Business Aviation Opportunity Still Proving Elusive in China

 - March 2, 2014, 12:55 AM

“Yuan Fang, what do you think?” goes the catchphrase from Chinese TV’s equivalent to Sherlock Holmes. Amazing sleuth Di Renjie depends on his assistant, Yuan Fang, for sound counsel, since he never knows the answer himself.

It’s an apt way to approach what is happening in the business aviation market in the greater China region today. The sector remains elusive for the big manufacturers and has yet to deliver the huge prizes promised a few short years ago.

These are big factors in the success of the annual Asian Business Aviation Conference & Exhibition (ABACE), to be held once again at Shanghai Hongqiao Airport, from April 15 to 17. Western exhibitors in particular will be looking for fresh opportunity in this potentially great marketplace, but they will also be hoping for greater clarity as to how tangible this opportunity might be.

Certainly, there are hurdles: the Chinese government has strict control of fuel sales, and infrastructure is sorely underdeveloped, with few executive aviation airports, scarce parking for business aircraft at major airports and slow issuance of visas for visitors.

This is causing consternation among the big local players. Speaking on behalf of the Asian Business Aviation Association’s Hong Kong Operators’ Committee, Asia Jet CEO Mike Walsh said, “We are all quite jealous in Hong Kong that the Singapore CAA has rightly recognized the economic importance of having your own strong business aviation community that provides highly skilled jobs to Singaporeans. This should be a wake-up call to the complacent Hong Kong authorities, which didn’t even think of us in the first public submission for the development of its proposed third runway at Chek Lap Kok Airport. We commend the Singapore transport ministry for its vision.”

The Future of China

Nonetheless, in China there has been some positive government input of late, in the form of new regional offices that process importation approvals in what is now a relatively swift four months. The number of air operator certificates is on the rise and now stands at 186–mostly CCAR91 (private), with just a few CCAR135 (commercial). On the downside is scuttlebutt about the imminent imposition of a 25-percent “luxury tax” on new aircraft.

The Chinese government has cut back drastically on chartering private lift, forcing some operators to place aircraft outside China on short-term leases. Walsh added, “The continuing crackdown on spending on luxury travel has resulted in a short-term oversupply of the mainland charter fleet.”

This situation may well continue, although declining growth in the People’s Republic has led some economists to question the long-term sustainability of the country’s economic plan. The 7.7-percent increase in gross domestic product (to around RMB 56.9 trillion, or around $9.3 trillion) achieved last year was below expectations, and the rising national debt is fueling uncertainty that could further stifle growth.

Such uncertainty quells demand for business aircraft in China: the 40-percent growth rate achieved by private aviation in 2012 dipped to 18 percent last year.

However, Dominic Lee of Hong Kong law firm de Bedin and Lee sees no cause for alarm: “While the Chinese market may slow, it is still growing at a commendable rate. Chinese and Asian orders are essential to supporting the industry.”

That said, as local buyers get savvier they are taking longer to pull the trigger on acquiring an aircraft. “China has been a little overhyped, but it’s settling now,” commented Jeff Lowe, general manager of the Asian Sky Group consultancy. Although Chinese airspace restrictions are famously challenging, Lowe says that the relaxation of rules governing lower-altitude airspace in some provinces has spurred helicopter orders. In fact, the company’s most recent reports indicate that helicopter sales have flourished.

Lee pointed to another initiative. “There will be interest this year in the Shanghai Free Trade Zone, but it is too early to see how effective it will be. The zone is still something of a work in progress,” he said. “What will be essential for the industry’s future growth is credible and effective safety management.”

Hong Kong-based aircraft management group Metrojet would agree. CEO Bjorn Naf sees the maintenance, repair and overhaul market as maturing. His company has opened new bases at Zhuhai, in southern China, and in the Philippines. “The market may have slowed down, but we are still extremely busy,” he concluded.

Although aircraft deliveries are low, the number of flights is up, which Carey Mathews, general manager of the Shanghai Hawker Pacific FBO, believes is a better barometer. “We saw our flight activity increase by double-digit percentages last year,” he told AIN. “[Gauging] the strength of the industry should focus on how much people are flying. By that measure, the business aviation industry is doing well.”