Chinese Aviation Industry

Fusing Chinese Commercial and Military Aviation Industries
Publication: China Brief Volume: 8 Issue: 23
December 8, 2008 10:57 AM Age: 37 min
Category: China Brief, Military/Security, China and the Asia-Pacific
By: Eugene Kogan

The year 2008 will be remembered as a turning point in the history of China’s aviation industry from its slow to accelerated pace of restructuring. The restructuring process began in June 2007 with the separation of the commercial aircraft industry from its military sector. The industry's development accelerated in 2008 through the allocation of funds and the decision on which enterprises will be allowed to join the commercial sector; and it is likely to reach its peak in 2009 through a fusion of the two components of its aviation industry. The Zhuhai Airshow and exhibition of a broad range of indigenous tactical guided weaponry, including the J-10 military fighter and unmanned aerial vehicles (UAV), highlighted the increasing maturity of the industry and its achievements over the last twenty years. Although officials of the Chinese aviation industry play down the importance of its new project, namely the 150-seat indigenous large commercial aircraft, they are aware of its significance as a milestone in China’s civilian aviation industry.

The AVIC I and AVIC II are expected to take leading roles in building the 150-seat commercial aircraft with their financial involvement probably coming from the provision of manufacturing assets, rather than as cash (Flight International, February 5-11). Discussions between the manufacturing groups party to the possible merger were successfully concluded on May 11 and China finally established a potential competitor to Airbus and Boeing under the name Commercial Aircraft Corporation of China (CACC, also known as Comac), which is based in Shanghai. Officials of the Chinese aviation industry tend to play down the potential rivalry and clearly state the route to becoming a real rival is long and hard. The key asset and probable core of the new business will be AVIC I’s commercial aircraft company, known as AVIC I Commercial Aircraft Corporation (ACAC).

According to Chinese state media, the central government, which is the largest shareholder of the corporation, will contribute 6 billion yuan (about $900 million equivalent) of the 19 billion yuan ($2.7 billion) in capital. Next will be the Shanghai municipal government, whose 5 billion yuan (about $800 million equivalent) support reflects its plan to keep the major facilities in that city. Finally, assembly will be at one of three of Shanghai’s sites that are currently under consideration. AVIC I is providing 4 billion yuan ($540 million equivalent), most of it probably in the form of ACAC (Aviation Week and Space Technology, May 19; April 7). AVIC II is only chipping in 1 billion yuan ($115 million equivalent), as are the state firms Baosteel, Chinalco and Sinochem (Idem; April 7). One pioneering approach CACC is considering is to make it publicly traded on the Hong Kong Stock Exchange in order to raise capital to fund its development costs (Jane’s Defence Weekly, July 30). It is already apparent that some senior staff at ACAC who are now involved in the ARJ21, 90 to 105-seat regional aircraft project, also share responsibility for the development of the 150-seat commercial aircraft. However, having resources within Comac split between two different aircraft programmes could pose challenges, particularly when the ARJ21 programme is experiencing delays (Flight International, October 28; November 3).

Wider Restructuring

It should be remembered, however, that the formation of CACC is only part of a wider restructuring of China’s aviation industry. In addition, restructuring entails the continuing separation of civil and military plants, a process that began in June 2007, and the promotion of commercial practices in a drive for higher efficiency, beginning with civil facilities. It is likely that reforms will continue until the whole civil aviation industry is operating on a fully commercial basis and is subject to private shareholder demands. Plans for the military plants are less clear, but the Chinese government has said it wants them to remain under state control (Aviation Week and Space Technology, May 19). The merged company, which was created (but not yet inaugurated) after the merger of the AVIC I and AVIC II and is known as China Aviation Industry Group Corporation (AVIC) will own nearly all of China’s non-CACC aviation plants. According to one foreign industry executive, the reasoning behind the merger is “simplification and rationalization of the industry, particularly concerning military business.” According to the same executive, there was no significant economic benefit from the 1999 split because it did not open the sector to foreign competition. Only opening up to domestic competition, while excluding foreign competition, causes more problems than it creates. Chinese executives are saying that they expect further reorganization because the sector still has a long way to go until companies look and operate like western companies, which is evidently the government’s long-term aim for this industry (Aviation Week and Space Technology, June 2).

Yet experts also see a veiled strategy to the merger. China’s defence interests are expanding and plans include the development of advanced fighters and bombers, along with a stealthy unmanned combat aerial vehicle, the Anjian (Dark Sword). Access to advanced Western commercial aviation technology can rapidly transform to assist in military goals. Thomas Kane, author of Chinese Grand Strategy and Maritime Power, notes that “One official purpose of the merger is to facilitate production of new commercial passenger aircraft. I seem to recall that the Luftwaffe (German Air Force) used a similar programme to develop bombers” (Defense News, August 4). Kane also added, that “China, like Great Britain, has an established tradition of adapting civilian hardware to military purposes. So, if the AVIC merger works as planned (that is the crucial point, author’s italics), it has the potential to build up China’s force projection capabilities. If the merger and joint ventures with foreign corporations make the new AVIC more profitable, that will ultimately feed back into military capacity as well.” According to Larry Wortzel, chairman of the U.S.-China Economic and Security Review Commission, improvements in China’s commercial aerospace industry will quickly equate to better military aircraft. He added that the greatest improvements are coming from the exposure of AVIC personnel to US quality control techniques, improved systems engineering and advanced research-and-development skills. This will no doubt give the People’s Liberation Army Air Force (PLAAF) a much-needed boost (Defence News, August 4).

The Final Touches

In the proposed model, CACC intends to become the Chinese equivalent of Airbus and Boeing. In the recent issue of Aviation Week and Space Technology (November 10), the final touches to the emerging Chinese companies were highlighted under the auspice of AVIC. They are:

The Transport Aircraft Company, responsible for the production of civilian aircraft structures and building commercial turboprops. The company needs to compete for the work from Airbus, Boeing and other foreign aircraft-makers. It is also likely to be a supplier of military transports. `Transport Aircraft´ is only a preliminary, working tag for the company. Officials say that, like most of the other new business units, it will be rebranded later.

The Defense Division will be home to the J-10 fighter aircraft and guided-weapons business. The most striking aspect of plans for the Defense Division is the proposed sale of shares in the military venture. China evidently wants to develop a defense company that is structured more like BAE Systems or Lockheed Martin than a government munitions department. While the commercialization of the Defense Division will naturally take longer than that of civil units, officials expect a stock market listing within five years (Aviation Week and Space Technology, November 10). However, it is usual for a stock market listing to take a little longer than initially expected. These companies include:

• Avicopter, which brings together the country’s helicopter plants, will build all Chinese helicopters, including those for the armed forces.

• Aviation Engine Industry Corporation Limited combines propulsion plants and research centres. Aviation Engine Industry wants to build its own commercial turbofan.

• General Aviation Corporation is attempting to construct a business jet of about the same size as a Challenger 850.

• Aviation Systems Corporation, China’s answer to Rockwell Collins, Thales, Honeywell and Goodrich, is the most complicated of the new businesses, reflecting the multifarious nature of aircraft equipment. The crossover between civil and military technology in radar, for example, suggests that the business will also be a military supplier (Aviation Week and Space Technology, November 10).

Undoubtedly, there are many critics who cite the problems of time and money for building a potential challenger to Airbus and Boeing, adding that there are no signs that the Chinese government plans to transition CACC to the private sector any time soon (Flight International, May 20-26). However, they tend to forget that—in general—Chinese leaders are very persistent and tenacious in achieving their goals, in particular when one of their goals is in commercial aviation. Chinese political leaders together with managers of the commercial aviation industry have realized the importance of the industry in order for China to accomplish technological breakthrough and to augment this breakthrough into the military aviation sector. As a result, it can be said, that the same rules of tenacity, persistency and consistency that applies to the government’s desire to develop a civilian sector, also applies to the military aviation sector.

Military Aviation Industry

Russian specialists who have worked in China remain impressed by the scale of their resources and the funding that has been poured into China’s military aviation programmes. One of them told Jane’s that "The advance in facilities at Chengdu Aircraft Corporation (CAC) has been astonishing over the last twenty years. They now have a huge site with completely new test and development facilities, laboratories and an entirely new production line—quite apart from what was there to begin with" (Jane’s Defence Weekly, May 21). The Commission of Science, Technology and Industry for National Defence (COSTIND) has revealed that the earthquake that struck Sichuan province on May 12 brought “heavy loss” to the region’s aerospace and defence industrial base. Speaking on May 19, Chen Quifa, COSTIND deputy minister, confirmed the anxieties raised in the local media. While the financial impact on the aerospace and defence industries is not yet known, the economic loss is expected to be a high proportion of the 67 billion yuan figure ($9.6 billion) (Jane’s Defence Weekly, May 28). Despite the heavy losses, the author expects the Chinese government to continue financially backing the crucial enterprises for aviation and defence that are located in earthquake-prone places such as Sichuan province.

Defence industrial enterprises also hope that leveraging the commercial technologies and business practices of civilian firms can lead to major productivity and efficiency gains, as well as improvements in the products. For instance, the development of the Chengdu Aircraft Corporation FC-1/JF-17 fighter shows the benefits that have been reaped by employing commercially available technology and know-how. CAC was able to reduce the time frame for the research and design of the aircraft by as much as 50 percent through the use of computer-aided design and manufacturing software (Jane’s Defence Weekly, July 30).

Dual-Use Technology

Finally, with regard to dual-use technology items, a good example is the JF-17/FC-1 flight simulator displayed by the Beijing-based China National Aero-Technology Import and Export Corporation (CATIC) at the Singapore Airshow in mid-February 2008. The simulator provides basic fighting training, emergency procedure training and combat mission training (Training and Simulation Journal, April/May 2008). Chinese officials said that a freighter version of the commercial aircraft, possibly for military use, may come first. Such a strategy would allow the military operation would help sort out the bugs and thus reassure airline customers. A military project might also serve as a cover for subsidies. Moreover, a small wide body aircraft, serving as a freighter and, potentially a tanker, has obvious military value—just like the 767 and A330 tanker-transports (Aviation Week and Space Technology, May 19). According to Guo Xin, president of the company’s Gas Turbine Establishment, which is a part of the Aviation Engine Industry Corporation Limited, “China will certainly build an engine for an aircraft with 150-180 seats.” Xin added that the civil engine will play the same role in launching the Chinese commercial engine integration as the ARJ21 regional craft is playing in the establishment of a national commercial airframe industry. Cruise-missile engines may also be derived from the family, although power plant tolerances and components would be revised (Aviation Week and Space Technology, November 10).

The duality of the aviation industry’s output will remain on the agenda. The spill-over from commercial aviation into the military sector will continue and, as a result, will strengthen the already robust military aviation infrastructure. Despite Western disbelief and constant criticism of advancement in the Chinese commercial and military aviation, the latter has made steady progress and shown repeatedly that it is capable of regenerating itself. The financial investment made into the training of aviation engineers, technicians and managerial staffs has finally been repaid after twenty years.

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2008年：实现9机立项、7机首飞、5机鉴定、1机定型！
历经九年，航空工业两个集团合而为一，在全面实施了有史以来最重要的一次改革调整后， 我国航空工业站在了新的起点上，面对严峻的内外环境，只有放手一搏 逆势而上 再造中国航空工业魂魄 。




　　1月12日，中国航空工业集团公司2009年峰会在北京召开。会议全面总结了2008年工作，分析了当前航空工业面临的严峻形势，要求全集团干部职工深刻领会、坚决贯彻以胡 锦 涛同志为总书记的党中央关于国防、军队和军工发展改革的观点和思想，明确把握航空工业的战略定位，勇于变革，大胆创新，不保守、不懈怠，不忽悠，实现建设航空工业强国的目标。集团公司党组书记、总经理林左鸣作了题为《放手一搏，逆势而上，再造中国航空工业魂魄》的工作报告。


　　会议由集团公司党组副书记、副总经理谭瑞松主持。他首先宣读了中共中央政治局常委、全国人大常委会委员长吴邦国，中共中央政治局常委、国务院总理温家宝，中共中央政治局常委、全国政协主席贾庆林，中共中央政治局常委李长春，中共中央政治局常委、国家副主席习近平，中共中央政治局常委、国务院副总理李克强，中央军委副主席郭伯雄对集团公司工作和2009年度峰会的重要批示，传达了国务院副总理张德江1月8日到集团公司总部检查工作期间的指示精神。


　　2008年是中国很不寻常、很不平凡的一年，也是航空工业的改革调整年。航空工业干部职工勇敢应对自然和社会多方面的重大考验，紧急组织了历史上最大规模抗震救灾行动，积极应对历史上罕见的金融危机，全面实施了有史以来最重要的一次改革调整，航空工业两个集团重组整合为中国航空工业集团公司。全年实现总收入1660亿元，同比增长13.7％。按经济规模衡量，已经进入世界500强。实现利润和收益72亿元，同比增长11.58%。具体表现为，航空装备研制取得新进展， 实现9机立项、7机首飞、 5机鉴定、1机定型。民机销售取得新进展，“新舟”60获确认订单和意向订单累计146架，在海外7个国家近百条航线上安全运营，并成功实现国内首航；“ 新舟”600签订两架确认订单和10架意向订单。民机研发不断加强，实现了“新舟”600、农五B两机首飞；“新舟”700可行性论证全面展开；“蛟龙 ”600大型水陆两用飞机立项批复正在财政部签审；EC175/直15完成首架机体交付任务；与俄罗斯签订了新型重型民用直升机合作框架协议；直八F取证工作全面展开；“海鸥” 300、“小鹰”500、运十五-2000、30座级涡桨多用途通用飞机、运十二F快速推进；积极支持新支线飞机和大型客机研制。国际合作成效显著，转包生产全年交付额完成6.39亿美元，同比增长35%，其中发动机转包生产交付3.3亿美元。非航空产品和三产业务稳步增长。

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Russia Admits China Illegally Copied Its Fighter
By wendell minnick
Published: 13 Feb 12:29 EST (17:29 GMT)


BANGALORE, India - After years of denial, a Russian defense official conceded that China had produced its own "fake" version of the Su-27SK fighter jet in violation of intellectual property agreements.

"We are in discussions with China on this issue," said Mikhail Pogosyan, first vice president on program coordination, Russian Aircraft Corp., during a press conference here at the Aero India trade show.

In 1995, China secured a production license to build 200 Su-27SKs, dubbed J-11A, for $2.5 billion for the Shenyang Aircraft Corp. The deal required the aircraft to be outfitted with Russian avionics, radars and engines. Russia cancelled the arrangement at 95 aircraft in 2006 after it discovered that China was developing an indigenous version, J-11B, with Chinese avionics and systems.

China produced six J-11B fighters for testing, but despite efforts to produce a suitable replacement for the Russian engine, the new fighter was outfitted with the same AL-31F, said Andrei Chang, a China military specialist at the Kanwa Defense Center. One J-11A was outfitted with the indigenously-built WS10A Tai Hang turbofan engine, but the J-11Bs are still using Russian AL-31Fs due to technical difficulties, Chang said.

Pogosyan and Russian Defense Minister Anatoly Serdyukov traveled to Beijing in December to attend the 13th session of a Chinese-Russian joint commission on military and technical cooperation and apply pressure to Chinese officials. Ultimately, China agreed to protect intellectual property rights and stop illegally copying Russian military equipment.

"I think this was a big step to make this issue more transparent and more precise in our future discussions," said Pogosyan, who also serves as the general director of Sukhoi.

Russia fears that China would mass-produce cheaper export versions of the Su-27 for the international market, and China feared that Russia would cancel future orders for advanced arms, such as the Su-33 combat jet for China's aircraft carrier program, Chang said. Chinese violations of the end-user agreement would be particularly upsetting to Russia's long-time strategic partner India, if Pakistan buys the Chinese-built Su-27 version.

However, Pogosyan downplayed the quality of the Chinese effort, saying a copy of a copy would not be a good aircraft.

"If we speak about the copy of the airplanes, I think that in this case, the original will always be better than a slightly modified copy," he said. "The original made by the designer who developed the product is always better, and it is a better start for a new program with the original designer and developer than making a fake copy."

He said buying copies makes it difficult to overcome problems occurring during the lifetime of the aircraft, while the original developer knows from experience how to deal with these issues.

Chang does not believe China will honor the intellectual property agreement, or any agreement with Russia, and will continue to develop the J-11B as a totally indigenous aircraft. However, China will move cautiously until it secures deals for the Su-33 carrier-based fighter. China is beginning to build its first aircraft carrier and needs Russian technology and experience, Chang said.

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