At a major aviation conference in Shanghai in early April, a buzz filled the exhibition hall. Though there were at least 30 passenger jets on display from manufacturers such as Airbus SAS, Boeing Co, Bombardier Inc and Dassault Aviation, the hoopla came mostly from the sellers and buyers. Nearly everyone, from representatives of industry giants and eager buyers, to aviation fans, all were constantly uttering the word ‘exciting’ during the three-day show at the Hongqiao International Airport. Excited about the 19-seater ACJ318 from Airbus that comes with a champagne-tinged lounge room. Excited about the Boeing business jet, which has a bedroom with a king-size bed. Mostly, however, what got most of those in the jet industry excited was what they see in China: major potential for growth.
‘We planted one of the first seeds of business aviation in China, and right now, the seed has begun to sprout,’ says Ed Bolen, President and CEO of the US National Business Aviation Association, a co-host of the Asian Business Aviation Conference & Exhibition.
The recent rise of the private jet industry in China is timely. Private jet orders have slumped in the US and Europe following the financial crisis of 2008, forcing at least 30 manufacturers of business and private jets to attract more and more buyers from the second biggest economy in the world.
As has often been written, the number of affluent Chinese is growing as the economy expands and the industry, helped by the central government’s recent approval of less stringent regulations on its airspace, is looking to take advantage of the boom.
At the outset of the financial crisis, there were 32 private or business jets registered in China, but as the global economy weakened, so did the number of orders for jets in developed countries. In the US, sales declined 39 per cent in 2009 and fell another 10 per cent in 2010, according to figures from JP Morgan. In the European Union, sales of jets in the region accounted for 25.9 per cent of total global sales in 2008, but two years later, the region could only muster 22.8 per cent of global sales, according to the General Aviation Manufacturers Association in the US.
The number of jets in China consequently grew during this period. There were 132 in the country in 2011, though that’s still less than 1 per cent of the total number of jets in the US. Flights of jets climbed to 13,400 last year.
Jing Yiming, Vice-President of the Shanghai Airport Authority, says this year the number of jet flights in China will grow 10 to 15 per cent.
In 10 years, China’s market for private jets will be worth about US$11.68 billion (€8.84 billion) annually, eclipsing the US market by that time, Bolen says.
One way of looking at the growth of the private jet industry in China is following the progression of the Shanghai exhibition. In 2005, when the exhibition made its debut, the market for private jets in China was barely developed. Fifty jet manufacturers exhibited 12 aircraft. This year, there were 150 manufacturers. Sponsors have agreed to hold the show in Shanghai consecutively through 2016.
With the industry growing, many of the major manufacturers of private jets have started to see an uptick in sales in China.
Overall, revenue from the sales of private jets worldwide reached US$15.2 billion in 2010, down from the 2008 figure of US$19.8 billion, according to Bombardier Business Aircraft’s market report.
Of the 155 jets sold globally by Boeing since 1999, ten were sold in China, including three last year, says Boeing Business Jets President Steve Taylor. The company expects to sell another three to five jets, each with a price tag of more than US$57 million, to Chinese clients this year.
Airbus has sold 20 of its Airbus Corporate Jets (ACJ) in China since 2005, mostly to individual customers. It also expects to continue selling ACJ family business jets in China at a rate of around five per year.
‘Most of our Chinese customers are billionaire individuals doing private businesses, such as real estate and mining,’ says Habib Fekih, President of Airbus Corporate Jets. Fekih says one-third of its ACJ sales take place in China. Three years ago, it accounted for 20 per cent.
To cater to Chinese consumers, Airbus provides interior design options. One option is to convert a round dining table for six into a square table to play the popular Chinese game, mahjong. Another option allows buyers to convert an office into a karaoke bar.
Fekih says he also hopes to expand its branch office in China, staffed with a bigger local sales team and training center. ‘We have to get people to know us deeper and better, and also convince people to switch to us who have already bought Bombardier or Falcon,’ Fekih says. The company will tour different cities in China to let people climb on board an ACJ, he adds.
Both of Airbus’ major competitors, however, are trying to further their reach in the emerging market. Dassault opened a marketing office in Beijing in 2010 and has plans to open a branch in Shanghai. It has eight Falcon 7X business jets operating on the Chinese mainland and that number is expected to triple before the end of the year.
‘We sold our first new Falcon to China in 2006, but the market has now grown to become our largest for new aircraft orders and our most promising,’ says John Rosanvallon, president and CEO of Dassault Falcon.
Rosanvallon says the company accounts for 35 per cent of the global private jet market. Since the rollout of the first Falcon 20 in 1963, 2,000 Falcon jets have been delivered to 67 countries worldwide.
Bombardier is also ramping up its activities in China. Forecast for its sales growth in the country is at about 2,300 business jets over the next 20 years.
‘We’ve added two new sales directors to maximise the potential of this strategic region,’ says Bob Horner, Senior Vice-President of Sales for Bombardier Business Aircraft.
Bombardier accounts for about 30 per cent of the private jet market in China with more than 75 jets on the mainland.
But while private jet makers surge with ambition, the industry in China is still hampered by a tightly controlled airspace as well as a lack of airports and pilots.
Among the strict air traffic control and restrictions in the country, private jet owners are not able to fly as frequently as they would like. According to regulations, anyone seeking to fly from one airstrip to another must file flight plans with the military and the civil aviation agency and get approval.
China also lacks infrastructure support. There is currently no airport dedicated to private jets and since the airspace is run by the military, airports have limited facilities for private jets.
Fortunately, the government pledged in its 12th Five-Year Plan (2011-15) to reform how it manages the airspace and has indicated that it would improve both the allocation and use of airspace resources.
‘Although the policies put a lot of constraints on the growth of the business, we can see some improvements. For example, the period of applying for a private jet flight application has shortened to a couple of hours in advance from the previous seven days in advance. Recently, access to airspace below 4,000 metres has been granted,’ Horner says.
Bolen says one way in which the industry can grow more rapidly in China is to educate potential buyers about the importance of moving important staff around the world quickly and efficiently.
‘Organisations all over the world have the same amount of time in each day. Business aeroplanes help governments and companies all over the world use that time efficiently and productively,’ Bolen says.
Zhai Jiahua, chairman of Beijing-based China Stem Cell Health Group, understands that philosophy and agreed to purchase three private jets from the China Business Aviation Group. ‘It’s quick to fly with commercial airlines, but I want to travel even faster,’ Zhai says. He says his investment in private aircraft is for business purposes only, adding that he purchased his first jet, a Bombardier Learjet 60, last year to transport clients for medical treatment within China. His second jet, a Bombardier Global Express 5000, will arrive in China this summer to satisfy his clients who seek treatment in Europe.
‘It’s still not common for companies to own private jets in China. Buying aircraft is not just for showing off or for fun, it is quite practical. It can help you save time. As an entrepreneur, your power can also be improved through it,’ says Zhai, who adds that yet another jet will be used for sending customers to Southeast Asia for medical tours.
Zhai says the company spends about 30 million yuan (US$4.8 million, €3.6 million) per year to rent out tarmac space at airports, pay for fuel, maintain his aircraft and pay his pilots. The cheapest flight he offers is priced at 1 million yuan.