However, “China is beginning to liberalize a lot of those markets. They’ve liberalized real-estate ownership just in the last year. Things like owning stock, shares in a company, they’ve just liberalized in the last two years. A lot more people can own cars and things like that.”

Since the liberalization of stock-market regulations, Chinese citizens have been flooding the market with money, and now many more people can afford the products, as Liao pointed out. However, former Federal Reserve chairman Alan Greenspan recently told a Madrid conference via satellite that China’s economic growth is “clearly unsustainable.” “There is going to be a dramatic contraction at some point,” he said. If Greenspan’s predictions are correct, the hoped-for growth of business aviation may be “unsustainable” as well.

For those who do have the means to purchase their own business jets, at least for now, China imposes a 22-percent import tax on all foreign-built aircraft.

A Sleeping Giant Awakens

Regardless of the state of the economy, Chinese authorities are finally beginning to make the necessary changes to the air traffic system that will allow the aviation industry as a whole to thrive. “The Sleeping Giant is asleep no longer,” Blakey stated in the global harmonization speech, “and [China’s] desire for a state-of-the-art [air traffic] system is gathering steam.”

As part of a five-year plan, CAAC has outlined a number of changes to the current air traffic system, among them the establishment of a central traffic flow management system and less military control. According to Brown, the 2008 Beijing Olympics and the projected increase in private and commercial flights into the country spurred them to make these changes. “With the Olympics coming, there is going to be a tremendous infusion of tourism into China,” Blakey said. “The Chinese government is expecting that people [won’t] go just to Beijing. Many of them want to explore.” She added that it will be critical for the infrastructure to allow them to do that.

CAAC official Zhang Yuehua told People’s Daily in July that civil aviation authorities are in the process of finalizing a five-color scheme to coordinate various air traffic scenarios and incoming traffic during the Beijing Olympics. The color scheme is based on the number of inbound flights, weather conditions and security issues. The yellow plan will be activated, for example, if air traffic volume reaches 1,900 flights or inclement weather is reported. Yuehua said daily traffic at Beijing Capital International Airport alone will increase to about 2,000 flights per day, from the current average of about 1,150 flights per day.

Most changes, however, are intended to be made in the long term and will not affect travelers during the Olympics.

The government has to transfer control of the airspace system gradually from joint civil-military control to civilian control, Brown said. “In addition, China is implementing more centralized national control of its airspace, so rather than having most of it controlled regionally, it’s also going to create a national management capability for more strategic management of the flow of aircraft, fewer delays and more efficiency,” said Brown.

According to Brown, China is working with the U.S. to create and sustain these capabilities.

“We’re doing everything we can to make sure that whether it’s a business jet or a widebody, aviation in China takes a step up, that the Chinese will be ready for the activity as it comes along,” Blakey said. “We’re also working with [the Chinese] to help them understand the benefits of emerging technologies and procedures such as ADS-B and RVSM. ADS-B is tailor-made for an environment that’s challenging–lots of aircraft, tough terrain, infrastructure problems. If you were going to make a list of places that ADS-B is designed to serve, China would be at or near the top.”

According to information on the CAAC Web site, China is planning to institute RVSM before next year’s Olympic Games. Liao said RVSM should be implemented by November. “Due to the time limit, the task is arduous, with high standards and big challenges, and the impact is extensive,” acknowledged Su Langen, director general of the Chinese Air Traffic Management Bureau. CAAC also plans to categorize airspace and release low-altitude airspace to GA aircraft by 2010, according to Liao. A CAAC official told China Daily, “Adopting airspace categories can ensure that the different demands of public transportation aviation, general aviation and military aviation can all be met.”

According to Brown, the government has also indicated that it is “going to create more routes…and provide more direct paths for aircraft to fly between major cities [and] open up more of the airspace than just the 30 percent [now available to civilian aircraft.]” He added that the government is working on these routes “aggressively.”

At least one route will eventually be opened south of Hainan and will reduce travel time to Asian countries southeast of China by two hours. Another route, which Bisignani calls “IATA-1,” cuts 30 minutes off flights to Europe and opened last year. “Our goal is to use global standards and to make Chinese airspace among the most effective in the world–to meet demand safely and effectively,” Bisignani said. “We have had excellent cooperation with both military and civil authorities, and we are working hard to speed the process of change.”

In addition, according to Liao, China is building more airports and improving existing ones, at a rate of eight to 10 per year. People’s Daily reported that the government will be investing 140 billion yuan ($17 billion) to build 50 new airports, including 37 new airports in the western region of China. The government also plans to upgrade surface areas–such as runways and parking ramps–at many airports, according to Brown.

“The west is enormous,” Blakey explained, but “the aviation infrastructure there, unfortunately, is not what it needs to be.” She added that many of the airports in the western regions have “difficult problems” due to challenging terrain and weather patterns. “These airports are the ones that cry out for satellite-based technology and more advanced navigational capabilities,” she said.

Although there is no word yet on a reduction in the 22-percent tax on foreign aircraft, the liberalization of ownership laws has made it easier to purchase aircraft and expand the business aviation market. “Some weeks ago, Chinese lawmakers endorsed a bill to simplify the application for business operation licenses,” said Chen Minghua, marketing engineer for Hangzhou, China-based XMAir Aviation and Aerospace Services. Liao added that Part 135 and 91 regulations are now in place.

China is also well on its way to manufacturing its own regional jet, the ARJ21. According to Blakey, the FAA has established offices in Shanghai and Beijing to help with certification of the aircraft. The jet is scheduled to fly in March.

Overall, the future looks good for business aviation. “Business aviation growth has been slow,” Liao conceded, but “I believe it is about to take off rapidly.” And according to Woods, AsBAA will continue to grow along with the industry, providing the support businesses might need as the system changes.

“China is on the right track,” Bisignani said. “Nobody is asking to change the system overnight, but it is the role of the government to anticipate and lead change.”

Flying into China

China is unique in that in addition to requiring information about flight plans and passengers and crew before private aircraft can fly into the country, it also requires passengers and crewmembers to have a letter of invitation and a Chinese business sponsor. According to Orlando Cantu, a master trip support specialist at Universal Weather & Aviation Flight Support Services, flight plans will be rejected if the documented business sponsor cannot provide information about the flight plans.

In some cases, an individual’s not having the right sponsor–such as a city official–can affect China’s decision to permit a flight into the country. “Some locations are particularly hard to get into,” Cantu said. To fly into some airports in Tibet, for example, “you need to have a strong contact, a special invitation.” China may also require that a Chinese escort crew or navigator be on board the flight. Cantu explained that this occurs on occasion because air traffic controllers don’t speak fluent English in some regions.

In addition, flight crews must have a firm schedule, which can cause problems for business aviation travelers. “The basis of business aviation is change,” said a spokeswoman for Universal Weather & Aviation. “It’s a delicate tightrope walk for folks like Orlando [Cantu] who make the arrangements [for crews to fly into China.]” She added, “[The Chinese] are not real open to change once everything is set. Once you file everything, your best bet is to stick to it, or you may have some real hurdles to clear.” Cantu added that even if the changes are small, “China has rejected and denied some permits because of too many changes.”

Crews must also be certain to obtain C Visas, special visas for crewmembers on international flights. “Crews will be told to go back” if they don’t have the correct visas, Cantu said. Exact routing information is also critical, and Chinese officials reserve the right to make changes to the flight plan if they feel they are necessary. For charter operators, China permits only one location in and out of the country. “You can’t make multiple stops in and out of China,” Cantu said.

Finally, Cantu recommends that flight crews request VIP ground handling where available. It is costly–approximately $2,000–but passengers and crew can clear customs in 10 to 15 minutes. When leaving, only the exact number of passengers who arrived on the flight can depart the country.

Ground handlers such as Universal Weather & Aviation can arrange the paperwork needed to fly into China, and Cantu recommends filing all paperwork at least 10 days in advance. He added that it is “very rare” for China to approve permits in fewer than 10 days.

Information needed to file for a permit includes:

• approved weather minimums of pilot

• date and estimated time of departure from last airport before entering Chinese airspace

• estimated time of arrival in Chinese airspace

• details of flight path

• estimated time of departure from China

• fueling requirements

• purpose of flight

• type of aircraft/registration number/radio callsigns

• passenger names and passport information

• crew names and passport information

• background information of pilot

• letter of introduction from a Chinese sponsor

• Chinese sponsor information