China's aviation sector spreading its wings

CHINA - China landed the title of the world's largest car market in 2009, ending more than a century of American dominance. Now, its aviation industry is on its way to becoming the world's biggest too, as its people get richer and travel more, domestically and overseas.

Aircraft manufacturers are taking notice of this potential while regional aviation hubs such as Singapore's Changi Airport are surely watching their backs as economic growth and rising incomes make air travel more affordable to 1.3 billion Chinese.

"Singapore's role as a hub connecting China with Europe and Australia with Europe has already been reduced due to the growth of the Gulf carriers," Mr Brendan Sobie, chief analyst of aviation research firm Centre for Aviation, told The Straits Times.

"With Chinese carriers now rapidly increasing their direct flights to Europe and starting to target Australia-Europe traffic, this trend is accelerated."

The Chinese will make up almost a quarter of all new air travellers by 2017, the International Air Transport Association forecast in a report last December.

This means that China is slated to surpass the United States to become the world's largest domestic air travel market by 2032, said Airbus sales chief John Leahy at the recent Singapore Airshow, a trend that will increase demand for aircraft among Chinese carriers.

China will also zoom past the US as the largest market for Boeing aircraft by 2020, a senior executive of the American airplane manufacturer revealed earlier this month. It delivered 143 aircraft to China last year, a 60 per cent jump from 2012.

Boeing also predicted in a recent market outlook report that China alone would need 5,580 new aircraft over the next two decades, worth a staggering US$780 billion (S$984 billion).

The spike will triple China's current fleet, an impressive expansion considering that the entire European region will require 7,460 new aircraft in the same period, while demand in North America will hit 7,250. There are no country-specific figures.

And the rapid increase in the number of Chinese carriers in the international market means aviation hubs such as Changi Airport might have to adjust to Chinese air hubs muscling in on their turf.

For instance, travellers heading from Sydney to London might opt for Air China with a stopover in Beijing rather than a Singapore Airlines flight with a stopover at Changi.

Growing domestic air travel has also benefited China's aircraft production sector, transforming it from a backwater in aircraft technology to one more integrated into the global supply chain.

Boeing and European aircraft maker Airbus, for instance, have equipped almost all their civil aircraft with "made-in-China" parts, while Chinese-made aircraft have been exported to 40 countries, the state-run news agency Xinhua reported last month.

But headwinds remain, say analysts. China's airlines suffer from perceptions of poorer service standards, a lack of infrastructure and the tight control of airspace by the military. The growth of high-speed rail and risks of economic slowdown could also pull back the industry, experts say.

The attempt by Chinese aircraft maker Comac to compete against Airbus and Boeing with its home-grown large commercial jet has also proven an uphill task, with the aircraft's first flight, originally scheduled for this year, being delayed until the end of next year.

Said aviation expert Shukor Yusof from Standard & Poor's Equity Research: "China's foray into aircraft technology will gradually grow too, but for the time being it's unlikely to play a key role in the international supply chain."

Airbus, for instance, has a final assembly line in Tianjin, but planes made there are currently sold only within China.

Also, while aircraft manufacturers might shift more of their production to China to be closer to the fastest-growing source of airplane demand, there is a limit to their impact on the industry, Civil Aviation University of China analyst Li Xiaojin told The Straits Times.

"Most of the manufacturing involving core technology is still in the West," Professor Li said.

"With labour costs also rising, production in China is less viable compared with the economies of scale for Western manufacturers, who make planes for the rest of the world."

esthert@sph.com.sg

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