China aviation – Orders slowly add up for made-in-China aircraft

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c919-3 COMAC has so far relied on sales to Chinese carriers to fill its orderbook.
c919-3 - COMAC has so far relied on sales to Chinese carriers to fill its orderbook.

China aviation – Orders slowly add up for made-in-China aircraft

Commercial Aircraft Corporation of China (COMAC) spent seven years and at least US$9.5 billion to develop a plane that’s comparable in size to an Airbus 320 or Boeing 737, although outside analysts place the budget at more than twice that amount. The C919 can fit up to 168 seats and fly 5,555 kilometres, ideal for regional routes. Ralph Jennings updates the programme.

The first made-in-China mid-sized aircraft got a lot of heads shaking overseas when it became a reality after a flight test in May 2017. Airlines have been slow to place orders with worries about safety, while the state-run manufacturer Commercial Aircraft Corporation of China lacks the financing channels and other connections that rivals Airbus and Boeing have in Western countries, aviation industry analysts said.

The Shanghai-based manufacturer COMAC says it has received 815 orders from 28 clients. That steady increase over an initial 570 pre-orders reported in 2017 comes largely from Chinese airlines, possibly the only source of would-be income so far. It shows that the aircraft has been proven airworthy in China, an ever-growing civil aviation market. But the lack of buyers in other countries keeps some heads shaking. The C919 still lacks some of the specs along with business connections that foreign airlines expect when shopping today for aircraft.

“The good news is that the plane has achieved first flight and the testing appears to be going well,” said Richard Bitzinger, a senior fellow at the S. Rajaratnam School of International Studies in Singapore. Domestic airline clients include government-owned Sichuan Airlines and privately-owned Hainan Airlines, both of which have flown without major accidents. “It’s on track to eventually be delivered and put in use,” Bitzinger said.

Orders for the long term

Gauging orders for the C919 isn’t an exact science, aviation analysts say. COMAC accepts buyer intent without deposits or fixed delivery dates for client airlines, said Eric Lin, aviation analyst with the investment bank UBS in Hong Kong. That difference between the Chinese vendor and major foreign peers means the number of orders may fall short of actual deliveries. The vendor could change plans, while prospective buyers could back out. Mass production may not start until after 2020, Lin added. “In my opinion, that number doesn’t mean a lot,” he said. “For a C919, you don’t have a formal commitment.”

Order data should be taken with scepticism, said Richard Aboulafia, vice president of analysis at Teal Group Corp, a US-based aerospace and defence market research firm. “Given the absence of firm order guidance from COMAC – a proper, verifiable order book – I don’t take any of the order announcements seriously,” he said.

No currently operative airline outside China has placed an order, aviation analysts believe. Airlines in Southeast Asia may eventually buy C919s because a lot of them do the four-hour regional flights for which the planes are made, Lin said. With bases geographically close to China, he added, they could call on the manufacturer in case of mechanical problems. Southeast Asia is also rich in budget carriers, which might prefer COMAC’s prices over those of its Western peers. One C919 costs US$90 million, about 10 percent less than an Airbus or Boeing equivalent.

COMAC has one signature client outside China for the C919: Commercial aircraft and engine lessor and lender GE Capital Aviation Services (GECAS) signed a letter of intent in 2010 to buy as many as 10 of aircraft. “The decision to add C919s to the GECAS fleet shows our confidence in the commercial prospects for the aircraft and strengthens the relationship with our Chinese partners in the aviation space,” the buyer’s China CEO said in a statement at the time. GECAS gave a special reason, too. It noted that CFM International, a 50-50 joint venture between GE and French company Safran, had already signed with COMAC as the Chinese firm’s sole foreign propulsion system and engine supplier. GE officials could not be reached for comment.

Airbus and Boeing will probably keep their leads in the world market for the next 10 or 20 years, said Shukor Yusof, founder of Malaysia-based aviation consultancy Endau Analytics.

Aircraft parts

China is a relative newcomer to commercial aircraft manufacturing. COMAC also makes the smaller AJR series, but those planes have never found a strong market outside China. One problem is parts. COMAC scrapped the idea of installing a composite wing or composite wingbox, which are relatively light and aerodynamic, for the C919, Bitzinger said. The aircraft are getting more traditional metal wings instead even as Airbus and Boeing pursue composites, he believes.

With all parts added up, the C919 compares more to Airbus and Boeing narrow-body aircraft made in the 1990s rather than their more modern 2018 models, Lin of UBS said. That status will make it hard for COMAC to catch up, he said.

Cooperation with Western firms such as GE Aviation and Honeywell Aerospace might make foreign airlines keener to buy C919 aircraft. GE Aviation, working through a joint venture, provided the C919’s flight management system, on-board maintenance system, airborne flight recorder and remote interface units. Honeywell supplies wheels, the braking system, the flight control system and the avionics systems. These technologies “help increase reliability and safety, reduce operational costs and improve standards of comfort for the airliner’s passengers,” said Xu Jun, an Asia-Pacific vice president with Honeywell Aerospace.

Honeywell expects its 100 years of making aircraft hardware will help bring the C919 into compliance with US and European aviation regulations, Xu said. “Our deep knowledge and expertise in the aviation industry puts us in the best position to supply multiple systems on the C919 that can help COMAC develop a more reliable, robust, efficient and comfortable aircraft,” Xu said.

Western airlines, reflecting the views of their passengers, will initially worry that the made-in-China plane is unsafe even if it passes all tests without an accident. Although the C919’s maiden flight was airborne for 79 minutes without incident, aviation experts expect the aircraft to undergo other tests, including in hot-and-high elevation areas of China such as the Himalayas, before deliveries start. COMAC’s smaller ARJ21 faced delays partly due to the intricacy of these tests before being delivered to its first airline, a Chinese carrier, in 2015.

Inclusion of an “established credible manufacturer’s” parts should add to the aircraft’s long-term sales outlook, said John Grant, director of JG Aviation Consultants in the United Kingdom. Foreign brands have won over airlines in part for that reason, he said.

“Such are the brand strengths of Airbus and Boeing, and of course in both cases their new relationships with Bombardier and Embraer, that the global market has a huge degree of confidence in these carriers, their products, operating performance and operational integrity,” Grant said. “So as an airline, why risk that by purchasing a new aircraft that is unproven?”

COMAC, as a newcomer to the global market, would also lack connections it needs to arrange financing for its aircraft, aviation experts have said.

China market big enough?

Whether or not the C919 finds foreign clients, orders from home will keep it in business because of the sheer market size plus its growth potential. More than 200 airports operate in China and three times as many aircraft are in use now compared to 15 years ago. China, the world’s second-largest economy, took 20 percent of all aircraft deliveries in 2014.

China will be the world’s largest civil aviation market by as early as 2022, because of its expanding middle class and government support, the World Economic Forum said in an August 2018 report. Those factors keep airlines adding flights as Chinese aviation officials add eight new airports per year, it says. Airlines in China will pick up 921 million new passengers by 2036 for a total of 1.5 billion, up from 1.1 billion in the United States, the industry group International Air Transport Association (IATA) forecasts.

Still, Chinese airlines had already placed orders with Airbus and Boeing before the C919 came along, Grant noted. Those commitments could push C919 deals further back into the pipeline.

“China continues to grow rapidly, airlines need to place orders with established manufacturers some years in advance and therefore have placed those orders with Boeing and Airbus since they need to secure their positions in the queue,” Grant said. “Will they reach a point of substituting out Airbus and Boeing orders for COMAC replacements? They can of course do that, but it’s some way from being considered and would you want to do that as an airline when that delivery uncertainty remains?”

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