China’s Jet Buyers Go Large
With demand for business aircraft weak in traditional markets like the United States, many manufacturers are looking to China for growth. At the Asian Business Aviation Conference and Exhibition (ABACE) last year, Bombardier–which now claims about a third of the Chinese market–said it expects the number of business aircraft in the country to increase dramatically by 2030. The company predicted that, by then, Chinese customers will have taken delivery of more than 2,300 new business jets, a nearly tenfold increase from the present number. Embraer, meanwhile, forecasts that, over the next decade, the country will need 635 such jets, worth $21 billion.
Such predictions explain why business aviation manufacturers continue to invest in personnel, services and facilities in China. In 2011, Gulfstream launched a sales office in Beijing and assigned several service representatives to the region. Last year, the company announced that it would soon open Gulfstream Beijing, a service center to be operated along with Deer Jet and Grand China Aviation Technik. In addition, Dassault Falcon recently opened a customer service office in Beijing and subsequently one here in Shanghai at the Hawker Pacific facility at Hongqiao Airport.
Bombardier has also notably increased its presence in the country. “We have invested a lot of resources and expanded our sales team in China, as well as opened an office in Shanghai to complement our existing Hong Kong and Beijing offices,” said Michael Han, the Canadian manufacturer’s regional vice president of sales for business aircraft in China.
Large-cabin jets dominated the static display at ABACE 2012, accurately reflecting the region’s demand. “Traditionally, the market in China has favored larger aircraft like our Global jets,” Han said, “but, increasingly, we see a lot of interest in our Challenger and Learjet aircraft as well. Long-range travel remains a key requirement, but as domestic travel needs within China and across Asia increase, there is a growing need for smaller aircraft.”
Bombardier delivers a handful of the large-cabin Challenger 850s each year, the majority of them destined for service in Asia. “I haven’t heard of an 850 that was sold outside of the area,” said Jahid Fazal Karim, co-owner of global aircraft brokerage Jetcraft, which has been involved in sales in the region since 2008. “I would say it’s 90 percent of the Challenger 850 market today.” That tallies with an assessment from 850 completions specialist Flying Colours of Peterborough, Canada, which sees its aircraft heading to Chinese owners almost exclusively. While the twinjet possesses the reliability of the regional jet from which it is derived, and a spacious cabin on a par with that of its Global 6000 stablemate, the 850 has less than half its range.
“In general, the Chinese clients like big cabins,” said Karim. “That’s why, for instance, the Challenger 850 is relatively popular there. It doesn’t have much range but [those owners] really don’t need that much range because they are doing a lot of regional and domestic travel.” A penchant for big cabins has also fostered demand for aircraft such as the Dassault Falcon 2000, Embraer Legacy 650 (23 of which were recently ordered by Minsheng Financial Leasing) and Bombardier’s Challenger 605.
Yet a healthy market also exists in China for long-range jets, as evidenced by the nearly 50 percent of the market claimed by Gulfstream. “We have a wide range of customers, but our aircraft are most popular with corporations, individuals and charter operators, in that order,” said Scott Neal, Gulfstream’s senior vice president for sales and marketing. “For many large corporations, the founder/individual is still at the helm and making the decisions. As the market matures and the second- and third-tier customers are exposed to business aviation and its benefits, we will see a change in the types of customers we encounter.”
Gulfstream’s products are among those favored by the nouveau riche in China, who have earned their fortunes through the country’s burgeoning real estate business, according to Karim. “Their businesses take them a bit outside the territory, so they probably have more of a longer-range need, but they will also go for the best thing,” he said. Bombardier’s Global 6000, Gulfstream’s G550 and newly certified G650 and even bizliners such as the Airbus ACJ or Boeing BBJ rank among the preferred choices.
Given the high import taxes on business jets in China coupled with high operating expenses and the difficulty involved in finding qualified pilots in the region, Karim believes that those who can afford to import a jet are choosing the biggest models they can afford. While the narrowbody, lower end segment is battling headwinds in terms of Chinese acceptance, that attitude will change as the industry evolves, according to Karim. “As the market matures,” he said, “a lot of these companies, especially the domestic ones, will realize that if you are going to move people around on a two- to four-hour leg, you can do it much more economically in a Citation Excel, a Lear 45, a G150 or a Hawker 900. As it gets easier to operate planes inside China, as they maybe ease their taxes, as you get access to more pilots, it will help the smaller planes down the line.”
Charter operators have also become active in China of late, though the concept of placing a privately owned business jet in the charter market to help defray costs isn’t widely accepted yet. Still, demand exists for private lift from customers who do not own their own aircraft. “There are people who don’t want to own planes and just want to fly and pay for the trip,” said Karim. Companies are trying to capitalize on that, [but] I think a lot of these companies may overestimate the ability to make money in the charter business.”
Chinese buyers prefer new or late-model jets, but once the inventory of used airplanes grows, purchasers will have to think twice about whether to bring in a newer aircraft or buy one that has already been registered in the country. Purchasers of previously registered jets “may pay a little bit more,” said Karim, “but if you factor in the 20-percent tax on imports, they are better off buying a plane that is Chinese registered.” Another bonus for buyers of pre-registered jets, he said, is that they avoid the four- to six-month process required to transfer a foreign preowned jet to a Chinese registry. “Naturally there will be more in-country transactions like that,” he said.