With obviously strong funding and rising technical skills, China's civil aircraft production is seeing marked advances in its sophistication. After decades of slow progress, the industry is now turning out large and technically difficult components of aircraft for foreign OEMs, while less assuredly developing its own.

Its great shortcoming, however, is in labor efficiency. Avic, the organization at the core of the industry, has more than 400,000 employees, compared to Boeing's 170,000. Even allowing for its military and non-aviation activities, Avic seems grossly overstaffed. Western industry executives consistently report that Avic employs inordinately large numbers of people in production. With so many workers to use, Chinese managers seem to have little incentive to increase labor efficiency. The result is high-quality civil aerospace production with doubtful profitability.

Technical capabilities at Avic and its commercial-jet offshoot, Comac, have been accelerating. From mainly small and simple structures up to the 1990s, Avic's subcontracting work this century has moved into impressively difficult aircraft assemblies, notably the outer wings of the Airbus A320 and most of the fuselages of the Bombardier Q400 and CSeries. Composite work includes the rudder of the Boeing 787 and the enormous inboard flaps of the 747-8. Airbus has said the A320 wingboxes built by Avic Aircraft in Xian compare well with products of the plant at Broughton, England.

No one doubts that Avic can deliver quality. But things become harder for Avic when production rates must rise, say industry executives. Increasing the rate for A320 wings appears not to have been easy, for example. Since resources are usually not in short supply, Avic's problem in building things faster is evidently managerial.

Even when high-quality products are being built at targeted rates, profits are thin or non-existent because so many hours are spent on the work, say industry executives. To some of those observers, Avic managers have little awareness of the need to cut labor costs. “In their factories, one problem is that they are still struggling with the Soviet model, in which the more employees you have, the more important you are,” says one. Moreover, “they want to give them all something to do.” The military roots of this practice are not only in the past; even now Avic takes no monetary risk on its defense programs, instead charging cost plus profit, say industry officials.

Yet, despite the application of large numbers of people to production, Avic managers frequently tell Aviation Week that the rising cost of labor is among their key problems. Others are the unfavorable movement in the dollar-yuan exchange rate and rising prices for raw materials. A senior Avic manager, highly critical of the group's labor efficiency, thinks in many plants only 10% of the workforce is needed. The reform of one factory last decade demonstrated that, he adds. In general, management quality in the Chinese industry is improving, industry officials say. But it has far to go.

None of this means Avic and Comac lack highly skilled people. “Even in the mid-1990s, there were people whose work and knowledge was very impressive,” recalls a Western executive with longer experience than most in China. “They were world-class aircraft manufacturing guys.” Two decades later, it is all the easier to find such experience. Avic could get more out of its employees if it had a better management culture.

Private ownership and control would make a difference, but the chance of that being instituted is remote, even if parts of the company are listed on stock exchanges. There was talk in 2008, amid a big reorganization, of greater private involvement.

Avic Aircraft, with a focus on large airplanes, now has affiliates at Shenyang and Chengdu (SACC and CACC, respectively) that focus on commercial work completely. They should, in principle, offer a chance to break free of wasteful habits. Consistent with that, SACC is taking a cautious approach to installing new equipment (AW&ST July 15, p. 33). On the other hand, some industry officials familiar with Avic think the new units will struggle to shed the culture of the rest of the group. Comac's position is similar, except that it is lavishly funded for the C919 narrowbody airliner program, a national priority, so penny-pinching is unlikely.

Spokemen for Avic units were unable immediately to offer comments or did not respond to Aviation Week requests.