“Yuan Fang, what do you think?” goes the catchphrase from China’s TV equivalent to detective Sherlock Holmes. The amazing sleuth Di Renjie depends on his assistant Yuan Fang for sound counsel, as he never knows the answer himself.
It’s not a bad way to approach what is happening the business aviation market in the greater China region today. The sector remains temptingly elusive for the big manufacturers, and has yet to deliver the huge prizes promised a few short years ago.
There are major hurdles to overcome. The government has strict control of fuel sales, and infrastructure is massively underdeveloped with a huge lack of executive aviation airports. Parking is a problem, too, as is obtaining visas swiftly.
This is causing consternation among the big local players. Speaking on behalf of the Asian Business Aviation Association HK Operators’ Committee, Asia Jet’s 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 HK authorities, which didn’t even think of us in the first public submission for the development of its proposed third runway at Chap Lap Kok Airport. We commend the Singapore Transport Ministry for its vision.”
In China there has been some positive government input, in the form of new regional offices that deal with importation approvals. This means reduced processing times to around four months. There is also an increase in the number of air operator certificates, which has risen to 186. These are mostly CCAR91 (private), with just a few CCAR135 (commercial). The bad news is the rumor of a potential new 25-percent “luxury tax” that could be imposed on new aircraft.
More gloom comes from the fact government charters have reduced drastically, which has impacted operators, some of whom have been forced 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. It is worth noting China’s 2013 economic results released this January. Gross domestic product grew 7.7 percent to RMB56.9 trillion–about $9.3 trillion. This is normally a precursor to growth in the private aviation sector. However, offset this with the extent of the country’s debt accumulation.
According to Derek Scissors of The Diplomat magazine, a recent official figure for local government debt was RM17.9 trillion ($2.96 trillion) in June 2013. This could lead to stagnation, which could bring the economy staggering to a halt.
Indeed the private aviation sector has slowed since 2012, with–at the time of writing–only 18 percent slated as final official growth figures for 2013, versus 40 percent in 2012.
However, this is no cause for alarm, said Dominic Lee of HK law firm de Bedin and Lee, who countered, “While the China market may slow, it is still growing at a commendable rate. China and Asia orders are essential to supporting the industry.”
That said, as local buyers get savvier, they are taking longer to choose an aircraft. Jeff Lowe, general manager of the Asian Sky Group (ASG) consultancy, explained, “China has been a little overhyped, but is settling now.”
His firm creates reports on the state of the market. Although Chinese airspace restrictions are famously challenging, Lowe reckons that the relaxation of rules governing lower altitude airspace in some provinces means that helicopter orders have flourished. ASG is due to release new reports this month, which indicate helicopter sales have increased enormously.
De Bedin’s Lee pointed to another initiative. He added, “There will be interest this year in the Shanghai free trade zone but it is too early to see how effective the FTZ will be, as it is something of a work in progress. What will be essential for the industry’s future growth is credible and effective safety management.”
Hong Kong’s Metrojet would agree. Bjorn Naf, CEO, reckons that the MRO market is maturing. His company has opened up new bases in Zhuhai, and in the Philippines. He said, “The market may have slowed down, but we are still extremely busy.”
And although deliveries are low, the number of flying movements is up, which Carey Matthews, general manager of the Shanghai Hawker Pacific business aviation service center, said he believes is a better barometer. He explained, “We have seen our flight activity increase by double-digit percentages in 2013. I feel the strength of the industry should be focused on how much people are flying. By that measure, the business aviation industry is doing well.”
What is evident is that the China private aviation sector remains a challenge, and we have mixed reports on its health from those in the know.
Yuan Fang, what do you think?