Big Week For China’s Airline Industry

AA Expo LogoThe fast growth of China’s auto industry grabs media attention, but equally exciting things are happening in air transportation. Last week was particularly eventful. After 25 years in Singapore, The Asian Aerospace International Expo and Congress moved north and was held in Hong Kong for the first time, acknowledging China’s large and fast growing aviation market. China Eastern made headlines when it announced that it would sell a 24 percent stake to Singapore Airlines and its parent, Temasek Holdings Pte., for $923 million, only the second such strategic partnership with an international carrier by a Chinese airline.

The Asian Aerospace International Expo is a biennial event which showcases the latest developments in the aviation industry. This year’s expo attracted 500 exhibitors from more than 20 countries, including the industry’s biggest players such as Airbus and Boeing. The Airbus A380, the world’s largest passenger plane, was a major attraction, making a low flight over Hong Kong Monday to mark the beginning of the show. All week, newscasts in China were filled with images of the A380 against the Hong Kong skyline.

Asia and North America will be the two largest aircraft markets over the next 20 years according to industry observers. China’s airline sector is likely to enjoy double-digit growth and will order as many as 2,000 planes during this period. Airbus alone expects China’s airlines to order 100 to 150 planes in each of the next five years. While China leads the region, India is also expected to become an increasingly significant market for new planes. The number of carriers in India is expanding and industry experts expect Indian airliners to order 1,000 new aircraft over the next 20 years.

Not unlike China’s automotive industry, every major international aerospace company wants to participate in the growth of China’s airline industry, and Singapore Airlines has succeeded in securing a strong position with one of China’s leading carriers. China Eastern, the country’s third-largest airline, reported a 12 percent increase in passenger traffic for the first six months of the year. Despite strong growth, however, China Eastern has suffered operating losses the past two years due to intensifying competition and high jet fuel prices.

The deal between Singapore Airlines and Temasek will enable China Eastern to reduce its debt load and financing costs and provide it with an international gateway. In addition, China Eastern expects to benefit from the management expertise of Singapore Airlines, one of the world’s best run airlines. A key attraction of the alliance is Singapore Airlines’ prestigious brand name. Other than Air China, which has cross-share holdings and a strategic relationship with Hong Kong-based Cathay Pacific, the partnership between Singapore Air and China Eastern is the only such cooperation in China. Speculation over more merger activity stepped up last week as the government announced that it would look at a restructuring of the airline sector to improve efficiency.

Without a well-developed aircraft manufacturing sector of its own, China has been forced to rely upon purchasing aircraft manufactured by well known players such as Boeing and Airbus. Similar to other industries where the country has had to rely initially on foreign technology, though, this is likely to change. China’s State Council has approved plans to build large passenger aircraft which will compete with industry leaders in both China and globally. China Aviation Industry Corp. 1, a large state-owned company, is already producing China’s first commercial aircraft and expects to have orders for 80 by year end. Not to be left out of this important market, Airbus announced earlier this year that it would open a plant in Tianjin, which will eventually make four small to medium range A320 aircraft per month.

As with every industry, the China market will prove to be a major battleground for the leading global players in the airline and aircraft manufacturing industries. In China, global companies will compete head on with the best of the best from around the world, as well as with new competitors spawned by a rapidly developing Chinese economy. At stake is not only gaining a share of the China market, but also securing a position as a leading global competitor.

No comments yet... Be the first to leave a reply!