riginal equipment manufacturers and trade organizations have pointed to China as the key driver of growth for business and general aviation. With 1.35 billion people and a rapidly growing economy that is supported by just a few hundred business jets, the logic that it will be business aviation’s next great growth market is compelling. OEMs and service providers have lined up to establish presence.O
Yet a deeper look at China’s business aviation market reveals major obstacles to growth. The first is infrastructure. There is clear evidence of limited capacity at the airports that people would want to use for business aviation. A run-up in land prices in major urban areas during the last decade makes large-scale business development infeasible in locations that offer close proximity or convenient access to central business districts, thus limiting the utility of business aviation. Dedicated business aviation airports near Beijing, Shanghai and Guangzhou remain in the early planning stages.
The second obstacle is airspace liberalization. The People’s Liberation Army (PLA) remains in firm control of the vast majority of Chinese airspace, and the pace of liberalization has been slow. Current reforms, covering flights of 1,000 meters (3,280 ft.) and below, are still fairly restrictive and benefit only a few operations, such as those involving helicopters, emergency flights and flight training.
While operators and OEMs remain hopeful that broader liberalization is near, it is not clear whether it will be a patchwork effort or a broad, systemic approach that could genuinely unleash business aviation activity. Moreover, the PLA’s own interests continue to hold sway, as evidenced by the recent imposition of an Air Defense Identification Zone over the East China Sea.
While infrastructure and airspace liberalization pose genuine challenges, perhaps the largest headwinds are political. President Xi Jinping’s major crackdown on corruption is aimed squarely at the Communist Party and the closely aligned business elite.
Many of the micro-effects are well-documented, including a slowdown in the restaurant trade and sales of luxury goods. Last December, a new policy was announced that forbids -Chinese officials from chartering planes or flying in private or corporate jets for official overseas business. In the current environment, it is understandable that any government official might think twice before launching a major infrastructure project that is perceived to benefit wealthy business aviation operators, which could draw unwanted attention from party officials.
According to recent report by Bank of America Merrill Lynch, the Chinese government’s anti-graft campaign could cost the economy more than $100 billion this year alone. The impact on the Chinese economy could be a reduction of GDP growth of at least 0.6% this year and possibly higher. Xi’s dilemma is eloquently summed up by former party elder Chen Yun: “Fight corruption too little and destroy the country; fight it too much and destroy the party.” It appears that business aviation growth will remain of far lesser importance to Xi’s initiative, as least in the near future.
What is the collective impact of this trio of headwinds: infrastructure, airspace and politics? While it is always difficult to obtain accurate statistics in China, it appears that business aircraft use may actually be falling, as fleet growth now outpaces the increase in flight hours. Rumors are circulating that some larger charter operators are looking to station aircraft outside of China, thereby reducing their utility. The mood at the recent Asian Business Aviation Conference and Exhibition was subdued. And this year’s China Civil Aviation Development Forum, possibly the most important annual aviation policy event, was canceled.
A temporary slowdown is not necessarily bad news. It creates opportunity for China Aviation Industry General Aircraft Co., other Avic entities and the growing number of private Chinese companies playing in business aviation to develop and enhance their own capabilities. And then there are OEMs, such as Brazil’s, that assemble business jets such as the Legacy 650 in China (see photo).
Rotary-wing operators and manufacturers will benefit from the airspace liberalization that has been implemented below 1,000 meters. And the pause could give the support service infrastructure—from fixed-based operators to training facilities—a chance to develop and mature. While the long-term fundamentals remain, China reminds us that the road to development in growth markets is not always linear.
Contributing Columnist Kevin Michaels is a vice president at ICF SH&E and leads the firm’s Aerospace & MRO practice. He is based in Ann Arbor, Mich.