China Unveils Passenger Jet, Challenging Bombardier Embraer
China Unveils Passenger Jet, Challenging Bombardier (Update2)
By Lee Spears
Dec. 21 (Bloomberg) -- China introduced its first passenger jet today, taking on Bombardier Inc. and Empresa Brasileira de Aeronautica SA in the world's fastest-growing aviation market.
China Aviation Industry Corp. I, the nation's biggest plane maker, rolled its first ARJ21 regional jet off the assembly line at the Shanghai Aircraft Manufacturing Factory today, the official Xinhua news agency said. The 70-to-90-seater jet is slated to be test flown in March and delivered to the first customer in the third quarter of 2009.
The ARJ21, or Advanced Regional Jet for the 21st Century, is the first step in China's ambition to become a global aircraft maker and capitalize on a domestic aviation market forecast to need as many as 3,400 new planes in the next 20 years. Winning orders against Bombardier and Embraer will be a challenge because of the ARJ21's unproven technology, analyst Jim Eckes said.
``It'll be a hard sell,'' said Eckes, managing director at Hong Kong-based aircraft-leasing company Indoswiss Aviation. ``There are a number of planes available today in this seat range. The Chinese are trying to break into the market and, to a degree, reinventing the wheel.''
The jet was also dubbed Xiang Feng in Chinese, meaning ``flying phoenix,'' Xinhua reported today. Foreign media were barred from attending the ceremony where the jet was unveiled.
AVIC I, as China Aviation Industry is known, aims to secure 80 orders for the 250 million yuan ($34 million) ARJ21 by the end of this month, Xinhua said in September, citing an unidentified company official. Buyers such as Shandong Airlines Co., Shanghai Airlines Co. and the government of Laos have placed 73 orders, AVIC I Vice President Hu Wenming said in September. A similar-sized Embraer 175 jet costs about $30 million.
Midsize Jets
Bombardier rose 4 cents to C$6.02 at 4 p.m. in Toronto Stock Exchange trading. Embraer fell 27 centavos to 20.32 reais in Sao Paulo.
China will need 330 new midsize jetliners in the next 20 years, with global demand reaching 3,700, according to a forecast by Boeing Co., the world's second-largest commercial plane maker.
Mitsubishi Heavy Industries Ltd., Asia's biggest aerospace company, is also planning Japan's first domestically built passenger jet to compete on local routes.
Chinese aviation authorities are working with the U.S. Federal Aviation Administration to facilitate the jet's certification abroad. It may take time to attract customers, according to Hu.
``We're well aware that in the international market there's not a very good impression of China's ability to build commercial aircraft,'' Hu said at a conference in Hong Kong in September. ``That's why we're not expecting a big purchase order before we launch the project.''
Western Certification
The program to produce the first Chinese passenger plane aimed at meeting Western certification requirements began in 2000. The ARJ21-700 model introduced today is being developed for domestic sale, AVIC I said. The company is also partnering with Bombardier to develop the stretched, 120-seat ARJ21-900 for sale abroad, Chen Guanjun, president of marketing and international cooperation at AVIC I, said on Sept. 3, without giving a timeline.
AVIC I also plans a freighter and a business jet built on the ARJ21 platform. China's domestic airlines, many of them state-owned, will help AVIC I sell more than 500 aircraft in the category in the next 10 years, Hu said.
China, which has yet to successfully export a passenger car to the U.S., is investing in its aerospace industry to eventually challenge Boeing and its bigger rival Airbus SAS. China's Premier Wen Jiabao in February this year approved a strategic plan to build a large passenger plane by 2020.
Little Success
AVIC I also builds military planes and the 50-seat MA60 turboprop, about 100 of which have been sold to local airlines and in developing countries. It sold 150 of its previous turboprop model, the Y-7, between 1984 and 1999. The second of two Y-7s crashed in 2000, killing all 42 passengers and crew.
By March, companies including AVIC I and its smaller state- owned rival AVIC II will invest ``tens of billions of yuan'' in a new venture to helm development of the new plane, China Daily reported on Dec. 12, citing AVIC II Vice President Liang Zhenhe. China Erzhong Group Co., a state-owned heavy machinery maker, is building a 1.5 billion-yuan press forge, the world's largest, to make parts for the jumbo jet, according to its Web site.
While AVIC I bills the ARJ21 as being developed solely with Chinese technology, many key parts are being sourced from overseas, including engines from General Electric Co., electronics from Rockwell Collins Inc. and flight controls from Honeywell International Inc. and Parker Hannifin Corp.
Outsourced
GE rose 62 cents to $37.14 in New York Stock Exchange composite trading. Rockwell Collins climbed $1.82 to $73.39 and Honeywell gained 2 cents to $60.71. Parker Hannifin surged $1.16 to $75.55.
``The challenges are quite obvious for a young aviation industry like China,'' Pui Ho, director of Parker's involvement in the ARJ21 program, said in September. ``The legacy of Chinese-style management means that sometimes the delegation of responsibility isn't as efficient as we would hope.''
China's previous attempt to build a passenger jet in the 1970s culminated in the Y-10, a 150-seat, four-engine plane that resembled the Boeing 707. Neither of the two Y-10s produced ever flew a commercial flight.
Even certification from overseas regulatory bodies is unlikely to guarantee sales for the ARJ21, which will need an extensive network of maintenance and spare-parts providers, industry officials have said.
No Guarantee
``The challenge would be bigger because the network doesn't exist,'' Robert Laird, senior vice president of greater China sales for commercial airplanes at Boeing, said in September. ``They'd have to establish it through partnerships.''
China invested 8 billion yuan to develop the ARJ21, building on technology used in its military planes and the MA60, AVIC I's Hu said in September.
That compares with as much as the $20 billion needed to develop and market a plane in the West, Laird said.
``Skill, productivity and the ability to provide risk- sharing cash are how you are competitive in this business,'' said Richard Aboulafia, vice president of the Teal Group, a Fairfax, Virginia-based consulting company. ``It has nothing to do with low cost.''
To contact the reporter on this story: Lee Spears in Beijing at lspears2@bloomberg.net .
Last Updated: December 21, 2007 16:12 EST |
