As chairman of the Asian Business Aviation Association (AsBAA, Booth P533), one of four ABACE co-hosts, Kevin Wu has many commitments here at the show, but he took a few moments on the eve of the event to share his thoughts with AIN on the current state of business aviation in China.
Among the promising signs of continued growth: “in the last year several new players have come into the market here,” Wu said, citing NetJets China, which is now operating charter flights within the country; UAS International Trip Support, which opened a regional headquarters in Hong Kong and an office in Beijing; and Sparkle Roll Aviation, which has moved into aircraft refurbishment through its new partnership with Flying Colours, among recent entrants. “These are only the well known, big companies, but many, many more newcomers on a smaller scale [also entered the bizav market space],” he said.
Wu believes government policy of requiring international companies to secure local partners is having a positive effect on business aviation’s progress in China. “The outsider can bring in the experience and best practices, and the inside partners can put in the financing, the understanding [of local markets] and connections.”
However, Wu sounded a cautionary note, as he believes the number of companies crowding into the space is outstripping demand for their services. “My observation is that [new entrants] all need to find a new model, a new way of doing business, because there are already players in every segment–for example management, MRO, finance–so it’s a challenge, and quite competitive.”
The consequences of a shakeout for the near-term prospects of business aviation could be large, Wu said, as private investors fueling some of the current expansion could pull back if unrealistic investments goals don’t pay off. “The category is very sensitive, and PE [private equity] is very quick. Everybody’s looking for fast profits,” Wu said. “That’s an issue we’re very aware of, and we try to educate the industry to understand you cannot expect quick money.”
Wu recounted a meeting with one private equity company that was interested in putting money into general aviation. “I asked, ‘Normally, what return rate are you expecting and within what time frame?’ They said, ‘We are looking for fifty percent growth within a maximum of six months.’ I said, ‘Good–let’s drink tea,’” he related, his answer signaling the investors’ goal held no basis for a serious discussion.
Government Support and Industry Investment
Meanwhile the Central Government’s austerity campaign and anti-corruption efforts have cooled demand for charter services and new aircraft purchases over the past year, Wu said, exacerbating an oversupply problem. “Everybody wants to lower their fees to attract customers, but we all know if the fee is below the profitable threshold, safety, service and quality will be impacted,” he said. “So in this regard, I hope the outsiders like NetJets and others work closely with their partners, using their experience, which is mature and successful, to help improve the environment.”
Yet despite the current campaigns, the Central Government attaches “great importance” to the industry’s future, Wu said, noting, “In 2014, China’s government, including the China Civil Aviation Administration, released several new measures to help grow the industry.” These measures include an enhanced subsidy program to assist general aviation’s development; simplifying the AOC (air operator certificate) application process; and moving authority from approving general aviation flight plans from the regional to local governments.
Removing airspace restrictions remains a priority for the industry. “They have been talking for years, and that’s not satisfactory,” Wu said. Last November the Central Government hosted a national meeting with civilian and military authorities to develop an implementation plan for opening more airspace to private operations. The plan looks good “on paper,” Wu said, but “we need to watch, and to push” to ensure follow through.
The AsBAA itself has been muscling up to achieve its constituents’ goals. The organization added 15 new members in the last year, bringing its total to more than 100 companies, as it expands its support activities. The association has hosted several seminars on business aviation topics including safety and best operational practices, the first at ABACE last year, followed by presentations in Jakarta, Hong Kong and Singapore. Also in the past year, AsBAA has formed three regional subcommittees, covering Mainland China, Hong Kong and Southeast Asia. Operators in these regions face common challenges, Wu said. For example, aviation authorities in many Asia Pacific nations attempt to saddle charter operations with the same regulations applied to commercial transport operations, rather than adopting the Part 135 rules applied to charter operators in the West. “That’s overly restrictive, and it adds to costs,” Wu said.
Part of the challenge in China is simply evolving from the country’s archaic legacy ATC system and mindset. “To change a system from the former Soviet Union system to a new system, that is really a big, big, big job,” Wu said and will require those controlling the airspace and those seeking access to it to work together. “Stakeholders need to reach agreement on compromising with each other” for the good of the system and the People’s Republic’s aerial aspirations. “From the government’s point of view, they’re doing a good job,” Wu said, “But they can do a better job of relaxing the operational costs and to trying to relax the regulatory standards for the business aviation community.”
Beyond regulatory changes, the industry itself needs to educate the public at large about “the essence of business aviation,” Wu said. “It’s a business tool and transportation tool. We need to counteract the perception that business aviation is a luxury. That’s not correct.”
Infrastructure shortage is another challenge facing business aviation’s growth, Wu said, citing airport congestion as an example. “In Beijing Airport, two Boeing 777s, with 200 passengers on each want to take off, and now you have a jet with one or two passengers. Who should get priority?” he asked, before providing an answer. “So the government will build a second or third airport around major cities. They’ve also opened the door for private financing both from China and foreign countries to allow them to invest in general aviation airports.”
Going forward, realizing China’s business aviation potential and building out its infrastructure will require more than government encouragement, business community buy-in, and money. It will take time. Even if China builds “ten or 15 general aviation airports each year, it still won’t meet demand,” says Wu. “That’s going to be a long process, longer than five or ten years.”
Here at the show, Wu and his team are eager to meet association members and other attendees who want to be part of the region’s dynamic business aviation growth.
