China Civil Aviation ReportUniworld, LLC/Francis Chao

September 6, 2005. Dublin, Ireland

China's Aviation Sector -Overview, Current Trends & Opportunities for European

Suppliers

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Before 1978, It was a government business

• China civil aviation basically was an industry that was owned by the state, run by the state and used by the state.

• In 1980 China civil aviation said goodbye to its military system, and started to operate as an enterprise.

• In 2002, new reforms were implemented, more business like since.

• Government role is to regulate instead of serving the industry.

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Air Passenger Statistics

1978 2007

National Passenger Volume(million) 2.3 185 80.4 times

Total Turnover (billion passenger/kilometer) 2.79 277.63 99.5 times

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1978 2007

NationalCargoVolume

638,000 ton 3,948,745 ton

Turnover 97 million ton/kilometer

11.5 billion ton/kilometer

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China Becomes a Major Player in Aviation• 3 times the growth rate of all other

aviation nations during the last quarter century.

• In 2002, China ranked number 5 in world civil aviation turnover, number 4 in passenger volume, and number 6 in cargo and post.

• In 2007, China ranked number 2 in world civil aviation turnover and passenger volume.

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airport• In 1978, there were 78 airports, most

of them small.

• Since 1991, the Chinese government invested 86.3 billion RMB in building more airports, increasing the total number of airports to 141 in 2002 (23 of 4E, 36 of 4D, 40 of 4C 42 of 3C).

• At the end of 2007, there were 148 airports in China.

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Airlines• Airlines grow from 50 aircraft in

1978 to 1,182 aircraft in 2008.

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Number of Airlines Number of Aircraft

Airlines Group(government owned)

4 854

Regional Airlines(government owned)

5 178

Regional Airlines(private owned)

8 104

Others(cargo only)

8 46

Air Traffic Control• 8 Flight Information Regions (FIR)

and one Sanya Area of Responsibility (AOR)

• 27 High Altitude Control Areas, 28 Medium-Low Control Areas, 1 Terminal Control Area, 16 Approach Control Areas and 144 Tower Control Areas.

• Procedure control, radar assisted procedure control, radar control.

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Aircraft Maintenance• 338 CAAC certified MRO operators in China with a total of 33,000 staff. D or 8C check –8 operators, 4C check – 4 operators.

• AMECO is a joint venture between Air China and Lufthansa Technik

• Guangzhou GAMECO is a joint venture between China Southern Airlines Co. Ltd., South China International Aircraft Engineering Co. Ltd. and Hutchison Aircraft Maintenance Investment Ltd.

• Xiamen TAECO is a joint venture company involving Xiamen Aviation Industrial Company, Hong Kong Aircraft Engineering Company, Boeing Aircraft Company, Cathay Airlines, Japan Airlines, and Beijing Kailan Aviation Technology Company (a wholly owned CAAC subsidiary).

• www.camac.org.cn 8

Aircraft Manufacturers (Top-10)

• Shangyang – military aircraft

• Chengdu – military aircraft• Haerbin – Zi-9, Y-12, EC120• Xian – Y-9, MA-60• Shangxi – Y-8• Changhe – Zi-8m Zi-11• Shijiazhuang – Y-5• Hongdu – CJ6• Guizhou – trainers• Shanghai – MD-82/83, MD-

90-309

Large Aircraft Project

• R&D, Manufacturing and Customer Service

• Manufacturing will be handled by AVIC-1 (Haerbin and Shangxi) and AVIC-2 (Xian, Shenyang and Chengdu)

• ARJ-21 is part of the project?

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Aviation Technologies

• Report made by Xian Aircraft Company, The First Aircraft Research Institute and China Flight Test Research Institute stated “Overall, we are 20 years behind the international counterparts”

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Pilot Shortage• China’s airlines are equipped with a

total of 11 thousand pilots operating over 1,000 aircraft. 10% of the local pilots will be facing retirement soon.

• Boeing forecasts that 5,500 pilots are needed within next 20 years.

• The CAAC Flight Academy provides 800 pilots annually.

• “We don’t need GA to supply us pilots, we train our own”

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Reforms• In 2002, State Department initiates

“Civil Aviation System Reform Project” including:

1. Airline reform 2. Airport management decentralization3. Air traffic control system reform4. Civil aviation support infrastructure

reform5. Civil aviation administration system

reform 6. Civil aviation security system reform

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Airline Reform

• Air China, China Eastern, and China Southern, Xiamen Airlines, Shanghai Airlines, Sichuan Airlines, Hainan Airlines, Shenzhen Airlines.

• 8 regional privately owned (RMB 80M in capital?).

• Discussion of regrouping again for better competition and survival.

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Airport Management Decentralization

• All airports in China, except for Beijing Capital and the two airports in Tibet, were handed over to their respective local governments for management and operational control.

• Almost all airports are losing money.

• Non-aviation income is minimal

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Air Traffic Control System Reform

• A three-level management and operational system structure was established, including Air Traffic Management Bureau, a Regional Air Traffic Management Bureau, and an Air Traffic Control Center.

• Focusing now on more operation management and maintenance since the infrastructure was already in place.

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Civil Aviation Support Infrastructure Reform

• China Aviation Supply Import/Export Company

• China Aviation Oil Supply Company

• China Aviation Information Company

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Civil Aviation Administration System Reform

• CAAC and Regional administration levels, which consists of North China, East China, South central, Southwest, Northwest, Northeast, and Xinjiang.

• In addition, 26 civil aviation safety supervision management offices were established

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Civil Aviation Security System Reform

• An air police organization was established to train and certify flight personnel and strengthen in-flight security.

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Investments• CAAC lifting restrictions on domestic

investors and granting licenses for 8 regional airlines, and 10 privately owned GA companies.

• CAAC Ministry of Foreign Trade and State Planning Committee jointly announced “regulations on foreign investments in civil aviation”.

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Foreign Investments• From the years of 1980-2003, the

CAAC, through foreign government loans, foreign investors, finance & leasing, and the international stock market, collected US$30 billion in foreign investments. These investments covered aircraft maintenance, engine repair, ground equipment repair, ground services, manufacturing, air kitchen, civil aviation management, personnel training, among many others.

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Minister Yang Yuanyuan of CAAC Sets Goal for 2020

1. Achieve top 3 ranking in total air transport turnover. (2nd)

2. Achieve top 10 ranking in international passenger turnover.

3. Build one Asia-Pacific hub airport

4. Achieve 3 or more airports ranked in the top 25 on passenger turnover (9th)

5. Achieve 3 to 4 air carriers ranked in the top 20 in passenger turnovers (22nd and 24th)

6. Productivity of Air transport industry to exceed the world average standard.

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Problems faced by China• Fast growth of the aviation sector • Personnel training• Infrastructure• Air traffic control• Information technology • Human resources• Management and operational systems• Legal system• Air transport industry is not very

competitive• High gas and oil prices• International terrorism

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Current Scenario• Business opportunities in

China civil aviation, including:

1. Regional aviation 2. General Aviation/business aviation3. Aircraft MRO4. Airport operations5. Pilot training6. Aviation technologies and management7. Aircraft rescue and fire fighting (ARFF)

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Regional aviation • Currently, among China’s total aircraft fleet, only 75 aircraft have 70 seats or less (12% of total fleet, 3,401 seats). Compare this to the world standard of 30%, and to 50% in advanced aviation nations

• For companies looking to do regional aviation in China, areas currently most suitable include the 500 km radius area surrounding Kunming and Wulumiqi. Also the Qionghai and Bohai Bay areas, including the 500 km wide channel connecting Beijing, Zhengzhou, Wuhan, and Guangzhou.

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GA MAP

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General Aviation/business aviation• Even today, general aviation is still

owned, ran and utilized by the state for government purposes

• In May of 2003 the CAAC issued new Flight Control Regulations, which effectively made GA more accessible and possible.

• August 15, 2005, new regulations were implemented which allowed private investments for air transport commercial operations.

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Aircraft MRO• At the 2004 Asian MRO Conference, Vice Minister of CAAC, Mr. Wang Chang Sun noted the annual expenditure for MRO services in China to be US$ 2 billion

• Currently there are 300 companies providing MRO services in China, including the four major ones, Beijing AMECO, Guangzhou GAMECO, Xiamen TAECO, and Shanghai China Eastern Airlines Maintenance Facility.

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Airport Operations• August 15, 2005 regulations on domestic civil aviation investments, which allows private investors to now be able to invest in airport projects.

• The government is making it more attractive to investors to invest in regional airports, by reducing landing fees, air route fees, and other subsidies and protection

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Pilot Training• In order to meet their 2020 goals, many more pilots will be needed, in addition to training facilities, instructors, training aircraft, simulators, examiners, etc.

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Aircraft Rescue and Fire Fighting (ARFF)

• According to requirements set forth by the International Civil Aviation Organization (ICAO), all airports must meet the standard safety qualifications

• In the recent Air France disaster in Canada, we can see clearly that good ARFF training makes a huge difference between life and death.

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Aviation technologies and management

• At a recent “Transportation Technology & Management Summit” in China, Mr. Sha Hong Jiang, Deputy Director of CAAC’s System Reform Department, stated that, “Currently most airport hardware in China is no different that those of advanced international airports. The problem lies in the management capabilities needed to successfully utilize that hardware.”

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Reform is Working

• Continuing to grow at high speed

• Airlines making profit

• Publicly traded with international involvement.

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Do your homework • learn more in-depth about China’s market, culture, and doing business there. (yes is maybe -business opportunity not necessary means business - give in or give up? Chinese are sensible/logical group of people).

• Moreover, if you plan to do business in China, find some reliable local support that can help you find answers to questions and closely examine the real situation in China

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• Thank You