Thursday, November 06, 2008

China Repackages Aerospace Industry
Nov 6, 2008
Bradley Perrett/Beijing

Sweeping reforms to the Chinese aerospace sector will present the global industry with a team of focused competitors with specialties ranging from engines to fighters to aircraft equipment.

The country has cast aside the fuzzy structure under which Avic 1 and Avic 2 each loosely managed a range of plants that did not often cooperate closely with each other. Instead, the Avics have been merged into a single company called Avic and, most importantly, the factories and research institutes have been bundled up into subsidiaries with much narrower businesses.

Managers now face the challenge of making it work. Like executives dealing with mergers anywhere, they must overcome local fiefdoms and jealousies to get disparate plants to work together as integrated businesses.

Further reforms can be expected, but probably none as radical as the one now being put in place. More than likely, the long-term future structure of the Chinese aircraft industry is now being settled.

"Our objectives are competitiveness and efficiency," says a senior Avic executive. "The key tools for achieving that are specialization and commercialization."

There are now six focused companies that foreign manufacturers are likely to compete with for much of this century.

The first is the Transport Aircraft Co., whose main assets are the civil factories at Xi'an, Chengdu and Shenyang. The original Avic subsidiaries in those cities have been dismantled to create the new company, with their military plants assigned separately. Importantly, this unit is not responsible for the ARJ21 and future large jetliner projects, except as a supplier. That's crucial because it cannot be tied exclusively to the ARJ21's builder, Comac. Transport Aircraft needs to compete for work with Airbus, Boeing and other foreign aircraft makers.

"Transport Aircraft" is only a preliminary, functional tag for the company. Like most of the other new business units, it will be rebranded later, officials say. For some units, described below, no official English name is available.

The second is the Defense Division, which so far remains a direct part of Avic, not a subsidiary company. Its assets include combat aircraft manufacturers Chengdu and Shenyang, stripped of their civil plants, along with Xi'an military assets that have been peeled away from Transport Aircraft. The Hongdu military business is also included.

The third is Avicopter, which brings together the country's rotary-wing plants, notably those at Harbin, Changhe and Jingdezhen.

The fourth is Aviation Engine Industry Corp. Ltd, which combines propulsion plants and research centers at Liming, Xi'an, Chengdu and Zhuzhou, as well as the Gas Turbine Establishment at Jiangyou.

The fifth is General Aviation Co., now the owner of facilities at Guizhou and Shijiazhuang. The company is looking at building a business jet of about the size of a Challenger 850.

And the sixth is Aviation Systems Co., China's answer to Rockwell Collins, Thales, Honeywell and Goodrich. About 40 factories and research institutes have been combined to form the company, including major facilities at Shanghai, Xi'an and Nanjing.

The reorganization also places a host of miscellaneous units and research institutes directly under Avic, which will retain a central but probably diminishing role in the industry. One former subsidiary has already become largely independent: Commercial Aircraft Corp. of China, the future challenger to Airbus and Boeing that now calls itself Comac.

Avic executives say that their detached relationship with Comac is an example of how the six new units will eventually be cast off, depending on how quickly they can improve their efficiency.

A principle of the restructuring is that existing programs stay where they are, even if they don't fit with the specialization of the new company. For example, Harbin Aircraft, a helicopter maker, also builds general aviation aircraft, which it has taken into Avicopter.

ARJ21 artist's concept: LMS

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