Several American jet companies recently announced joint development agreements in China, a region that is highly recognized for its growth potential. Cessna and Aviation Industry Corporation of China (AVIC) are entering into two strategic agreements to develop general and business aviation in China. Berkshire Hathaway‘s NetJets is planning to enter China through a joint venture with a group of Chinese investors led by Fung Investments and a subsidiary of Hony Capital, one of the leading private equity firms in China.
The agreements between Cessna and AVIC will result in the manufacturing of business jets, utility single-engine turboprops, and single-engine piston aircraft in China. The first agreement between Cessna and AVIC is intended to create joint ventures to develop general aviation operations in China, such as an aircraft service network. The other agreement will result in cooperative efforts between Cessna, AVIC Aviation Techniques, and the Chengdu government to make mid-size Cessna business jet and other products for the business jet market. By 2013, Cessna and AVIC will begin launching the joint ventures to fulfill the goals of the agreements.
NetJets unveiled details today for its new China joint venture, NetJets China Business Aviation. Pending regulatory approvals, the JV will be based in Zhuhai in the province of Guangdong and will attempt to bring NetJets’ private jet management services for corporate and personal use to China. NetJets generates about 80% of its revenue from North America and the remainder from a European joint venture.
Business jet manufacturer Gulfstream announced last month it will open a new jet service center in the Beijing Capital International Airport by the end of 2012. Run as a joint venture with Hainan Airlines, the facility will be the first manufacturer-owned business aircraft service center in China. It will serve to support existing facilities in the Asia/Pacific region that don’t have enough capacity to keep up with regional fleet growth and maintenance, repair, and overhaul (MRO).
These agreements are among a larger trend of global aircraft manufacturers seeking to grow business in fast-growing China in order to offset decreasing sales of private jets to corporations, governments, and wealthy individuals – a result of the global economic downturn. Worldwide, China represents “the most active market” for fully customized private jets, an Airbus executive was quoted as saying in this Wall Street Journal blog article. Both Airbus and rival Boeing plan to sell three to five business jets in China this year, a low number but a high margin, as the article points out.
Taking a longer view, Canada’s Bombardier believes that China may be ready to buy up to 2,360 jets over the next 20 years, according to the company’s vice president of business aircraft sales. But despite this optimism, Bombardier reports that it will not enter into agreements similar to the ones undertaken by Cessna, NetJets, and Gulfstream.