china 2020: future planes, jumbo jets &...

France Houdard

Managing [email protected]

January 2011

China 2020: Future Planes, Jumbo Jets & Aviation Challenging Boeing, Airbus, Embraer, and Suppliers – Win-Win or Win-Lose?

http://www.exolus.com/


1Copyright © 2011 Exolus. All rights reserved..

Today: China has World’s 2nd Largest Aircraft Fleet

US Fleet #1 … China Fleet #2

6,567

1,383

826 702423 447 387 507 544 479

0

2,000

4,000

6,000

8,000

10,000

12,000

US China UK Germany India Russia Ireland Australia Japan Brazil

Existing Aircraft Fleets

(2010)

Aircra

ft (

units)

Source: Airfleets, COMAC



China’s Airlines Largely Comprised for Foreign Aircraft

0

20

40

60

80

100

120

140

160

180

200

China Major Airline Fleet Composition* Boeing

Airbus

Other Foreign

Source: Company Websites; Planespotters

* December 2010

Today: China Fleet Comprised of 99% Foreign Aircraft

Boein

g

Airbus

Boein

g

Airbus

Boein

g

Airbus


http://upload.wikimedia.org/wikipedia/en/9/97/Air_China_Logo.svg

http://upload.wikimedia.org/wikipedia/en/4/45/China_Eastern_Airlines_logo.png

http://upload.wikimedia.org/wikipedia/en/3/31/China_Southern_Logo.svg


The Future: … 230% Increase in Aircraft Needed in China (2028)

230% Increase in Aircraft Needed in China by 2028

6,567

1,383826 702 423 447 387 507 544 479

5,000

3,165

1,150 1,1001,050 1,000

600 550 500 480

0

2,000

4,000

6,000

8,000

10,000

12,000


Existing Fleet 2010

New Deliveries 2028Existing Fleet and New Deliveries

(2010 - 2028)

Aircra

ft (

units)

Source: Airfleets, COMAC, Boein,g, EIU



Driven by: Forward Trend in Exploding Middle Class

China’s Middle Class: 400 million (2010) … 500 million (2015)

Middle Class Income Bands for Urban Population

Urb

an P

opula

tion (

mill

ions)

Urban Household Income

(US$ – PPP-Adjusted)

Global > US$107,800

Affluent US$3,800 - 107,800

Upper Middle US$21,501 – 53,900

Lower Middle US$13,500 – 21,500

Poor < US$13,500

531

607

684

756

822

239

255

157106

73

53 170355

461525

35

90

99

0

100

200

300

400

500

600

700

800

900

2005 2010F 2015F 2020F 2025F

531

607

684

756

822

Sources: Urbanization Rates, Population based on UN, World Urbanization Prospects 2007; MGI Consumer Demand 2008

Upper Middle Class

Lower Middle Class


China World’s 3rd Highest Traffic Volume by 2020

0

25

50

75

100

125

150

175

200

225

250

Outbound, Chinese Inbound, Foreign

Foreign Inbound & Chinese Outbound Travel Volume

Driven by: Growth Spike in China’s Travel Volume

237

1321

51

CAGR 11.8%69

167 million

Traveler

Increase

US

D m

illio

ns

Source: China National Tourism Association (CTNA); World Tourism Organization (UNWTO)



Foreign Investors: … hunger for China Opportunity

Embraer Diamond

Training O O O

Engineering O

Manufacturing /

Assembly O O O

Sourcing O O O O O O

Service O O O

Sales O O O O O O

Source: Company Information pages, EIU

Aerospace OEM’s Functional Deployments in China

Wide Variance in Strategies employed by Major Aerospace OEM’s


http://upload.wikimedia.org/wikipedia/commons/6/69/Bombardier.svg

http://upload.wikimedia.org/wikipedia/en/8/89/DiamondAirLogo.png

http://upload.wikimedia.org/wikipedia/en/6/62/EmbraerLogo2.gif

http://upload.wikimedia.org/wikipedia/en/b/b5/Boeing-Logo.svg

http://upload.wikimedia.org/wikipedia/en/8/80/Airbus_logo.png

http://upload.wikimedia.org/wikipedia/en/b/b9/Cessna_Logo.svg


Boeing53%

Airbus36%

China Domestic

Planes1%

Other Foreign Aircraft, 10%

China Civil Aircraft Fleet

(2010)

China: … also hungers for Opportunity, However

China Fleet 99% Foreign Airplanes

Source: All Publically Available Information , Company Website

China Aircraft Fleet

Boeing 736

Airbus 500

Other 133

Domestic 14

Total Aircraft 1,383



Therefore: … China developing own Suite of Domestic Aircraft

Source: Chinese Aerospace Market Research

Stage 2 – Single Aisle (2016): C919• Aircraft Type: Single-Aisle Narrow Body (156 Seat, 168 Seat and 180 Seat)

• Development: COMAC and joint ventures with foreign suppliers to jointly research and

develop the platform systems

• Schedule: First Flight in 2014 and In- Service in 2016

2016

Stage 2 – Single Aisle (2013): C-series• Aircraft Type110/130 , Single-aisle - Twin-Turbofan

• Development: : Fuselage Build by AVIC’s, Shenyang Aircraft Industries Group ,

Bombardier


2013

Stage 2 – Single Aisle (201X): CS2010• Aircraft Type: 150-200 Seat- Single-aisle - Twin Turbofan

• Development: Guangdong Prosperous Airline

• Schedule: First Flight in 20xx and In- Service in 20xx

20XX

Stage 1 – Regional Jet (2010): ARJ21 • Aircraft Type: 70 to 90 Seat Twin Turbo-Fan

• Development: CIVIC drawing on foreign suppliers for nearly all research and

development, production for sub-systems, local partner providing facility, sub-contracting

• Schedule: First Flight - November 2008 and in-service 2010/11

2010

Stage 1 – Regional Jet (2010): MA 700• Aircraft Type: 60- 70 seats

• Development: Xian Aircraft Corporation

• Schedule: Launch 2009 and in-service 2015

2015



Beijing

Tianjin

Shanghai

Harbin

Shenyang

Xi’An

Chengdu

Moreover: … China Broadening entire Industrial Base

Leveraging Foreign Investment in Production and Research & Development

Turbine NGVs, turbine

rings, compressor seals

Landing gear & engine

nacelle components

Precision sheet metal

A350 composite parts

Heat shields

A320 Final Assembly Line

Composites manufacturing

COMAC C919 Production

Design & Production of ECS

Autoclaved composite parts

Engine parts

Landing gear components

Nanjing

Suzhou

Xiamen

Source: AeroStrategy, 2010

Sensors, valves, nozzles

EC175 design & production

ERJ145 Assembly



38 New Airports … USD46 billion Investment by 2020

Number of Airports in China

110

139 133 142

186

224

-

50

100

150

200

250

20%

Increase

And also: … Developing Country’s entire Aviation Infrastructure

Source: EIU, Center fro Asia Pacific Aviation

Num

ber

of A

irport

s

Investment

in New

Airports USD18 bn USD39 bn USD46 bn



Table of Contents

Preface

Foreign Investment: Strategic Deployment in World’s Fastest Growing Market

- Today’s Burning Corporate Platform: Markets and Global Cost Reduction

- 1. Revenue Drivers: Growth driver for the Aerospace Sector

- 1. Economic Growth: World Bank Projects China as #1 Economy in World by 2020

- 1. Travel Growth: Growth Spike in China’s International Travel

- 1. Tomorrow’s Market: Huge Demand Surge for Future New Aircraft

- 2. Cost Reduction: Airbus Moves Final Assembly of A320’s to China & Strategic Sourcing

- 2. Resources: Boeing NO Aircraft Assembly … Aggressive Sourcing

- 2. Resources: China Aggressively Developing own Civil Aircraft

- 2. Resources: Why Initial Focus on Single-Aisle & Regional Jets?

- 3. Innovation (Stage 1): Development of a Regional Jets

- 3. Innovation (Stage 2): Development of Single-Aisle Jets

- 3. Innovation: Investment Directed at Aviation Clusters

- 3. Innovation: Investment Largely Aligned with AVIC Subsidiaries

- The 2030 Future? How Soon China’s Twin-Aisle and Jumbo Jets?…

China’s Economic Health

- Senior Executives Select China as Most Attractive in World

- Foreign Investment Continues to soar – Strong Vote of Confidence

- Healthy Balance Sheets – Banks, Enterprises, Households



Foreign Investment: Strategic Deployment in World’s Fastest Growing Market



Today’s Burning Platform: Markets and Global Cost Reduction

Market Access/Revenue Growth … Global Structural’ Cost Reduction

2. Resources

COST

R&D Sales

Service

Sourcing

Production

/Assembly

Distribution

Engineering IT HR

F&A Procure

3. Knowledge 1. Markets

DRIVING Shareholder Value

Markets /

Revenues

Resources/

Cost Reduction

Innovation/

Knowledge

Efficiency/

Shared Services

EFFICIENCY


1. Revenue Drivers: Growth drivers for the Aerospace Sector

Economic Growth Travel Demand Industry Infrastructure

Source: Public Sources

Economic Growth

- China’s economy has doubled every 7 years for the past 20 years … tripled most recently

- World Bank has forecasted China to have world’s largest economy by 2020 (GDP, PPP-adjusted)

- China Middle Class growing by an additional 80 million people every 5 years

Travel Growth

- China’s traffic volume grew at a CAGR of11.8% between1995 and 2009

- China to have an increase in travel volume by 167 million travelers by 2020

Industry Infrastructure and Cluster Formation

- China aggressively developing travel infrastructure: 38 New Airports, USD46 billion Investment by 2020

- China aggressively developing aviation industry through joint venture partnerships with major foreign

suppliers and aerospace OEMs


15Copyright © 2011 Exolus. All rights reserved.. Source: World Bank

1. Economic Growth: World Bank Projects China as #1 Economy

2020 GDP*

$30.0 tr$13.4 tr$28.8 tr $6.8 tr$29.6 tr

US

India

China

Japan

EU-27

France

UK

Germany

GDP* PPP-adjusted

2009 GDP*

6,4 trillions

de $3,6 trillions

de $

$4.1 tr $3.8 tr$9.1 tr $14.2 tr

US China

India

$14.1 tr

JapanJapan

EU-27

France

UK

Germany

GDP* PPP-adjusted


China World’s 3rd Highest Traffic Volume by 2020

0

25

50

75

100

125

150

175

200

225

250

Outbound, Chinese Inbound, Foreign

Foreign Inbound & Chinese Outbound Travel Volume

1. Travel Growth: Growth Spike in China’s International Travel

237

1321

51

CAGR 11.8%69

167 million

Traveler

Increase

US

D m

illio

ns

Source: China National Tourism Association (CTNA); World Tourism Organization (UNWTO)



1. Tomorrow’s Market: Huge Demand Surge for Future New Aircraft

Deliv

eries (

units)

Aircraft Deliveries

(2009 – 2028)

3,165

-

1,000

2,000

3,000

4,000

5,000


China has 1,315 Aircraft Today … China Needs 3,165 New Aircraft by 2028

Source: EIU, China Statistical Yearbook; Orient Aviation



2. Cost Reduction– Airbus Moves Final Assembly of A320’s to China

Migration of Assembly Functions to China

Company: Airbus

Total Investment:

• USD1.2 - 1.5 billion

Labor Force

• 1,000 employees

Functions:

• Final Assembly for A320

Investment Site and Joint Venture Partners:

• Tianjin. Three-party joint venture with Tianjin Free

Trade Zone and Aviation Industry Corporation of

China (AVIC).

Operational Commencement

• September 2008

2010 Production Output/Sales

• 37 A320 planes for eight Chinese airlines

2011 Assembly (Planned)

• 36 A320 planes

Source: All Publically Available Information; Tianjin Economic Development Area (TEDA), Company Website

19Copyright © 2011 Exolus. All rights reserved.. Source: Airbus S.A.S., “Airbus in China;” Airbus S.A.S., “ Airbus in China: Milestones”

Shanghai

Shenyang

Xi’an

Chengdu

Shenyang

Aircraft

Industries

Xi’an

Aircraft

CompanyChengdu

Aircraft

Company

Shanghai

Aviation

Industry Co.

Hanzhong

Shaanxi

Aircraft

Company

Hongdu

Aviation

Industry

Nanchang

Airbus Strategic Sourcing in China*

Changhe

Aircraft

Company

Harbin

Aircraft

IndustriesHong Yuan Aviation Forging & Casting

•Titanium forging parts

Xi’an Aircraft Industry Company

•Access doors for wide-bodied aircraft

•Wing fixed trailing edges

•Medium air ducts

Chengdu Aircraft Industrial Company

•A320 rear passenger doors

Hafei Aviation Industry Co., Ltd.

•HTP leading edge ribs and

torsion box

Shenyang Aircraft Company

•Produces and assembles emergency

exit doors

•Manufactures:

-Fixed leading wing edges and ribs

-A320 cargo doors

-Skin plates

* July 2007

2. Resources: Airbus also engaging in Strategic Sourcing in China

Harbin

Guizhou

Guizhou Aviation Industrial Group

•Maintenance jigs and tools


Beijing

Shanghai

Shenyang

Xi’an

Chengdu

Shanghai

Aviation

Industry Co.

Hanzhong

Hongdu

Aviation

Industry

Nanchang

Boeing Strategic Sourcing in China*

JingdezhenChanghe

Aircraft

Company

Harbin

Aircraft

IndustriesBaoji Group Ltd.

•Titanium ingot, plate & sheet

Hong Yuan Aviation Forging &

Casting Industry Company

•747 titanium forgings since 1984

Xi’an Aircraft Company

•737 Next Generation vertical fin

•747 trailing edge ribs, floor beams,

detailed parts, and subassemblies

•747-8 trailing edge flaps

Chengdu Aircraft Industries

•737 forward entry and over-wing exit

doors (a subcontract from Vought

Aerospace, USA)

•747-8 ailerons and spoilers, single

source; horizontal stabilizer parts and

subassemblies (a subcontract from

Vought Aerospace, USA)

•787 rudder, single source (sole

provider of this assembly)

Southwest Aluminum

•747 aluminum forgingsTaikoo Aircraft Engineering Company

Ltd. (TAECO)

•747 parts, subassemblies

•747 boeing converted Freighter

modification program

BHA Aero Composites Company, Ltd.

•737 composite panels and parts

(flight deck, close out panels, dorsal

fin, wing – to – body fairing, cover

panels, wing fixed trailing edge, wing

fixed leading edge, tail cone, interior

parts, secondary composite

structures)

•747 miscellaneous composite parts

and structures

•767 and 777 wing fixed tailing edges

and dry bay barriers; empennage

panels, interior parts, secondary

composite structures

•777 flight deck interior panels

•787 trailing edge panels for the

vertical fin, interior parts, secondary

composite structures

Hafei Aircraft Industries

787 upper and lower body panels for

wing-to-body fairings, single source;

vertical fin parts

Shanghai Aviation Industry Company

•737 horizontal stabilizers

Shenyang Aircraft Company

•737 aft fuselage subassemblies

•787 vertical fin leading edge, single

source

Quick Electronics

•Print hardware, servers in support of

Boeing IT hardware

Tianjin

Chongqing

Xiamen

2. Resources: Boeing no Aircraft Assembly … Aggressive Sourcing

* June 2007

Source: Boeing, “About us: Boeing in China.”

Shenyang

Aircraft

Industries

Shaanxi

Aircraft

Company

Chengdu

Aircraft

Company

Xi’an

Aircraft

Company


2. Resources: China Aggressively Developing own Civil Aircraft






2016

Stage 2 – Single Aisle (2013): C-series• Aircraft Type110/130 , Single-aisle - Twin-Turbofan

• Development: : Fuselage Build by AVIC’s, Shenyang Aircraft Industries Group ,

Bombardier


2013

Stage 2 – Single Aisle (201X): CS2010• Aircraft Type: 150-200 Seat- Single-aisle - Twin Turbofan

• Development: Guangdong Prosperous Airline

• Schedule: First Flight in 20xx and In- Service in 20xx

20XX





2010

Stage 1 – Regional Jet (2010): MA 700• Aircraft Type: 60- 70 seats

• Development: Xian Aircraft Corporation

• Schedule: Launch 2009 and in-service 2015

2015



2. Resources: Why China’s Focus on Single-Aisle & Regional Jets?

Future Global Aircraft Deliveries

(2009 – 2028)

Source: Airbus, “Airbus Global Market Forecast, von Tronchin, March 2010, other Public Sources

China’s 3,165 New Aircraft = 12% of Future Global Demand

Single-Aisle , 16,977

Regional Jet, 1,500

Large Aircraft, 1,729

Twin-Aisle , 6,250

26,500

New Aircraft

by 2028

China % of Future

Aircraft Demand

(2009 – 2028)

Global Demand 26,500

China Portion 3,165

China = 12% of Global Demand



Suppliers for China’s ARJ21

3. Innovation (Stage 1): Tied to Development of Regional Jets

2010: ARJ21 Largely Based on Foreign Research & Development

ROSEMOUNT AEROSPACE

ARJ21

BE Aerospace Oxygen Equipment

Eaton Aerospace Flight Deck Panel Assemblies

Fisher Advanced Composites Interior Components

General Electric Engines

Goodrich Hella Aerospace Lighting Equipment

Hamilton Sundstrand Electric Power System

Honeywell Primary Flight Control

Kidde Aerospace Fire Protection

Liebherr AMS, Landing Gear

MPC Products Corporation Auxiliary Power Unit Door System

Parker Aerospace Fuel, Hydraulic, Flight Controls

Rockwell Collins Avionics

Rosemount Aerospace Wiper System, Windshield Heater System

Sagem Flight Deck Control Suite

Saint Gobain Windshields and Window Openers

Vibro-Meter Engine Interface Control System

Zodiac-Air Cruisers Crew Seats

Source: Baidu Encyclopedia, Various Public Sources


Suppliers for China’s C919

3. Innovation (Stage 2): Tied to Development of Single-Aisle Jets

2016: C919 Largely Based on Joint Sino-Foreign Research & Development

Source: Airframers, January 2011; Various Public Sources

Liebherr Oxygen Equipment

Parker Flight Deck Panel Assemblies

Rockwell Collins Interior Components

CFM International Engines

Eaton Corporation Lighting Equipment

Hamilton Sundstrand Electric Power System

Eaton Corporation Primary Flight Control

Kidde Aerospace Fire Protection

Liebherr AMS, Landing Gear

Honeywell Auxiliary Power Unit Door System

Parker Aerospace Fuel, Hydraulic, Flight Controls

Rockwell Collins Avionics

Eaton Corporation Flight Deck Control Suite

Albany Engineered Composite

Engine Interface Control System

C919



Beijing

Tianjin

Shanghai

Harbin

Shenyang

Xi’An

Chengdu

3. Innovation: Investment Directed at Aviation Clusters

Investment Footprint largely aligned with China Aviation Structure/Clusters

Turbine NGVs, turbine

rings, compressor seals

Landing gear & engine

nacelle components

Precision sheet metal

A350 composite parts

Heat shields

A320 Final Assembly Line

Composites manufacturing

COMAC C919 Production

Design & Production of ECS

Autoclaved composite parts

Engine parts

Landing gear components

Nanjing

Suzhou

Xiamen

Source: AeroStrategy, 2010

Sensors, valves, nozzles

EC175 design & production

ERJ145 Assembly

26Copyright © 2011 Exolus. All rights reserved.. Source: Xinhua, “Aviation Industry Corporation of China Founded”

Shanghai

Shenyang

Xi’an

Chengdu

Shenyang

Aircraft

Industries

Xi’an

Aircraft

CompanyChengdu

Aircraft

Company

Shanghai

Aviation

Industry Co.

Hanzhong

Shaanxi

Aircraft

Company

Hongdu

Aviation

Industry

Nanchang

Strong Manufacturing … Institutional Support … Labor Arbitrage

Structure of China’s Aviation Sector

Aviation Industry Corporation of China

(AVIC)

3. Innovation: Investment Largely Aligned with AVIC Subsidiaries

JingdezhenChanghe

Aircraft

Company

Harbin

Aircraft

Industries Harbin


China’s Future Aircraft

(2020 – 2030)

The 2030 Future? How Soon China’s Twin-Aisle and Jumbo Jets …

Develop Homegrown China Aircraft –> Compete with Boeing, Airbus, Embraer

Stage 3 – Twin-Aisle (2020 – 2025)?: C919 – Extensions? • Aircraft Type: Extensions of C919, possible Twin-Aisle version

• Development: : COMAC and joint ventures with foreign suppliers to jointly research and


• In- Service: 2020 - 2025

?

Stage 4 – Jumbo Jets (2020 – 2025)?: ?• Aircraft Type: Jumbo Jet

• Development: COMAC and joint ventures with local domestic suppliers to jointly

research and develop the platform systems

• In- Service: 2020 – 2030

?

2020?

2020?






2010





2016



China’s Economic Health



Senior Executives Select China as Most Attractive in World

Investor Confidence in China #1 in World

0

10

20

30

40

50

60

Chin

a

Un

ite

d S

tate

s

India

Bra

zil

Ru

ssia

U.K

.

Ge

rma

ny

Austr

alia

Indo

ne

sia

Canada

Vie

tna

m

Me

xic

o

Po

land

Fra

nce

Source: World Investment Prospects 2009 - 2011

Top 14 Most Attractive Destinations for Future Investment

(2009 – 2011)%

Pe

rcen

t o

f R

esp

on

se

s

30Copyright © 2011 Exolus. All rights reserved.. Source: China Statistical Yearbook

Foreign Investment Continues to Soar – Strong Vote of Confidence

Record FDI of USD106 billion in 2010

0

20

40

60

80

100

120

US

D b

illio

n

Foreign Direct Investment Inflows (1990 – 2010)


Healthy Balance Sheets – Banks, Enterprises, Households

USD2.85 trillion in Foreign Reserves … Insulation of Financial System … Clean Balance Sheets

China’s Financial System Healthy, Benefits from Insulation, Abundant Liquidity

China banks cleaned up in 1990s: Non-performing loans in 1997 averaged 40 – 50%; only 6% in 2007.

Financial institutions extended approximately USD1.4 tr in new loans in 2009; almost double that of 2008;

and USD1.2 tr in 2010, slightly down from 2009.

Forex Reserves Achieve Record High in 2010: USD 2.85 trillion

The Central Bank has accumulated over USD 2.85 trillion in foreign reserves.

The accumulation of large external surpluses means financial system enjoys abundant liquidity.

Clean Balance Sheets for Enterprises and Households

State Owned Enterprise net profits as share of GDP has grown from (-1%) in 1997 to (+4.3%) in 2007.

Record corporate profit growth over past 5 years (industrial profits rose 38 ppa); liability ratios declined.

Urban incomes have nearly doubled in past 10 years.

Source: Deutsche Bank; Standard Chartered; UBS; IMF; Other


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