China’s aviation industry’s profit triples.

With China overtaking Japan as the world’s second-largest economy, the country’s aviation industry has been enjoying healthy growth, writes William Dennis.

1st Mar 2011


China’s civil aviation industry reported a profit of 43.7 billion yuan (US$6.65 billion) for the full year 2010, more than triple the previous year’s figure.

Airlines made a profit of 35.1 billion yuan, while airports reported net income of 5.1 billion yuan. The airlines carried 267 million passengers, an increase of 16.08 percent, while cargo volumes increased 24.4 percent to 5.6 million tons.

According to Wang Changshun, deputy director of the Civil Aviation Administration of China (CAAC), the industry’s performance exceeded expectations.

The jump in profit was attributed to the rebound in international travel, the booming Chinese economy and the growing number of affluent Chinese citizens. Wang has estimated that the number of passengers travelling by air this year will surpass 300 million, while cargo is expected to increase by 25-30 percent.

After a series of mergers and acquisitions over the past eight years, the number of state-owned airlines has reduced, but the carriers have grown bigger and more competitive.

Expansion, improvement

The airlines are also expanding their fleets with new aircraft and are making a concerted effort to enhance services and improve their in-flight product offering to better compete in the international market.

As of 31 December China’s commercial fleet numbered 1,604 aircraft, an increase of 187. The country’s airlines will take delivery of 290 new aircraft this year while 67 older models will be withdrawn from service. A few of the retiring jetliners will be converted into freighters, while the rest will be sold on the open market.

Most of the new deliveries will be narrowbody types, to be utilised on domestic and regional routes.

“Chinese domestic airlines are aggressively expanding their fleets and networks, connecting to more points within the country with the opening of new airports,” Wang said.

China Eastern Airlines has firmed up plans to order 50 Airbus A320 single-aisle jetliners this year. Deliveries will commence in the first quarter of 2014, continuing through to the fourth quarter of 2015. The new aircraft will expand the carrier’s capacity by 11.3 percent.

Air China has said it plans to order 20 widebody Airbus A330-200 and A350 twinjets, in a deal valued at more than US$4.4 billion. At the Zhuhai Air Show in November 2010, the airline ordered 20 single-aisle A320 aircraft.

Guangzhou-based China Southern Airlines has also said it will order 36 single- and twin-aisle Airbus aircraft this year.

Meanwhile, Jinan-based Shandong Airlines has ordered 15 single-aisle Boeing 737-800s to replace its aging 737-300 ‘Classics’. The aircraft will also be utilised to launch services to new destinations up to five hours’ flying time from the carrier’s base. Delivery is scheduled to start in March 2014, continuing through to the third quarter of 2015.

According to Boeing, China will need 4,330 new jet aircraft over the next 20 years, compared with global demand for 30,990. In November last year, the CAAC said in its market analysis said China would require about 5,000 new aircraft by 2015.

Airport investment

The country is to invest 155 billion yuan this year to build 11 new airports, including the second Beijing Capital International Airport (BCIA2). The Federal government has allocated 100 billion yuan for the construction of BCIA2, an increase of 45 billion yuan from the funds allotted in 2010.

CAAC Director Li Jiaxiang said construction of the airport has to start in the first half of the year, as the current BCIA airport is growing rapidly and is running out of capacity.

Last year, BCIA handled 73.9 million passengers, up 15.8 percent from the previous year. With a capacity of 78 million passengers, the airport will be bursting at its seams by the end of 2011. It is projected to handle 90 million passengers by 2015.

The design for BCIA2 has been finalised and construction only needs the green light from the State Council for it to start.

BCIA2 will have capacity to handle 70 million passengers a year in its first phase of development, which is slated for completion in December 2015. Annual capacity will later be increased to 100-120 million, depending on growth in demand at both the city’s airports once the second development phase gets off the ground in 2020.

The CAAC has yet to decide whether BCIA2 will focus on handling international or domestic flights. China currently has 175 civil airports in operation – a figure which is expected to increase to 210 by 2015.

China’s goal is to have 300 airports in operation by 2020, with a hub in north, east, central, south-western and north-western regions. By 2030, 95 percent of the country’s population will have access to civil airports within 100km of their homes.

The national aviation authority will continue to provide financial assistance to small airports in the country. Those small airports, categorised as those handling less than one million passengers annually, are losing money across the board.

Wang said the CAAC will invest significantly to upgrade security systems at major airports across the country, as part of a drive to combat the threat of terrorism and drug trafficking.

Pilot qualifications

The regulatory body has also set up a task force to strictly monitor the qualifications of pilots to ensure that only those suitable for the job will be hired by Chinese carriers.

“Chinese airlines hiring local and foreign pilots have been issued with a directive to verify the authenticity of entries made into the log book with regards to the number of hours flown,” Wang said. He added that it is the airline’s responsibility to verify claims made by candidates.

Several pilots from South America who were hired by Chinese airlines between March 2008 and June 2009, when China’s domestic civil carriers were expanding rapidly, were alleged to have lied on their resumes and made false entries in their log books.

In September 2010, an audit carried by CAAC of the log books of pilots at a Shenzhen-based budget carrier revealed that 192 of them made false entries of hours flown. The audit was prompted after a crash involving a Henan Airlines Embraer ERJ190 aircraft on 24 August at Lindu Airport in Yichun city in Heilongjiang province, which killed 42 of the 91 passengers on board.

In the maintenance, repair and overhaul (MRO) sector, Air China and CFM International have finally agreed, after three years of negotiations, to set up an MRO joint venture. To be located in Chengdu in Sichuan province, the company will be known as Sichuan Services Aero Engines Maintenance Company.

Air China will hold a 60 percent stake while CFM International will hold 40 percent. The venture needs the Chinese government’s nod before it starts operations.

Air China is also evaluating the possibility of how its wholly-owned Air China Engineering and Technics (ACET) unit could be integrated with MRO service provider Ameco Beijing.

Ameco talks

Air China has been in talks with Ameco Beijing, its joint venture with Lufthansa, since mid-2010, but has yet to make a decision. Air China owns 60 percent of Ameco, while Lufthansa has the remaining 40 percent.

ACET, which was set up in 2004, is based in Beijing, with maintenance operations in Shanghai, Tianjin, Hohhot, Chengdu, Hangzhou and Chongqing. China’s rapid fleet expansion will continue to stimulate its MRO industry, which is enjoying one of the fastest growth rates in the world.

There are now about 390 MRO service providers in China, handling everything from the smallest components to heavy airframe and engine maintenance.

Analysts in Beijing say China’s booming economy will continue to stimulate travel demand. The economy grew 11.5 percent in 2010 and China’s aviation industry is expected to grow in parallel.

China has overtaken Japan as the world’s second-biggest economy.


According to the World Bank, China will overtake the US and become the world’s largest economy by 2025.
 

Asian Aviation at a glance