Business jet sales to China and India are set to surge as corporate and private wealth increases and bureaucracy is lifted, reports Martin Roebuck
Investment bank Goldman Sachs defines a growth market as any country outside the developed world accounting for at least 1% of
global GDP. The short list unsurprisingly includes five Asian
countries – Russia, India, China,
South Korea and
Indonesia.
Where economies are growing, business aircraft sooner or later follow. Bombardier says China has suffered from restrictive airspace access, hefty taxation of imported aircraft and high user fees, leaving it with a very small number of business jets relative to the size of its economy.
However, increasing personal wealth, increased cultural acceptance of business aviation and the liberalisation of airspace and flight planning are heralding rapid change. In its latest Business Aircraft Market Forecast, Bombardier says that China’s business jet fleet penetration will grow from 16 to 195 per 100 million of population by 2031, translating into 2,420 deliveries.
China will become the third largest region for business jet deliveries and its fleet will grow from 210 aircraft at the end of 2011 to 2,590, a compound annual growth rate of 13% over 20 years.
Despite the recent slowdown in its economy, analyst IHS Global Insight believes China will record annual average GDP growth of 6.3% for the next 20 years, with India likely to expand even faster at 7.4% per year.
Han: As domestic travel needs within China and across Asia increases, there is also a growing need for smaller aircraft
Similar issues to those in China, including lack of aviation infrastructure, government bureaucracy and high import duties have prevented India’s business aviation sector from realising its full potential. But Bombardier is encouraged by plans to bring more than 30 currently unused airports into operation and modernise many more. It expects the bizjet fleet to grow from 12 to 121 per 100 million people over the next 20 years. The fleet of 115 business jets in India in 2011 will grow to 1,420 by 2031, with a CAGR equalling China’s at 13%.
Other economies in Asia, such as South Korea, Thailand, Vietnam, Singapore and Indonesia, have industrialised rapidly over the last 10 years, growing at an average of 4.8% annually. Although export activity has recently softened, Bombardier says emerging Asian economies’ real GDP growth should average 4.1% annually for the next 20 years.
Michael Han, regional VP sales, China, for Bombardier Business Aircraft, says: “Traditionally the market in China has favoured larger aircraft. Long-range travel remains a key requirement, but as domestic travel needs within China and across Asia increases, there is also a growing need for smaller aircraft. The installed base is still relatively small but it is growing at a fast pace.”
Bombardier sells to both private individuals and companies in China, and increasingly to a new generation of locally based charter companies such as Donghai Jet in Shenzhen.
Embraer says less than 4% of the active global business jet fleet is currently based in Asia, but expects this to change rapidly. The company puts Chinese demand at 635 executive jets over the next 10 years, rather lower than Bombardier. But it agrees on where demand will be strongest, with 40% of orders predicted to be in the super-midsize, large and super-large categories. This year Embraer delivered its first Lineage 1000 to a mainland China customer, investment group Xinjiang Guanghui.
Crucial to Chinese sales, Embraer believes, is the increasing involvement of Chinese banks in aircraft financing and leasing. Minsheng Financial Leasing officially acepted delivery of the first of 13 Legacy 650 aircraft at this year’s ABACE exhibition, where MSFL chairman Kong Linshan said the company – which has also ordered three Lineage 1000s – aimed to become one of the world’s top leasing companies.
Another local lessor, ICBC, will be the launch customer for Chinese-built Legacy 650s, which Embraer is to start building in Harbin through HEAI, its existing joint venture with Aviation Industry Corporation of China (AVIC).
A former ERJ145 regional jet assembly line, currently being converted, expects to roll out its first Legacies by the end of 2013. Annual production will be around six aircraft per year, mainly for the China market, but a spokesman says Embraer is not ruling out exports to the rest of Asia.
Embraer faces competition in the Chinese market from its own joint-venture partner, AVIC. In March, Cessna signed an agreement with AVIC to develop and produce medium and large-sized business jets in China.
The country’s wealthiest entrepreneurs prefer to flaunt their success via large-cabin jets and bizliners, according to Steve Taylor, president of Boeing Business Jets. Speaking at ABACE, he said that 55% of Chinese orders were at this top end of the market, compared with just 21% worldwide.
Boeing has sold 10 BBJs to China, including three to Beijing-based charter operator Deer Jet. Airbus has done similar high-end business, selling 20 ACJ aircraft in China.