China's major supplier of fighter jets and bombers is pressing ahead with plans to build a marketing platform for its commercial aircraft.
China Aviation Industry Corp I (AVIC I) is trying to strengthen its civilian aircraft business to capitalize on the country's booming commercial aviation market.
AVIC I set up an aircraft leasing company at the beginning of the year. Now it's in the process of launching a new carrier.
The aircraft maker recently said it has been approved by the General Administration of Civil Aviation to set up a regional airline. The new carrier will mainly operate two types of regional aircraft developed by AVIC I.
The move, which is rare in the world's aircraft manufacturing industry, could be the most direct way for AVICI to push its products to the market, analysts said.
While holding a controlling stake in the new carrier, AVIC I also wants to attract other investors, such as airlines, investment companies and private investors, AVIC I's President Lin Zuomin said recently.
"Setting up an airline of its own could ensure stable orders for AVIC I's ARJ 21 and MA 60 aircraft," said Li Lei, an aviation analyst with CITIC China Securities.
"It could also help AVIC I improve the quality of its aircraft because its manufacturing team would be able to get feedback on the performance of the aircraft from the operator more easily and efficiently," Li said.
"But AVIC I needs a good partner to make its airline profitable because it only has manufacturing experience, which is totally different from running an airline," Li said.
AVIC I is assembling the 70-100-seat ARJ 21 in Shanghai. It is a turbo fan regional jet launched by AVIC I in 2000. Its first flight is scheduled for next year and it will begin service in 2009. AVIC I has received 71 orders from domestic airlines.
The 50-seat MA60, or Xinzhou 60, is a turboprop launched in 1998. It has received 36 orders from nine countries. AVIC I has delivered nine MA60s to four countries: Zimbabwe, Laos, Zambia and the Republic of Congo.
AVIC I may also be lured by the potential of China's fledgling regional air travel market, analysts said. As the country's urbanization picks up speed, there will be increasing air travel demand from small and medium-sized Chinese cities, which is an ideal market for regional aviation.
"If more companies promote regional air travel, China's aviation industry development will become more balanced, which is also helpful to boost economic growth in the country's less developed regions," said Liu Weimin, a senior analyst with the Civil Aviation Management Institute of China.
Over the past decade, China has been giving priority to developing trunk-line services. Less than 9 percent of the over 900 aircraft in service in the country are regional planes. Feeder planes account for 34 percent of the world's total aircraft.
The government said early last year that it would encourage regional aviation during the 11th Five-Year Plan period (2006-10) to balance the development of trunk and feeder routes.
Industry watchdog the CAAC began subsidizing airlines flying regional routes in Northwest China at the end of last year.
The government is likely to design more subsidy programs and offer airlines more incentives, including reduced landing fees, said Liu Jieyin, president of Okay Airways. The Tianjin-based private carrier recently signed a leasing contract for 10 MA60s to explore feeder-line service markets in Northeast, Northwest, North and Central China.
A number of carriers are already showing their determination to push ahead with regional air routes.
Shenzhen Airlines last December signed an agreement to set up a feeder airline with US regional carrier Mesa Air Group. The new company, set to fly this year, will be China's first Sino-foreign joint venture regional airline.
Early last year, China Express Airlines became China's first private carrier focusing on regional aviation routes when it launched its maiden flight in Guizhou Province.
Hainan Airlines signed the country's largest single order for regional aircraft last August, buying 100 regional jets.
(China Daily August 29 2007)
