Tuesday, October 30, 2007

AVIC-I boldly invests for Civilian Aircraft Manufacturing

August 28 Chinese AVIC I in Beijing announced to establish SAC Civilian Aircraft LTD and CAC Civilian Aircraft LTD.SAC Civilian Aircraft LTD is located in Shenyang and jointly ventured 500 million RMB by SAC (40%), XAIC (45%) and CATIC IC (15%). While CAC Civilian Aircraft LTD is registered in Chengdu and invested with 500 million RMB by CAC and other same two investing parties in identical contribution.

SAC (Shenyang Aircraft Corporation) and CAC (Chengdu Aircraft Corporation) are the most powerful manufactures of military fixed wing aircraft, such as J-10 and J-11 fighter.

AVIC I's action in civilian manufacturing area indicated that Chinese aviation industries are drastically abandoning its previous planned economic operation mode in military system production. Since 1980s, SAC and CAC have been producing aviation components under sub-contract with western aircraft manufactures like Boeing and Air Bus. What ever SAC or CAC, has tasted the sweet in oversea cooperation and hope to gain bigger part in the big cake of China future aviation market.

After market research, AVIC I believed that in next decade China's domestic air transportation will boom over 4 times and need other 1600 airliners, which presume 150-180 billion US$ market, only next to U.S.; and in 2050 China will be supposed to demand 3000 jetliners and freights, which valued to about 350-400 billion US$.

XAIC (XI'AN AIRCRAFT INTERNATIONAL CORPORATION SZSE:000768) is the first public listed enterprise initiated by XAC (Xi'an Aircraft Corporation) in 1997. XAIC is a foregoer in Chinese aviation Industry to extend civilian production in a separated firm.

Under China's rules of aviation products exportation, SAC, CAC or XAC has no permission to direct provide products to foreign buyer but via the CATIC (China National Aero-Technology Import & Export Corporation). CATIC IC (CATIC Investment Co,) is a subsidiary of CATIC to deal with investment and management consulting. The involvement of CATIC IC proves that the CATIC's influence in aviation products & technology import and export.

The merge of new entities implied that AVIC I still can not fully integrate its all commercial productive capacity just because of the contention between SAC and CAC. Resources showed that these two giants are stealthily running in PLA General Armament Department and Administration for capturing China's next generation fighter.
In civilian range, SAC and CAC are both in confrontation without any fallback. In the birth of new JVs, SAC unleashed that it has signed contract with one of Top Utility Aircraft Manufactures to produce sport aircraft. And 2 weeks ago CAC has already built up an “Aerospace Hi-Tech Industrial Zone” in Chengdu for transferring advanced Aeronautical technologies to civil field.

Further, manufacturers in China are apt to trade with foreign corps and cast off CATIC's manipulation and taking percentage of deals. But it is still unrealistic in exist system. The newly founded set-ups can be deemed as a compromise among different sides in AVIC I.

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