The trend lines have been familiar for more than two decades: China is the world's largest potential market for everyone making nearly everything. In air travel, national growth rates are so strong that they are typically broken out from the rest of Asia, as if China is a separate continent.

The country's economy is expanding so rapidly that industry and infrastructure strain to keep up. Ironically, this makes China an ideal laboratory for teams of foreigners and Chinese researchers to test big ideas, such as carbon dioxide sequestration to produce “clean” coal, that go unheeded in older, more mature economies.

In commercial aviation, it is not so much big ideas as big ambitions that are drawing attention. Suppliers from the U.S., Europe, Canada and Brazil are coming because they are compelled by the size of the Chinese market. The map of China is now dotted with at least 36 joint ventures between Chinese and foreign partners, with a dozen more pending final approval.

This year is the first of China's latest five-year economic plan, which identifies aeronautics as one of seven high-technology “rising” industries. The most immediate bottom-line effect: Managers at Comac—the state-owned airplane manufacturer whose 158-seat C919 is a challenger to the Airbus A320 and Boeing 737 duopoly—read that listing as indicating “we will receive strong support from the nation.”

Joint ventures mostly include subsidiaries of the government's Aviation Industries of China (Avic) and date back decades, involving equipment manufactured to serve aircraft operating in China. But some involve various national research, training and regulatory institutions that speak more to the nation's far-reaching ambitions than basic manufacturing. The most recent support the “rising industries” aspect of Chinese industrial policy.

In the late 1980s, European manufacturers talked to Avic about teaming on a small regional jet and, a decade later, there were even plans for China, South Korea, Japan and others to work as a team on such a project. All turned out to be paper airplanes. In 2002, China settled on the 90-seat ARJ21, using tooling from the MD-90 Trunkliner program that evaporated in the Boeing-McDonnell Douglas merger. Foreign suppliers flooded in to help.

The ARJ21 is no longer a priority, but it played a starring role influencing relations between China's factories and foreign Tier 1 suppliers, such as Parker Aerospace, which built a “close to off-the-shelf” hydraulic system for it, says Parker Vice President Pui Ho, head of Asia-Pacific operations. “The ARJ21 was more than a building block. The Chinese like to use the term ‘long-term partners. If I work with you, why should I switch?'”

Indeed, six years later when China initiated the C919, suppliers such as Parker Aerospace, GE Aviation, Eaton, Honeywell, Rockwell Collins and Hamilton Sundstrand, who were there for the ARJ21, were in a favored position for the program that eclipsed it. In many cases, their roles increased. All expect the C919 to be the first airplane in a family likely to stretch to about 200 seats. Initial sales of the C919 will be focused on domestic demand, but once Comac has a family it stands a better chance of finding a global market.

Long-term relationships are favored everywhere; the Japanese are famous for them. “The difference in China is that the government is involved,” Ho explains. How suppliers understand that relationship is essential to how well they will connect in China. Even as they pursue their own company's interests, the most successful never lose sight of the fact that they are partnering with a government, not merely another business. To explain, Ho cites a Chinese saying that relates to failure: “Same bed, different dream.”

The ARJ21 was the first regulatory effort by the Civil Aviation Administration of China (CAAC) that was “shadowed” by the FAA; this means the U.S. regulatory authority looked over the shoulder of its Chinese counterpart to verify that it was following procedures that met FAA standards.

By this time, numerous U.S. manufacturers had been active in China for years. Although they recognized the Americans as industry leaders, the Chinese also perceived them as difficult to deal with, too individualistic. “In China, government is more important than industry,” Joe Tymczyszyn, executive director of the U.S.-China Aviation Cooperation Program (ACP), explains.

European manufacturers had a Marco Polo program to foster cooperation with Chinese industry. The American Chamber of Commerce in Beijing decided U.S. manufacturers needed a counterweight and called on Tymczyszyn, who had worked for years with Boeing in China, to lead the effort. ACP now has several dozen corporate members.

When then-FAA Administrator Marion Blakey told Chinese leaders that “we're going to stand with you shoulder-to-shoulder,” during a 2004 tour, it made a big impact, Tymczyszyn recalls. “All of a sudden, the criticism stopped.”

Suppliers flock to China because its market cannot be ignored. Since 1998, Boeing says the country ranks second only to the U.S. in terms of demand for airplanes seating 30 or more passengers. Boeing forecasts that over the next 20 years, China will require 4,330 new airplanes worth $480 billion. (Airbus forecasts slightly smaller growth rates because it counts only demand for single-aisle aircraft and larger.)

In 23 of the past 30 years, data from the CAAC and Global Forecast show that China's air travel has achieved double-digit growth. True, it started from a low baseline, but an expanding middle class has pushed annual passenger counts up to 230 million last year from 67 million in 2000. For comparison, the U.S. had 700 million in 2010. Boeing projects 1 billion Chinese passengers by 2025.

Original equipment manufacturers do not acknowledge whether there are ties between their contracts for locally produced aircraft parts and assemblies and sales. But the Rand National Security Research Div. has connected some dots in a 2011 report. In 2005, as the industry came roaring back from the post-9/11 recessionary years, Boeing sold 60 787s to Chinese carriers. Later that year it signed a number of Chinese manufacturers as 787 suppliers. By year-end, it added another 57 orders, “making 2005 Boeing's most successful year in China to date,” Rand concluded. Airbus was not to be outdone. After orders for 150 A320s were announced that year, “it was subsequently revealed that Airbus had reached an agreement with China to establish its first final assembly line outside of Europe in Tianjin [for A320s],” Rand said. “Airbus was rewarded with a contract for another 150 A320s and 20 A350s in 2006.”

But even as they cooperate with the Chinese, Airbus and Boeing know they will face competition with them. Just how much of a market dent the C919 will make is the subject of speculation. One unknown is the extent to which Comac assumes that having U.S. suppliers play key development roles will help it with FAA certification. The C919 has collected fewer than 100 orders—a slow start. The common perception that Chinese airlines can be forced to buy the C919 in numbers approaching their A320 or 737 fleets is wrong, says Tymczyszyn. “Airlines are getting more and more responsible for their own profit and loss,” he says.

His colleague, Huang Wei, director of the Civil Aviation Safety Academy of China, broadens that observation. The Chinese did not conduct market research for the C919 because they felt it unnecessary since it is sized to match the Airbus and Boeing products, she says. The aircraft's success will depend a lot on market conditions when it enters service, now set for 2016, she adds.

Will this attempt to clone a home-grown competitor bring a big order rate? “I don't think so,” says Wei.

Ho expects the new airplane not to be a mere clone. “They want it to be advanced when it enters into service,” he says. The Parker hydraulics for the C919 are a new design, as are other elements of the new airplane. It uses a common core computing architecture that Smiths Industries, now GE Aviation Systems, developed for the 787. The C919's powerplant is the Leap-X1C, the first edition of CFM International's successor to the CFM56 series. A more advanced version of Leap-X will appear on the Airbus A320NEO (New Engine Option), which is coming along later in the engine's development cycle.

The C919's design is not completed. Still to be determined is the extent to which Comac will venture into new materials, such as composites or lithium. The ARJ21 brought outside contracts for Alcoa on aluminum alloys; a structures agreement for the C919 is pending. New materials may flow later. There could be tie-ins with composites research launched by Boeing with the Chinese.

Just how big of a slice of the domestic market pie the Chinese will take is an open question. Industry officials say a 20% share would be a significant acceptance rate for Comac's first single-aisle. “I think there's room for three” competitors in the Chinese market, says Airbus China President Laurence Barron. “My concern is that we remain No. 1.”

The C919 program must add another 10 percentage points in sales to achieve long-term viability. However, China's growing trade relations with resource-rich but economically poor nations is likely to open doors closed to others, particularly for a manufacturer that does not have to meet 20% return-on-investment targets.

At all levels, the Chinese are gleaning as much as they can. “The Chinese are learnaholics,” says David Wang, recently retired as president of Boeing China and now a senior counselor to the company. “They really want to learn everything. And never underestimate what they're learning. We just really need to be very conscious of the level of collaboration we have with them. Where we want them, we want them wholeheartedly; we have to have fences somewhere else. Pick your areas and then go great guns.”

The fences are built to protect intellectual property (IP) and to keep within bounds of the strict U.S. export-control restrictions. European companies have similar concerns about the former but do not carry the burden of the latter. In defense aviation, technology cooperation is not open, but that does not seem to be restraining the Chinese (see p. 62).

Boeing International President Shep Hill says the company has been “very straight-up” that it is willing to cooperate while competing with the Chinese for single-aisle sales. “There are certain aspects of the IP and the secret sauce [of manufacturing integration] that we do that differentiates us not only with China but with Airbus and Bombardier. We're not giving that up, OK?”

Barron dismisses the competitive threat of Chinese manufacturers learning from Tianjin because it has been 23 years since Airbus delivered the first A320 and its assembly technology is “not exactly a secret.”

However, Airbus is moving beyond legacy programs. In 2005, the company planned an engineering center with 150 Chinese engineers and 15 expatriates to support the original A350 program, a derivative of the A330-200 to be made of traditional aluminum alloys. The center was dropped when Airbus shifted to the all-new XWB design in which composites are featured.

The Chinese originally were uninterested in working on a composite A350XWB, says Barron, but they have reconsidered. So Airbus has taken a 20% stake in a joint venture with Avic and local governments in Harbin to produce 5% of the airplane's aero-structure. Plans to resurrect the original engineering center idea also are under way. Whether it will serve legacy programs or future work is unclear. “We're looking at everything,” he says.

From his 31st-floor office in a glass-and-steel Shanghai high-rise, Parker Aerospace's Ho looks down on a street filled with Audis, Buicks, Volkswagens and other well-known brands. All bear Chinese characters on the trunk identifying them as produced in-country, but that has not hurt their sales at home. “I think it's overblown, a little bit,” he says of concerns about IP protection. “The question is, do they have enough programs to make them good enough [to compete]. Right now, they do not. Right now they are not thinking so far ahead. It's a competitive world. We're not going to stagnate just because of the Chinese.”

Besides, says Ho and others, the Chinese are expert negotiators. “This is a place where you have to pay to play,” says Hill. “The idea, for instance, that we don't need to invest in China, that we can try and sell without partnering, that is just a false [assumption], because you're not going to sell unless you're partnering, unless you have a presence there.”

Boeing's strategy is to emphasize research and technology development where both Boeing and China have ambitions. Chief among them are materials research with the Chinese Academy of Sciences and air traffic management. Research into cabin air flow, a more nuanced subject than it might seem, is one prominent effort. Another is development of a biofuels industry as an alternative to kerosene (see p. 52). .

Reports of China's ability to churn out engineers are astounding, although it includes people the West would classify as technicians or mechanics. Nonetheless, China says it graduated 7.73 million engineers in 2008. This group of young talent translates as a great potential for boosting research and development, says Goodrich China President Michael Barbalas. “Language is an issue, but not an insurmountable one,” he says.

Much of this training has focused on maintenance, repair and overhaul (MRO) operations, a major part of commercial aviation in China for more than two decades. China's manufacturing and MRO sectors keep an eye on each other out of concern for poaching.

Pratt & Whitney recorded 5,886 student days in 2010 in courses lasting from two days to two weeks at its Beijing training center, which also supports Pratt activities in Singapore. The center is working under a five-year agreement with the CAAC for MRO management training.

After years of observation, Pratt General Manager Shushing Yu says European governments are far more direct than the U.S. in supporting individual aviation companies' engagement with their Chinese partners. The U.S. political hostility to such direct support is why the U.S.-China Aviation Cooperation Program (ACP), which works under U.S. Training and Development Agency (TDA) grants, plays such a big role.

Tymczyszyn points to ACP's ties with China's Civil Aviation Safety Academy in helping to foster managers for the country's fast-growing air traffic control system. He also cites GE Aviation for teaching Six Sigma's data-driven approach for eliminating defects and Boeing in lean manufacturing.

For many years, China's state-owned factories were characterized by large employment levels and inefficiency. But they are learning lean manufacturing quickly, says Aki Nakano, president of Pratt & Whitney China. “It's impressive how fast they are catching up.” But he's concerned that budget constraints will eliminate TDA grants. “This is just great leverage that U.S. companies have,” he says.

Notes: Avic-Aviation Industries China; Taeco=Taikoo Aircraft Engineering Co.; Haeco=Hong Kong Aircraft Engineering Co.
Joint Ventures Across China
JV Product Location Status
Alcoa/Comac Aluminum structures None Pending
C919
Boeing/Taeco Freighter conversions Xiamen Active
9% interest
Boeing Shanghai Freighter conversions, Shanghai Active
Aviation Services/ upgrades, maintenance
Shanghai Airlines/
Shanghai Airport
Boeing Tianjin/ Secondary composite Tianjin Active
Composites/AVIC structures
CFM International/ Assemble LEAP-IC Shenyang Active
Avic Commercial Engines, C919
Aircraft Engines
Eaton/Shanghai Fuel, hydraulics Shanghai Pending
Aircraft Manufacturing C919
GE Engine Services- Maintenance, repair Xiamen Active
Xiamen/China Eastern/ CFM56
Hainan Airlines
Nexcelle/Avic Aircraft Nacelles, components C919 None Pending
GE Aviation/Avic Systems Avionics C919 Shanghai Pending
GE Aviation/CAAC Engine maintenance Training Guanghan Active
Goodrich Asia-Pacific/Haeco Brake refurbishment Hong Kong Active
Goodrich Taeco Engine, flight control Xiamen Active
Aeronautical Systems/Taeco power system repair
Goodrich/Xian Aircraft Landing gear and nacelle Xian Pending
International component manufacturing
Hamilton Sundstrand/ Component overhauls Xiamen Active
Shaanxi Aero-Electric
Hamilton Sundstrand/ Electrical systems Nanjing Pending
Avic Electromechanical manufacturing C919
Honeywell Taeco APU overhauls Xiamen Active
Aerospace-Xiamen/Taeco
CEA Honeywell Wheels and Wheels/Brakes MRO Shanghai Active
Brakes Repair and Overhaul/
China Eastern
Honeywell/China Research Environmental control systems Nanjing Active
Institute Of Aero Accessories
Honeywell/Avic Flight Fly-by-wire fight Xian Pending
Automation Control controls, C919
Research Institute
Honeywell/Avic Auxiliary Power Units Nanjing Pending
Commercial Aircraft Engines
Parker Hannifin/Avic Systems hydraulic, fuel systems C919 Nanjing Pending
Parker Hannifin/Avic Avionics Flight-control actuation Xian Active
Pratt & Whitney/Chengdu Engine components Chengdu Active
Engine Group
Pratt & Whitney/Xian Compressor airfoils Xian Active
Aero-Engine/Blades Technology
Zhuzhou South Pratt Turboprop components Zhuzhou Active
& Whitney (Canada)
Aero-Engine/China
National South Aero-Engine
Shanghai Pratt & CFM56 overhauls Shanghai Active
Whitney Aircraft Engine
Maintenance/China Eastern
Rockwell Collins/ Communications, Chengdu Pending
China Electronics navigation equipment
Technology Avionics
Rockwell Collins/ Weather radar Wuxi Pending
Avic China Electronic systems/C919
Technology Research Institute
Sikorsky/Changhe S-92 tail pylon, Changhe Active
Aircraft horizontal stabilizer
Airbus/Avic/ A320 production Tianjin Active
Tianjin Free Trade Zone
Airbus/Avic Engineering, design Beijing Active
Including A350
Airbus/Hafei A320, A350 composite Harbin Active
Aircraft Industries components
Agusta/Westland/ Transmissions, Changhe Active
Changhe Aircraft China medium
Industries helicopter
Bombardier/Avic Partners on ARJ21 Shenyang Active
Shenyang Aircraft/ Bombardier provides Shenyang Active
Bombardier Aircraft technical assistance
for ARJ21
Shenyang Aircraft/ Shenyang to provide Shenyang Active
Bombardier technical assistance for CSeries
Embraer/Harbin ERJ145 Harbin Active
Aircraft Industries
Eurocopter/Harbin Rotors for Z-10 AS365N Harbin Active
Aircraft Industries production EC-120/HC-120
(with Singapore Aerospace)
EC175/Z-15
Liebherr Aerospace/ Maintenance Wuhan Active
Wuhan Hangda Aero
Liebherr/Landing Gear Landing gear Changsha Pending
Advanced Manufacturing C919
Liebherr/Nanjing Air management Nanjing Pending
Engineering system, C919
Rolls-Royce/Xian Aero- turbine nozzle Xian Pending
Components guide vanes
Safran Turbomeca/ fuel-control units Being Active
Shangkong Machinery
Turbomeca/Civil Maintenance training Chengdu Pending
Aviation Flight Academy
Safran/Air China CFM56 maintenance Chengdu Active
Snecma/Guizhou low-pressure turbine Guizhou Active
Xinyi Machinery
MAP POINTERS:
Xian is just north of the 34th parallel in north central China.
Xiamen is on the coast, just opposite Taiwan
Wuhan is basically 400 mi. due west of Shanghai, just above the 30th parallel.
Harbin is way to the north, where China juts into Russia and Mongolia.
Tianjin is a port city south east of Beijing
Chengdu is in Sichuan Province in mid-central China.
Guizhou is very near Hong Kong, south of Guangzhou (Canton) and northeast of Macau. Tiny town.
Nanjing is about 200 mi. slightly northeast of Shanghai
Changsha is about 600 mi southwest of Shanghai
Changde is about 800 mi. southwest of Shanghai.
Partners Abound On ARJ21Partners Abound On ARJ21
U.S. Partners Contribution
Alcoa Advanced alloys for airframes, wings, fuselage stringers, floor beams, seat tracks; fasteners, miscellaneous structural components.
B/E Aerospace Oxygen equipment
Crane Aerospace DC power subsystem
Eaton Flight-deck instrument panels, lighting controls
Emerson Windshield wiper and heater (*Rosemount)
GE Aviation CF34-10A, nacelles, accessories
Hamilton Sundstrand Environmental Protection System/high-lift/auxiliary power unit; fire protection (*Kidde Aerospace)
Honeywell International Flight control system integration and synthesis
MPC Products APU door system
Parker Aerospace Fuel, hydraulic, electrical flight controls
Rockwell Collins Proline 21 integrated avionics system
Zodiac Air Cruisers Emergency evacuation system
*Subsidiary
Partners Abound On ARJ21Partners Abound On ARJ21
Non-U.S. Partners
Antonov ASTC (Ukraine) Wing design, structural strength analysis
Avio-Diepen (Netherlands) Material management
CAE (Canada) Full-flight simulator
Fisher Advanced Composite Components (Austria) Cockpit, cabin interior, kitchens, restrooms
Liebherr Aerospace Toulouse (France) Air management system
Liebherr Aerospace Lindenberg (Germany) Landing-gear braking system
Meggitt Vibro-Meter (Switzerland) Engine interface control unit, engine vibration monitoring system
Safran Sagem (France) Flight deck control suite
Saint-Gobain Sully (France) Windshields and opening windows
Zodiac Evac Vacuum Systems (China) Water/waste
Zodiac Sicma Aero Seats (France) Crew seating
Source: Avic/Rand
Relationships Matter On C919Relationships Matter On C919
U.S. Partners Contribution
Eaton Tubing for fuel, hydraulic systems
CFM International Leap-X engine (GE/Snecma partnership)
GE Aviation Nacelle and thrust reverser (Nexcelle partnership with Safran), common core computing system for avionics and display, onboard maintenance, flight data recording
Goodrich Exterior lighting, landing gear, nacelle components
Hamilton Sundstrand Electric power generation/distribution, cockpit pilot controls (side sticks, pedals, etc.), fire and overheat protection systems (Kidde Aerospace subsidiary)
Honeywell Flight control system, APU, wheels and tires, braking system, inertial reference and air data systems
Parker Aerospace Fuel and hydraulic systems
Rockwell Collins Communication and navigation systems, integrated surveillance system, cabin core system
Relationships Matter On C919Relationships Matter On C919
Non-U.S. Partners
Fisher Advanced Composte Components (Austria) Cockpit, cabin interior, kitchens, rest rooms
Liebherr Aerospace Toulouse (France) Air management system
Liebherr Aerospace Lindenberg (Germany) Undercarriage systems
Source: AW&ST research