Avic subsidiaries advance toward delivering U.S. business and utility aircraft from plants in Chengdu, Zhuhai and Shijiazhuang
Negotiations are much easier between two parties than three. As and two Avic subsidiaries move toward setting up factories in China that will turn out aircraft from the U.S. company, the projects that will come under the wing of general aviation specialist Caiga are advancing a little faster than the one that will be handled by fighter-maker AAT.
One unresolved issue is whether and where to build a new factory for the AAT project at Chengdu.
Altogether, the complex process of setting up assembly lines for at least three Cessna aircraft in China, adding to the manufacturing of another that is already done there, appears to be going smoothly. The AAT deal, to assemble Cessna Citation Sovereign business jets, is lagging the two Caiga projects because it also involves a third party, the Chengdu government, says Bill Schultz, Cessna's senior vice president for business development in China.
AAT, whose agreement was announced in March 2012, is getting help from its city government for its project. Caiga's agreement with Cessna was announced in November 2012, but that Avic subsidiary had already secured backing from local authorities for the plants that will assemble Citation XLS+ jets in Zhuhai and Caravan utility turboprops in Shijiazhuang.
The first Caravan should emerge from its Chinese factory in the third quarter of this year, and the first Citation XLS+ by the end of the year, both on time. “The facilities have been constructed,” says Schultz, speaking at the Asian Business Aviation Conference and Exhibition in Shanghai. “We've equipped them with tooling and are training the employees.”
The first Chinese Citation Sovereign is also due at the end of the year but may be delayed until early next, says another official. If negotiations go smoothly from here, it might be possible for AAT and Cessna to meet the target by doing just the last stages of assembling an aircraft in China, putting together major modules shipped from the U.S.
Meeting the end-2013 delivery target for the Citation Sovereign may not matter much, anyway, at least politically. Aircraft programs in China are hardly known for being on schedule, and negotiations to move assembly to China from another country were always going to be difficult. For all three projects, the talks must include the Civil Aviation Administration of China and the. “Now we're awaiting approvals from the central government, and hope to receive those by mid-year,” says Schultz.
The joint venture operations are intended to import airframe structures from Wichita and conduct final assembly, paint, testing, interior installation, customization, flight testing and delivery of the Cessna aircraft to Chinese customers. As they become more adept, the Chinese factories will take on more work.
and Avic unit Harbin Aircraft, meanwhile, have already begun assembling a Legacy 650 business jet at Harbin. It is also due for delivery by the end of the year. There, the partners have had the much simpler task of converting a regional-jet assembly line to putting together derivative business jets. Most regulatory issues there were solved a decade ago for the regional-jet line.
In Cessna's deals, the partners and government authorities have to agree on such details as runway and airspace use, the extent of local assembly, and regulatory approvals for production processes. For Chengdu, it is not even clear yet where exactly the assembly will be done. The partners are still discussing whether to use a current factory at Chengdu, build a new one on Avic's site there, or build a new one on a new site in the southwestern city.
A new plant would normally produce at lower marginal unit costs, but reusing old facilities would be more economical for a low production rate. Getting local-government funds for aircraft programs, as in the case of Citation Sovereign assembly, is a big part of Avic's development strategy. In general, Chinese local governments, such as Chengdu's, are keen to see new factories, so over-investment in the Citation Sovereign facilities will not be surprising. That will not bother Cessna if the city pays the bill.
AAT builds fighters, trainers, drones and missiles, encompassing the well known fighter factories at Chengdu and Shenyang and the trainer plants at Nanchang (the Hongdu Group) and Guizhou. At Shenyang, ATT is already manufacturing the Cessna Skycatcher light sports aircraft. Harbin Aircraft is part of Avic rotary-wing specialist Avicopter.
“We're still in discussions, and those talks have not yet been completed,” says Schultz, referring to the AAT deal. For that reason he could not put a target date on the delivery of the first Citation Sovereign. The second official says the Chengdu talks are so far focused just on that aircraft, not on a second Cessna business jet that AAT would also like to assemble, the Citation Latitude, which is not due to fly until 2014. “At this stage it is one step at a time,” that person says.
The Latitude is due to be certified in 2015. Beyond the Latitude, Cessna and AAT have mentioned the possibility of jointly developing a business jet at Chengdu.
For that, Avic may have an alternative to Cessna. A senior Avic official said at the air show in Zhuhai last November that the group was also in talks with(IAI), although it seems those negotiations have not gone as far as those with Cessna; there has been no announcement of a framework agreement on objectives, for example. At that show, Avic displayed a model of a proposed aircraft dubbed the New Generation Business Jet that seemed to share design roots with the IAI 1126 Galaxy, which was built until 2011 as the Gulfstream 200.
Asked whether IAI could use the design, Gulfstream President Larry Flynn points out that his company owns the type certificate. Still, the Israeli company's willingness to sell know-how may turn out to be the key to Avic's business-jet operations going beyond assembly of foreign designs.
Production schedules for the Cessna aircraft will depend on market demand in China, says Schultz. To that end, the manufacturer has beefed up its China sales staff to nine over the last year. There are now 32 Citations based in Greater China, with just three added in 2012, according to a survey by Hong Kong-based business aviation consultants Asian Sky Group.