Jet mak­ers eye China, but ob­sta­cles loom

Kuwait Times - - ANALYSIS -

New rules gov­ern­ing Chi­nese air­line star­tups are fu­el­ing hopes at Em­braer SA, Bom­bardier Inc and other re­gional jet mak­ers for a spike in or­ders next year, but lo­cal com­pe­ti­tion and doubts about size re­stric­tions still loom as ma­jor ob­sta­cles. The new pol­icy is aimed at en­cour­ag­ing fledg­ling car­ri­ers to boost do­mes­tic flights serv­ing se­condary mar­kets in China rather than fo­cus­ing ex­clu­sively on big cities. The three-month old pol­icy has still not been pub­lished in its en­tirety, leav­ing the in­dus­try guess­ing on some key de­tails.

But pro­vi­sions in­clude scal­ing back ac­cess to ma­jor hubs and a re­quire­ment that new re­gional car­ri­ers op­er­ate at least 25 smaller city-hop­per jets be­fore grad­u­at­ing to big­ger air­craft, ac­cord­ing to three in­dus­try sources fa­mil­iar with the pol­icy. That could trans­late into Chi­nese de­mand for more than 250 new re­gional jets in the next two years, said one source fa­mil­iar with a plane­maker’s out­look, pro­vid­ing a shot in the arm for a new gen­er­a­tion of air­craft that has suf­fered a string of set­backs. An­other source fa­mil­iar with the mar­ket called the prospects more limited.

China is seen as anx­ious to pre­vent car­ri­ers from us­ing niche mar­kets as a back door to the main air­line busi­ness by grab­bing li­censes to set up small re­gional or cargo air­lines and then quickly de­fect­ing to the more lu­cra­tive big-city seg­ment, dom­i­nated by Air­bus and Boe­ing. On pa­per, that should boost de­mand for re­gional jets in­clud­ing China’s de­layed ARJ21, de­vel­oped by the state-owned Com­mer­cial Air­craft Cor­po­ra­tion of China (COMAC).

The sup­port for re­gional avi­a­tion in China should also en­cour­age for­eign mar­ket lead­ers such as Bom­bardier and Em­braer, ac­cord­ing to Yang Yang, a di­rec­tor at COMAC’s Shang­hai Air­craft De­sign Re­search In­sti­tute. “This will po­ten­tially give them a big mar­ket to tar­get,” he said. Re­gional jet mak­ers have been re­cov­er­ing from devel­op­ment hitches in re­cent years, only to find that de­mand has now slowed in their main mar­kets in the United States and Europe as pre­dic­tions of ro­bust or­ders from Asia have yet to ma­te­ri­al­ize.

A spokesman for Canada’s Bom­bardier said the new pol­icy of­fers re­gional air­lines “many new op­por­tu­ni­ties” and Brazil’s Em­braer called it an “in­sight­ful ... new pol­icy to pro­mote re­gional avi­a­tion.” Rus­sia’s Sukhoi Civil Air­craft said the com­pany started reg­u­lar talks this year with po­ten­tial Chi­nese cus­tomers for its re­cently in­tro­duced Su­per­jet re­gional air­craft. Oth­ers, such as Ja­pan’s Mit­subishi Air­craft, are keep­ing a lid on ex­pec­ta­tions, wary of com­pe­ti­tion from the ARJ21, China’s first home­grown pas­sen­ger jet, which COMAC put into ser­vice this year.

“We think in gen­eral China has a huge po­ten­tial,” said Yugo Fukuhara, a vice pres­i­dent for sales of Mit­subishi Air­craft, a unit of Mit­subishi Heavy In­dus­tries Ltd, which is de­vel­op­ing an­other new­comer to the re­gional jet mar­ket. “At the same time, we have com­pe­ti­tion from the ARJ21, de­vel­oped by China them­selves, and also some po­lit­i­cal bar­ri­ers,” Fukuhara said, al­lud­ing to diplo­matic ten­sions be­tween Ja­pan and its neigh­bor across the East China Sea.

Un­clear De­mand, Com­pe­ti­tion

An­a­lysts say the Civil Avi­a­tion Ad­min­is­tra­tion of China (CAAC) wants to en­cour­age a more dif­fuse net­work af­ter most air­lines launched in the past three years fo­cused on busier main­line routes, leav­ing se­condary mar­kets un­der­de­vel­oped. But the reg­u­la­tory changes in the coun­try may also make it harder for new air­lines, as feeder routes are of­ten less prof­itable and face stiff com­pe­ti­tion from China’s fast ex­pand­ing high-speed rail net­work.

China had 57 air­lines at the end of 2015, only 12 of which were re­gional car­ri­ers, ac­cord­ing to a re­port from the Shang­hai Air­craft De­sign Re­search In­sti­tute. Em­braer has made the most progress among for­eign plane­mak­ers with those air­lines, de­liv­er­ing 91 air­craft of 123 firm or­ders through Septem­ber - about twice Bom­bardier’s tally, ac­cord­ing to the com­pa­nies’ lat­est quar­terly re­ports. How­ever, Chi­nese or­der books for both com­pa­nies are dwarfed by the ARJ21, which has racked up more than 400 or­ders since the pro­gram was launched in 2002.

Comac says the ARJ21 holds ad­van­tages such as its do­mes­tic ser­vice net­work and per­for­mance stan­dards tai­lored to the coun­try’s hot and high-al­ti­tude west­ern plateau. But it has de­liv­ered just two planes to launch cus­tomer Chengdu Air­lines so far, lead­ing an­a­lysts to ques­tion the fea­si­bil­ity of the Chi­nese re­gional jet. Devel­op­ment of the ARJ21 was de­layed by nearly a decade, dogged by flawed de­signs for wings, wiring and com­puter sys­tems, ac­cord­ing to a 2012 Reuters in­ves­ti­ga­tion. The air­craft has yet to be cer­ti­fied by US au­thor­i­ties. “The ARJ21 is not a func­tion­ing air­craft,” said Richard Aboulafia, vice pres­i­dent of anal­y­sis at avi­a­tion con­sul­tancy Teal Group, who pub­lishes widely cited global aero­space fore­casts.

Re­gard­less of the ARJ21’s prospects, la­bor dis­putes in the world’s largest re­gional mar­ket also have re­gional plane­mak­ers pin­ning big­ger hopes on new Chi­nese de­mand. US pi­lots are re­sist­ing pres­sure to al­low heav­ier air­craft to be out­sourced to re­gional af­fil­i­ates, ef­fec­tively pro­tect­ing jobs at the main­line op­er­a­tions of Delta Air Lines Inc, Amer­i­can Air­lines Group Inc and United Con­ti­nen­tal Hold­ings Inc. The stand­off could lock out Mit­subishi’s MRJ90 and Em­braer’s next-gen­er­a­tion E175 air­craft in com­ing years.

Those size lim­its, along with low fuel prices, have also slowed new or­ders to re­place ag­ing U.S. air­craft this year. The size is­sue could haunt man­u­fac­tur­ers in China too. Avi­a­tion reg­u­la­tor CAAC has been slow to make public de­tails of the new re­quire­ments, known as Rule 96. In par­tic­u­lar, they are keep­ing mum on the spe­cific seat count and weight lim­its for the loosely de­fined re­gional seg­ment.

Em­braer’s head of com­mer­cial avi­a­tion, John Slat­tery, said at an in­dus­try event in Oc­to­ber that Chi­nese size lim­its would pre­vent the com­pany’s 120-seat E195 and ri­val Bom­bardier’s 110to 130-seat CSeries from qual­i­fy­ing as re­gional jets. Bom­bardier dis­agrees. “We are con­fi­dent that all air­craft with five-abreast seat­ing or less qual­ify within the frame­work of CAAC Rule 96 and we are work­ing with a num­ber of Chi­nese car­ri­ers in that con­text,” said public af­fairs di­rec­tor Bryan Tucker. CAAC did not re­spond to requests for com­ment on spe­cific re­quire­ments for re­gional air­lines. —Reuters

Newspapers in English

Newspapers from Kuwait

© PressReader. All rights reserved.