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Growing Chinese bizav power cross-border investments
1 Dec 11
Warren Buffet appears on the print ad for U.S National Business Aviation Association (NBAA) with the theme: "NO PLANE NO GAIN" and his remarks: "Do you really know what's on the table if you're not at the table". Given direct translation this ad can aptly be put to use in the Chinese context to promote business jet (bizjet). Wealthy Chinese businessmen and large corporations' honchos are flying in bizjet in recent years, and travel with these 'business tools' around the globe where opportunities arise.
Several weeks ago when I landed in Manila from Japan due to bad weather in a bizjet, I saw Chinese-registered bizjets at the airport. This I assume could be the result of Chinese President Hu Jintao's meeting with Philippine President Benigno Aquino III in Beijing this August where the Chinese government promise of more investments in the country. My guess was further proven positive when the ground handler told me that there are more Chinese bizjets arriving in Manila - a sure sign of Chinese FDI into the country.
Today, to meet Chinese investors growing interests in investing in Africa, Russia and Commonwealth of Independent States (CIS), the Middle East and Latin America, several large Chinese airlines offer bizjet services that take their passengers into remote or less-travel routes to seal multimillion deals. Air China, for instant, has in its bizav fleet, one each from Airbus Commercial Jet, Bombardier Challenger and Gulfstream.
Last month, at the 64th annual NBAA's Las Vegas bizav airshow, the Chinese market became the limelight and talkabout topic at the event. Besides adding more discussion topics on China, the surrounding talks were about growing Chinese market for aircrafts, parts and related services. Deals speak louder than talks. During the event, Minsheng Bank inked a MOU to acquire 20 French Falcon Dassault, adding to 5 already delivered. Earlier, it has ordered 17 bizjets that include Cessna, Dassault Falcon and Hawker Beechcraft, and another MOU that covers up to 50 Gulfstreams with unspecified mix of G250s, G450s, G550s and G650s-worth a potential USD 2.6 billion.
Besides Minsheng Bank, Chinese bank giants: ICBC, BOC, CDB (China Development Bank), CCB and about ten other Chinese financial institutions offer aircraft financing. These banking giants have financed domestic and, as well as, foreign airliners, and BOC Aviation is already the largest in Asia.
In spite of the country's strict regulation on general aviation, China has the fastest growth rate in business aircrafts. Its bizav fleet has grown from merely 28 in 2008 to 46 in 2009 and will cross the 200 mark, including Hong Kong and Macau, by 2012. Jason Liao, China Business Aviation, predicts that, in 10 years, his country would have 1,000 business aircrafts. According to Bombardier's market forecast the number for 2011 - 2020 period in China is close to 10% of the 10,000 business aircrafts expected to sell worldwide with an estimated total value of USD 260 billion. The Chinese would definitely contribute a large proportion in terms of dollar value as buyers from this market usually buy the larger and longer-range bizjets.
Adding fuel to the growth of bizjets could come from internationalization of Chinese currency, the Renminbi. In August, Airbus accepts the payment for its 42 commercial airplane valued at RMB 20 billion or an equivalent of USD 3.13 billion on a cross-border RMB settlement by ICBC Leasing Co Ltd - the first such purchase settling in Chinese currency.
China supports aviation in accord with its 12th Five Year Plan, the period between 2011 and 2015, where financial support and incentives be granted to the general aviation, aero-parts manufacturing, the training and skills upgrading for its pilots and engineers, and medical air-evacuation. The number of civil airports is expected to grow from 156 in 2009 to 244 by 2020.
Many aeronautical related parts manufacturers are expanding production line and increase in the country's spending sin R&D at several Chinese cities are boosting its engineers and skilled workers in the industry. These cities that benefitted from it include Tianjin, Beijing, Chengdu and Xian.
The current headwind in China bizav is the snail-pace revamp of the China civil aviation administrative issues and plethora of regulatory rules, it is not conducive to the smooth sailing for the industry to deregulate and achieve the most optimum operating space. Take for example, the ground-handling fee which charges between USD 4,000 and USD 9,000 for a foreign registered bizjet to land is too costly compare that to U.S. that could be a negligence amount because money in made from refilling jet fuel. Only Hongqiao Airport has a facility, a JV with Australia-based Hawker Pacific Ltd, that provides maintenance, repair and overhaul (MRO) and handling service for bizjets that land in Shanghai.
China also imposed heavy taxes on imported bizjets. One fifth of the purchase price is to be added for the total cost. Hangar and parking fees are generally higher and space to shelter the bizjets is limited and costly at facilities in Shanghai, Beijing, Hong Kong and Zhuhai.
In the U.S., some economists and aviation analysts would use the rate of bizjet utilization in the country as indicator of business activities. Like in the maritime shipping world, economists and fund managers that trade on macro-economic trends, would use the Baltic Dry Index, which reflects the cost of chartering (hiring) vessels for transporting major raw materials, as an indicator of a country's, regional or global trade flows. Hence, though no exact science with precision, the number of business ownership and utilization could be a useful forecast of the direction Chinese investors' FDIs.
Singapore receives about 120 landing of bizjets a month at its Changi International Airport's CIP Terminal. About 40% comes from China and Hong Kong, an increase in such arrival could translate into more investments from China if such is a reliable gauge of China's FDI direction (flight).
*This article was published in Business Times on the 29th Nov 2011.*
About the Author
Charles Chaw is the group managing director of China Knowledge, the organization is in the business of consulting, market research, financial advisory, publishing, tv media and newswires. He is executive producer of two TV documentaries titled: "Inside the World's Largest Factory" and "Inside China Next Powerhouse". Charles is also an enthusiast of the aviation.
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