01/07/09, 20:30:05 UTC

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Rough ride ahead for China's air industry

atimes.com

HONG KONG - Eleven thousand people representing 500 companies from more than 20 countries were at Hong Kong's four-day Asian Aerospace show last week hoping to seal deals that will shape the future of Asia's aviation industry. And much of the buzz - on the ground and in the air - was focused on China.

According to Clive Richardson, a senior vice president of London-based Reed Exhibitions, which owns the Asian Aerospace brand, more than 1,500 of the visitors came from mainland China. Hong



Kong hosted the conference for the first time in 25 years, after it moved from its original home in Singapore.

To drum up publicity for the show and the world's largest passenger jet, the double-decker Airbus A380 roared over Hong Kong's Victoria Harbor and the 420-meter-high Two International Financial Center, the tallest building in Hong Kong.

The "China factor" showed how seriously foreign investors view the huge potential of the mainland's aviation industry, and indeed, while the statistics are promising, investors should be prepared to buckle up for some significant turbulence.

On the bright side, more new airports will be built, for example. Wang Changshun, vice minister of the Civil Aviation Administration of China (CAAC), China's civil-aviation regulator, said during the show that traffic growth rates have been phenomenal, with domestic air traffic doubling roughly every five years.

CAAC earlier projected that air-passenger traffic in China would grow at 11% annually over the next 20 years, which would make it the world's second-largest aviation market after the United States.
Chinese authorities also predicted that total air-traffic volume will reach some 270 million passengers by 2010. Chinese carriers flew 160 million passengers last year, and the number is expected to surpass 200 million next year when the Beijing Summer Olympics are held.

With predicted growth of this magnitude, China plans to invest about US$18.5 billion in airport development, including more than 40 airports to be added to the current 140.

The enormous Airbus A380 that buzzed Hong Kong harbor also made the point that the European plane maker expects China to order 100-150 of its planes annually over the next five years, and has plans to build an assembly line in the northeast provincial-level municipality of Tianjin to fulfill the orders.

Jonathan Beard, managing director of airport-consultant group GHK Hong Kong, said that while airlines and plane manufacturers have reasons to be upbeat about the mainland's potential, they should also heed the warning signs before taking off.

Beard said the industry is still too tightly controlled, and cited examples that ranged from limited ticket-price options and a shortage of pilots and fuel, to China's unusually tight airspace, much of which is reserved for military use.

"There are a lot of difficulties in terms of infrastructure in China's aviation sector," he said. "It's not just airports - China also has to use the airspace more efficiently. On the mainland, in particular, the Chinese People's Liberation Army takes up a larger percentage of total airspace than the equivalent in the United States. China also requires a much higher vertical separation between its flights than those in Europe and North America."

The growing air traffic and limited airspace are already resulting in "crowded skies", delays and safety concerns, particularly in southern China's Pearl River Delta region for popular routes between Hong Kong and Shanghai and Beijing and Guangzhou.

"If China cannot address the problems, air-travel growth may slow down and the demand for new planes may slow down too, which will eventually affect the manufacturers' and airlines' expectations," Beard said.

China is also suffering from a pilot shortage, he said. While China has targeted training about 9,000 new pilots by 2010, it is already behind schedule by about 2,000 pilots, according the nation's official press agency, Xinhua, which quoted CAAC vice minister Gao Hongfeng on the problem.

Beard added that there are also concerns about industrial espionage and technology transfers by US and European plane manufacturers that fear they could be shut out of the growing market by China's desires to develop its own aircraft-manufacturing industry.

"There are worries over the transfer of expertise which would enable China to develop a competitor to Airbus and Boeing after the plane manufacturers build their facilities on the mainland," Beard said.

Beard urged the Chinese government to play a more active role as a regulator rather than as the owner of the country's aviation industry. "The Chinese government has a huge role to play regulating them, and it doesn't need to run or own an airline. Therefore they should let airlines have more say about aviation fuel and ticketing."

He also criticized China's ability to plot and follow through with its infrastructure planning, and cited the country's strategic railway planning as an example. "They should have a general aviation-development master plan that emphasizes collaborations between different infrastructures," Beard said.

The costly, underused bullet train, for example, between Shanghai and Hangzhou is not linked to Shanghai's Pudong International Airport. "It's crazy!" Beard exclaimed.

 Printable Version  | published Sep 10, 2007