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Civil Aviation

With its population of 1.26 billion and large area of 3.7 million square miles, China is well suited for air transport. Accordingly, China's civil aviation industry has seen increasing investment and rapid development over the last 20 years. The Chinese government considers civil aviation a key sector in China's continuing economic development. Both China's accession to the World Trade Organization (WTO) and the Opening-Up the West Policy (to develop the poorer Western Region of China) are also driving increased spending on civil aviation infrastructure.

The first commercial flight was made between Beijing and Tianjin in 1920. On 31 March 1922, a passenger plane crash killed all the 14 people on board. This was the first accident in China's civil aviation. On 01 January 1927, the flight master of the Guangdong Aeronautical School made China's first aero parachute jump on the graduation ceremony of the school. Civil aviation did not make any significant development until the end of First Civil War (the ''Northern Expedition War'') in 1927. On 10 October 1928, China's first private aeronautical school -- Xiamen Civil Aviation School -- was established. In 1929, the central government established the Shanghai-Chengdu Aviation Administration Bureau and placed much emphasis on building China's commercial airlines. On 06 June 1929, the China Aeronautical Association established an aeronautical display room in the Hangzhou West Lake Exhibition, the first aeronautical exhibition in China.

By 1933, there were three major domestic airlines in China: the China Airlines (a joint venture with a U.S. company), the Eurasian Airlines (with a German company), and the Southwest Airlines (with local business groups in southwest China). By 1936, before the Japanese invasion, the air transport network had expanded nationwide, covering major cities except for northeast China. Commercial air passenger transport in China was halted during the War of Resistance Against Japan (1937-1945) and the Second Civil War (the ''Liberation War'' 1945-1949).

China's 10th Five-Year Plan (2001 - 2005) for Civil Aviation Development spurred near 10 percent growth in both air cargo and passenger traffic. The Planning Department of the Civil Aviation Administration of China (CAAC), reported that in 2002 China had a total air cargo turnover of 2.0 million tons, an increase of 9.8 percent, and a passenger volume of 83 million, an increase of 10 percent year-on-year. Industry analysts estimated that the average annual growth rate of China's total air transport volume will continue in the 8 - 10 percent range for the foreseeable future.

After a series of consolidations since the 1980s, China's airlines began to thrive, profiting from the continued loosening of governmental controls. Their success has led to demand for LCAs from the world's two largest producers, who in turn have projected steady and significant growth in both orders and deliveries of their aircraft in China. In the mid-1980s, the Civil Aviation Administration of China (CAAC) divided its airline arm into six regional carriers9 and allowed provincial and municipal governments to begin operating airlines. A total of more than 35 airlines were consequently formed.

Through government mandates, this number was reduced to 19 airlines operating domestically by 1995. In October 2002, three major airline groups were formed by government fiat, further consolidating the airline industry: Air China, China Eastern Air Holding Co., and China Southern Air Holding Co. Together, these three groups and their subsidiaries operated 416 LCA (passenger and freight) and regional jets, predominantly of U.S. manufacture, at their inception. Not affected by this government fiat was Hainan Provincial Airlines Co., a regional airline founded in October 1989. It formed China's fourth major airline group, and in 2000, became a division of HNA group. By 2005, Hainan had become China's fourth-largest airline prior to its association with other domestic airlines. By December of 2006, China's airline landscape had evolved into five groups, each with several affiliated airlines.

By 2008 China was the world's second largest commercial aviation market, after the United States. Since 2000, the number of air passengers had more than doubled, with an average annual growth rate of 13.5 percent. Over the next 20 years, the demand for air travel is projected to grow at an annual rate of 7.9 percent. After a period of rapid expansion, the passenger market is expected to moderate to a period of sustained long-term growth. Domestic traffic alone will grow at an average annual rate of 8.9 percent due to rising income levels and improved services offered by the airlines.

Liberalization of air services between the United States and China was one of the Bush Administration's top priorities in civil aviation as economic relations between the two countries continued to expand at a rapid pace. Chinese carriers, which are mostly state-owned, pressure China's leaders not to hurry with liberalization. Chinese airlines have a smaller market share of the two-way market than U.S. carriers and are afraid to lose more if the market is fully opened. On the other hand, differences between relative competitive positions of U.S. and Chinese airlines are not dramatic, and both would benefit from an expansion under the open skies regime.

China's domestic aviation market is experiencing rapid growth accompanied by severe growing pains that include air traffic congestion, lack of commercial capacity in the airspace and insufficient infrastructure. As China's leaders try to address these problems, they seem to believe they need to focus on modernization and proceed only cautiously with the opening of their international aviation market. In 2004, the two countries reached a bilateral agreement that provided for a gradual increase by 2011 in the number of airlines permitted to serve U.S.-China routes from four to nine and the number of flights per week from 54 to 249. U.S. carriers have been competing with each other for flight allotments related to that agreement and U.S. businesses and tourists have been clamoring for more connections.

"Ultimately the goal is to do everything in our power to fully liberalize our aviation relationship with China, thereby expanding service, destinations and frequencies," Transportation Secretary Mary Peters said in late January 2007. On 23 May 2007 Civil-aviation negotiators from the United States and China reached agreement in principle to amend their bilateral air services agreement to allow significantly expanded air service between the two countries.

The General Administration of Civil Aviation of China (CAAC) is making efforts to rationalize the country's airlines. It has completed mergers with the "Big 3" (Air China, China Eastern and China Southern) and China's smaller, less profitable airlines. The CAAC is concentrating on expanding the number of smaller, single aisle aircraft while phasing out additional wide-body, twin aisle aircraft in the Chinese fleet. CAAC expects the new airlines to improve operating efficiencies and concentrate on developing a modern "hub-and- spoke" air routing system.

Airline Fleet

China's transition to a competitive producer of commercial jet aircraft and engines will be aided by its large and growing domestic aviation market, providing a ready market for new indigenous aircraft. China's has the world's fastest growing aviation industry, with air traffic increasing at a rate of 8.0 percent per year. AVIC I predicts that passenger traffic is expected to grow 14.5 percent annually between 2005 and 2010.109 Given that there are only about 1,100 registered aircraft operating in China (compared to roughly 219,000 in the United States), industry analysts predict that Chinese airlines will need to add over 3000 large- and medium-sized aircraft to their fleets over the next two decades.

The airline fleet in China has grown 2.4 times since the year 2000. Over the next 20 years, growth in the fleet will average 6.4 percent each year. The fleet will more than triple to 4,560 airplanes by 2027-about as many airplanes as were in Europe in 2008. Single-aisle airplanes will account for 70 percent of the new purchases, driven by the fast-growing domestic market. Additional small and intermediate twin-aisle airplanes will be needed to expand international and domestic services. Demand for new airplanes will include a limited number of large airplanes to connect China with other major world hubs.

China will need 41 percent of Asia's new airplanes over the next 20 years. Single-aisle airplanes will be most needed in China (2,600), Southeast Asia (1,170), and Southwest Asia, including India (830). Twin-aisle airplane demand will focus on Southeast Asia (870), China (780), and Northeast Asia (700), with Southwest Asia and Oceania both needing about 230 new airplanes of this size. Southeast Asia will require more (220) of the largest airplanes than any other world region. Over half the region's need for 430 regional jets will come from China (230).

Large civil aircraft (LCA) are civil aircraft seating 100 or more passengers, or civil aircraft weighing over 15,000 kg. From 1997 to 2006, China ordered 959 LCA, accounting for 9.1 percent of global orders. During this period, deliveries to China amounted to 504 LCA, representing 6.9 percent of global deliveries. China will likely become the largest market in the world for new large civil aircraft, with global LCA manufacturers expecting to sell 100 LCA per year in the Chinese market for the next twenty years, or one every three to four days, at a total value ranging up to $350 billion. In addition, infrastructure updates (airports, repair facilities, flight schools, and air transport modernization) will add substantially to this estimate, making China the most essential market in which suppliers of aircraft and associated equipment and services must participate.

The majority of China's LCA fleet is comprised of Western-built aircraft. As of July 2007, there were a total of 1,171 Western-built LCA registered in China, while regional jets from BAe, Canadair, and Brazil's Empresa Brasileira De Aeronáutica SA (EMBRAER) accounted for 57 additional aircraft. Since the demise of the BAe, Douglas, and Fokker brands, and in light of the inability of Commonwealth of Independent States' manufacturers to sell their equipment to Chinese operators in sizeable numbers, Boeing and Airbus essentially share the new equipment market.

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Page last modified: 11-07-2011 02:38:51 ZULU