Suppliers fight to furnish China's state-sponsored jet

Feb 2, 2010 — Arkansas Democrat Gazette

SABINE PIRONE AND RACHEL LAYNE BLOOMBERG NEWS

LITTLE ROCK -- The future of aviation in China, the world’s fastest growing major air-travel market, will be on display in Singapore this week, and General Electric Co., Rockwell Collins Inc. and GKN Plc all want to be onboard.

Commercial Aircraft Corp.of China, known as Comac, will be at the Singapore Air Show, displaying a model of the 168-seat C919, which is designed to compete with the Boeing Co. 737 and Airbus SAS A320. Only one major supplier has been picked for the plane so far, a GE-Safran SA engine venture, which won a $10 billion contract.

State-backed Comac expects to build about 2,000 C919s over 20 years, taking 10 percent of the global market, according to Safran. The aircraft is guaranteed to be a domestic success as the government orders planes and allots them to state controlled carriers Air China Ltd., China Southern Airlines Co. and China Eastern Airlines Corp.

“There’s absolutely no doubt in my mind that China can be a first-tier aircraft provider at some point,” said Clay Jones, chief executive officer of Rockwell Collins, a maker of cockpit instruments and radios. “Everyone sees the market as being important in the future and everyone wants to play in it.”

Rockwell, GE, Honeywell International Inc., Goodrich Corp. and United Technologies Corp.’s Hamilton Sundstrand are among aerospace companies competing to work on planes in China. Munich-based MTU Aero Engines Holding AG has already been chosen to help develop future engines for the C919. Separately, Airbus has also set up a plane-assembly plant in the country.

China wants to cooperate with overseas suppliers to access advanced engines, parts and instruments for the C919, which is due to make its maiden flight in 2014 and to enter service two years later. The aircraft is part of China’s bid to end its reliance on Airbus and Boeing. Eventually, the country also wants to challenge the world’s two biggest plane makers overseas.

“The C919 is merely the first plane in a deliberate attempt by the Chinese to establish themselves as the world’s third big-plane manufacturer, so companies are trying to position themselves early on,” said Henri Courpron, president of Seabury Aerospace, an advisory company.

China can’t rely on domestic suppliers as they haven’t worked on technologies such as composites, the lightweight materials being used to make major parts for the new Boeing 787 and Airbus A350.

“We’ve got zero intellectual property,” said Zhou Jisheng, the former deputy chief engineer for the ARJ21, an in-development Chinese regional jet. “Chinese companies just make the least important parts for Airbus and Boeing.”

GE, which beat United Technologies’ Pratt & Whitney, for the C919 engine order, has also set up a venture with state-owned Aviation Industry Corp. of China that will bid to supply control systems for the aircraft. The firm is China’s biggest aerospace company and an investor in Comac.

“The C919 and the Chinese market represent extraordinary growth opportunities for GE,” said Lorraine Bolsinger, chief executive officer of GE Aviation Systems.

Comac said in November, 2008, that it was encouraging overseas companies to cooperate with domestic suppliers on the plane. At that point, 49 local companies had been involved in developing technologies. Comac wouldn’t provide an update on overseas partnerships, said Chen Jin, the head ofits sales & marketing department.

GKN, the U.K. maker of aircraft components for Airbus, sees the C919 as an “opportunity” as it seeks to expand in China, said Frank Bamford, senior vice president for business development & strategy. “We’re watching that area with significant interest,” he said.

China’s bid to build a globally competitive plane may be hindered by a U.S. embargo on military-technology transfers, which could affect parts also used in civil aerospace engines, said Nick Cunningham, an analyst at Evolution Securities in London. Engines generally account for about half of the fuel-efficiency gains in the new planes, he said.

Concerns about technology theft may also deter western companies from forming close partnerships or from developing their most sophisticated parts in China, said Richard Aboulafia, vice president of aerospace analysis company Teal Group.

“This is a country with very weak intellectual property protection,” he said.

Suppliers are still willing to invest in China because of the government’s backing for the aerospace industry and the potential demand for C919s in a country of 1.4 billion people.

“We just cannot ignore the market,” said Chaker Chahrour, executive vice president of CFM International, the GESafran venture. “We want to be on the plane now and down the road.”Information for this article was provided by Irene Shen, Susanna Ray and Andrea Rothman of Bloomberg News.

Business, Pages 21 on 02/02/2010