is teaming with China’s state-owned aerospace conglomerate Avic, a further sign that western aircraft-makers wishing to gain greater access to a burgeoning consumer market will be manufacturing to China.
The U.S. aircraft-maker has signed two separate agreements with Avic and its related companies. The first is to establish joint ventures “that will pursue various activities pertaining to the development of general aviation businesses in China, including the establishment of an aircraft service network in China”, says Cessna.
The second is an agreement with the Chengdu Municipal Government and Avic’s Aviation Techniques Co. “to enter into negotiations to establish a joint venture to produce mid-size Cessna business jet models, as well as a potential new product for the business jet market”.
The medium-sized business jet that will be made in China is the Cessna Citation Sovereign followed by the Cessna Citation Latitude, Cessna CEO, Scott Ernest, tells Aviation Week at the Asian Business Aviation Conference and Exhibition (ABACE) in Shanghai today (March 27). The Latitude is a new aircraft in development, that is smaller than the Sovereign, and is only due to receive U.S.certification in 2015.
Cessna is hoping the number of Sovereign aircraft on order from China will be so strong, the Chinese factory will be kept busy fulfilling Chinese customer deliveries, leaving its North American factories to fulfill Sovereign aircraft orders for customers elsewhere in the world, confirms Ernest.
Also the whole airframe for the China-bound Sovereigns will, to begin with at least, be made in North America. “Initially it will be a case of bringing in the ‘green aircraft’ and then doing the interiors and paint work in China,” says Ernest. Cessna may later consider bringing in the wings and fuselage separately, so that China has the task of attaching the wings, he says. Eventually Cessna may make the main fuselage in China, for Sovereigns sold in China, but that will be the extent of it, he adds.
Cessna already has experience in China on final assembly of aircraft. It has Avic’s Shenyang Commercial Aircraft Co. making Cessna 162 Skycatchers for the global market. Skycatcher is a single-engine piston light-sport aircraft. Cessna chose to make Skycatchers in China because the low-cost base allows it to achieve the cheaper price point consumers demand for such a small entry-level aircraft.
“We’ve been working with Shenyang Aircraft for four years now and it has taught us that you have to be very good at working with people on the ground. That you need to have good technical support people on the ground to explain the different processes and that you have to have a good supply chain and logistics, so that the right products are coming in [to the factory] to ensure that it’s a succinct [manufacturing] process”, says Ernest.
Many of Cessna’s suppliers are already making components and parts in China, says Ernest, adding that he anticipates more will be in future, especially now that Cessna has disclosed it will be assembling and later developing business jets in China.
Ernest downplays the cost benefits of China by saying that labor only accounts for 15% of the total cost of a business jet. But manufacturing in China does have its tax advantages. Business jets imported into the country are subject to value added tax of 17% and import duty of around 5%. One of Cessna’s challenges will be ensuring parts and components imported for the assembly of aircraft in China avoid these taxes. Ernest says this is one of the issues that will need to be addressed.
The project that is far more significant is Cessna’s deal to jointly develop and manufacture a new, larger jet with help from Avic, which had been searching for over a year for a partner for this initiative.
“We were in a competition with several other aircraft manufacturers for the opportunity to work with Avic on this,” says Ernest, adding that “we feel we have a strong brand and the ability to develop business aviation, and general aviation for that matter, throughout China.”
This deal is important to Cessna because it gives it greater access to the China market and helps expand its product line-up. “My experience working attaught me it is always good to get in on the ground floor,” says Ernest, who became CEO of Cessna last May and was previously Aviation VP and general manager of global supply chain.
He says: “China is a very good market that continues to grow. Having a local partner in that market gives you incredible market access.” Ernest also says it helps one to better understand local customer requirements and respond more quickly to them.
Ernest declines to say if the new business jet will have long-range capabilities. “We’re still doing the business study, but I can tell you it’s going to be bigger than any product we currently have.”