Commercial Aircraft Corporation of China (COMAC) has registered more than 1,000 orders for its narrow-body C919 and is currently developing wide-body aircraft.
China’s aerospace ambitions are not only about national pride – the country wants to move up the manufacturing value chain. In 2015, President Xi Jinping’s Made in China 2025 strategy identified aerospace equipment as one of 10 targeted industries that will propel it from a middle-income economy to an advanced manufacturing power. There is every chance this will happen.
Demand among China’s rising middle class for air travel means the country is likely to displace the United States as the world’s largest aviation market (measured by traffic to, from and within the country) by the mid-2020s. According to IATA, China will account for 1.6 billion passengers annually by 2037, and both Airbus and Boeing expect China to buy somewhere in the range of 7,500 new aircraft over the next 20 years. While the airframers, based in France and the US, respectively, compete to increase market share, China’s leadership wants a homegrown alternative to reduce dependency on imported aircraft.
In 2008, the country formed a state-owned aerospace manufacturer, Commercial Aircraft Corporation of China (COMAC). Its first attempt was a regional jet called the ARJ21. However, the project suffered numerous problems, among them wiring, cracks appearing in the wings, faulty doors and poor performance in rainy weather. Almost a decade behind its original schedule, it entered service in June 2016 with Chengdu Airlines.
The C919, however, represents a more ambitious project for COMAC: a narrow-body aircraft designed to compete with the Airbus A320 and Boeing 737. So far, the manufacturer has received about 1,000 orders from Chinese carriers and lessors. Should Boeing and Airbus be worried?
Not so, according to James Fallows, a national correspondent for The Atlantic and author of the 2012 book China Airborne. In a 2015 blog post, he described the C919 as “a huge flying counterpart to€¯the iPhone,” referring to the “Designed in California. Assembled in China” fine print on the back of the Apple device. Although the aircraft is “made” in China by a Chinese firm, its most complex and valuable components come from elsewhere. Firms such as General Electric, Safran, Zodiac, Honeywell, Rockwell Collins and UTC Aerospace Systems (the last two companies merged to become Collins Aerospace in November) supply most of the C919’s components.
PARTNERSHIPS OR PRETENSE?
COMAC’s foreign suppliers for the C919 are required by law to assemble components in China through joint ventures with Chinese companies. This raises suspicions among some that the policy is a ploy that forces Western firms into handing over technology and intellectual property in return for market access. White House trade advisor Peter Navarro and US trade envoy Robert Lighthizer both endorse this view.
This way of thinking has also gained traction during Donald Trump’s presidency. In March 2018, under Lighthizer’s guidance, the Office of the United States Trade Representative published a report that accused China of using joint ventures with foreign aviation companies as “a key mechanism for obtaining the technology needed to support the development of a domestic supply chain for Chinese-made aircraft.”
This report formed the basis for the administration’s decision in September 2018 to impose new tariffs on more than half the value of goods imported from China into the US. A month later, the US extradited an alleged Chinese spy who was arrested in Belgium to face trial for stealing trade secrets from CFM International, a joint venture between GE Aviation and Safran Aircraft Engines.
“This case is not an isolated incident. It is part of an overall economic policy of developing China at American expense,” John Demers, the US assistant attorney general for the National Security Division, said in a press release. “We cannot tolerate a nation stealing our firepower and the fruits of our brainpower.”
Is this really true? “Sometimes, in the press, I think it is implied that somehow Western component suppliers receive the short end – that China’s winning big time and there’s some sort of asymmetry in the relationship,” says Marc Szepan, a lecturer in International Business at the University of Oxford SaÃ¯d Business School and a former senior vice-president of Airline Operations Solutions at Lufthansa Systems. “Given the fact that somebody in the Chinese state felt that€¯it was necessary to acquire information by alternative venues shows these joint venture arrangements work the way they are supposed to.”
While there is what Szepan describes as “tremendous pressure” on Western suppliers to share their knowledge, he is not convinced the strategy benefits China as much as some observers claim. Almost a generation ago, he explains, the country applied a similar approach to its automotive industry to attract companies such as General Motors, Ford and Toyota to set up joint ventures. “It was the shortcut approach: Do joint ventures and get technology, either openly or by other means. Well, what happened? How many indigenous Chinese automotive brands are there now that are global players in the automobile industry?”
In 2012, Rockwell Collins formed a joint venture with China Electronics Technology Avionics (CETCA) called the Rockwell Collins CETC Avionics Company (RCCAC). The agreement coordinates communications and navigation development efforts for the COMAC C919.
“China offers a business climate that encourages foreign investments and growth by providing attractive financial incentives.” – Ron Ho, Collins Aerospace
“China offers a business climate that encourages foreign investments and growth by providing attractive financial incentives, with the aviation industry as one of its priorities,” Ron Ho, Collins Aerospace’s managing director in China says. Ho adds that Airbus recently expanded its A330 assembly line in Tianjin, and Boeing has established a completion center for its 737s in Zhoushan to support the growth of aviation in the region.
Meanwhile, Honeywell’s ties with COMAC date back to 2008, and the company has since formed two joint ventures with Chinese manufacturers: Honeywell Boyun Aero Systems, which was established in 2012 to provide the carbon brakes for the C919; and HonFei Flight Controls Technology, an agreement with AVIC FACRI that provides a flight control flight-by-wire system for the C919. Jun Xu, Honeywell’s vice-president, Aerospace ATR, OEM APAC, says COMAC’s C919 program represents “a $15- to $16-billion opportunity” for the supplier.
The aviation industry has, so far, not been affected by the tit-for-tat tariffs, and China has not levied duties on aircraft imports from the US, but Szepan says COMAC might be more strategic when selecting partners for current or future programs.
“If you focus just on US-China relations and the trade war – if that’s what you want to refer to it as – obviously that might suggest that as a Chinese company, COMAC would be very careful about staying with or selecting future new American suppliers, and that there might be a bit of a structural incentive to turn toward non-US suppliers,” Szepan says.
But relations with the US are just one variable in a larger political context that could affect China’s efforts to develop an advanced aerospace industry. Szepan argues that US-Russia relations are equally important, given China’s 50€‘50 joint venture with Russia’s United Aircraft Corporation for a wide-body aircraft called the CRAIC CR929.
“If I were a COMAC executive, and if I were serious about the CR929 in the sense that I wanted it to be a world-class aircraft that I could sell to Chinese operators and, at some point, also export, I would be extraordinarily worried about having Russian content – be that components, be that engines or structural parts,” Szepan says.
Almost 700 Russian individuals and companies are under US-imposed sanctions started during the presidency of Barack Obama. They are an ongoing response to Russia’s annexation of Crimea from Ukraine in 2014. The possibility of more Western countries extending the scope of sanctions against Russian economic interests could, from a Chinese perspective, “represent a severe limitation on the ability to export the aircraft,” Szepan says.
With regard to the C919, Xu says Honeywell doesn’t expect the aircraft will have issues with securing certification outside China. “Honeywell’s deep knowledge and expertise in the aviation industry puts us in the best position to supply multiple systems for the C919. These systems can help COMAC develop a more reliable, robust, efficient and comfortable aircraft,” he says. “This will enable the C919 to not only meet the aircraft certification standards per the Civil Aviation Administration of China, but also to satisfy the global requirements of the Federal Aviation Administration and/or the European Aviation Safety Agency, which are essential in bringing the C919 aircraft to the market outside China.”
According to Ho, Collins Aerospace isn’t expecting current tensions between the US and China to last for long: “We believe this will be temporary, without much impact to our current and future business plans. We remain committed for the long term.”
“COMAC Rising” was originally published in the 9.1 February/March issue of APEX Experience magazine.