Joe Nadol, an aerospace analyst for JPMorgan, was surprised to find himself seated next to a high-ranking Chinese military officer on a recent domestic flight in China. On the same plane, a business tycoon sought to carve out some privacy by reserving two first-class seats for himself. "Those are things you just don't see in the U.S.," Nadol says. In his mind, the presence of such men on a regular airline flight underscored the absence of private jets in a nation that is on the verge of becoming the third-largest economy in the world.
For two decades, China has been the elusive "market of tomorrow" for the business jet industry. With the military in firm control of domestic air corridors and government regulation still a work in progress, the nation's share of corporate aircraft deliveries remains scant. But some bizjet executives believe that the government in Beijing is poised—finally—to open its potentially vast market. Until recently, the overall business jet market was dominated by U.S. buyers. If China opens up, the ongoing globalization will accelerate.
Cessna delivered eight Citations in China last year, just one less than the combined total of the previous 20 years. Add to that Hawker Beechcraft recently notching orders for 16 aircraft from customers in China, Hong Kong and Macau.
"It is opening up now," says Luis Carlos Affonso, an Embraer senior vice president who runs the Brazilian aircraft manufacturer's executive jets business. "In the next 2-4 years, you'll see many, many more business jets in China." He adds, "If delivery lead times were shorter, you would already see them."
Peter Edwards, CEO of Jet Aviation, says it's likely his company will open a fixed-base operation to service bizjets in China within five years. Clay Jones, CEO of avionics supplier Rockwell Collins, also sees China 's business jet market emerging in the next half decade.
"When it does, I think there's going to be tremendous demand going into China and moving through China," Jones says. "One thing China wants to do is open up its central and western territories, and aviation is the way to do it."
Nadol, who notes that 15% of Boeing and Airbus jets end up in China, sees a liberalization of the private aircraft market happening in stages. First, the central government will make it easier to register business jets. And then, it will ease airspace restrictions corridor by corridor. He thinks major changes could be in place by 2010.
"This is really not an economic issue. It's an airspace issue," Nadol told an audience at a business aircraft finance event that coincided with the recent National Business Aviation Assn. convention in Atlanta.
While industry executives are salivating over the business prospects in the huge Chinese market, they may ultimately face a new, fierce low-cost competitor.
Credit: ACAC CONCEPT
That's the view of Jones, whose company is supplying the avionics for the ARJ21 regional jet, China's first indigenously designed commercial aircraft. "I think that's just the beginning," he says. "In fact, I wouldn't be surprised in the next 5-10 years if you saw the Chinese announce that they're going to get into the business aviation market in the same way."
Still, many industry veterans remain skeptical, saying they'll only believe the Chinese business jet market has arrived when they see it.
"The military still controls about 90% of the airspace," points out Robert Luley, vice president of program management and technology at Eaton Aerospace, which is also a supplier on the ARJ21 program. "I think they've got to solve between the various military and civil bureaucracies whether they're willing to open up enough to allow the kind of growth we've all anticipated but have not yet seen."
Speculation about China opening up to business aircraft appears to be overshadowing the promise of doing business in India, another Asian economic tiger. Nadol believes India's woefully inadequate airport infrastructure is keeping it from ripening into a major market for business aircraft. He's more bullish about China, Russia, Brazil and Japan when it comes to growth prospects.
As for China versus India, China's centralized government clearly has done a better job than India's democratic government in planning and carrying out the development of a domestic aviation infrastructure. And the oft-criticized authoritarian nature of the rulers in Beijing actually could pave the way for a quick opening of the market to business aircraft—if they're ready for this to happen, that is.
"If they put their mind to it, there are people that can say, 'Do it,' and it will happen," says Luley. "They don't have to get a whole lot of voters to support it."
With John Morris and William Garvey in Atlanta.