Sustainable Growth Predicted In The Next 10 Years

The general aviation industry has good reason to be excited by both recent sales and future prospects for private aircraft in China. But it's important not to confuse an initial spike in orders with any market's long-term character, which may be very different. "That's particularly true in the case of China," aviation analyst Brian Foley says. "Dreams of a limitless upside must be tempered with realism. The current order rate cannot be sustained indefinitely, but there'll still be plenty of activity to keep the industry contented."

Foley foresees that Chinese orders for large-cabin bizjets, in particular, should remain fairly brisk into the near-term future. Some leveling off can be expected since China has reduced its GDP growth target to 7.5 percent for 2012 (the lowest goal since 2004 and 37 percent below 2010).

Today mainland China and Hong Kong, with 149 and 71 business jets respectively, account for only 220 of the roughly 19,000 business jets in worldwide operation, or around one percent. Foley envisions this could quadruple to a fleet size of over 800 over the next decade. Mid-sized-cabin aircraft, which have yet to be ordered in significant numbers, may next dominate the order books. The last wave will be light jets. "The Chinese market has had a unique development history," Foley notes. "It didn't grow from the bottom up. It basically started at the top, with expensive large-cabin jets, and is slowly working its way down. In hindsight, that was putting the proverbial cart before the horse. What China really lacks right now is a flying-friendly infrastructure. There's a tremendous short-term need for workhorse aircraft like helicopters and turboprops -- meaning more aircraft, more operations, more bases, more destinations, more fuel sales, more jobs and career paths, and so forth as activity spreads. All this will help make China's facilities more receptive to business flying, as has happened in other countries. But it won't happen overnight."

To use a meteorological analogy, Foley (pictured) sees the evolution of the Chinese market as a cloudburst -- starting dynamically, even explosively, with a lot of sudden changes at the micro level, then gradually transitioning into a steadier rain. The initial order surge was dominated by two small and fairly atypical customer segments called "early adopters" and "mavericks". They deserve credit as the first in China to recognize the new frontier in business flying -- and for having the agility, the resources and above all the mindset to act. The next group of buyers, the more numerous and better funded mainstream businesses, will probably wait until owning a business aircraft in China is simpler and more practical. These companies will ultimately provide the industry with the catalyst needed for sustainability and eventual maturation, Foley says.

Having China not just as another regional buyer but as potentially a major player should smooth out the market-cycle ups and downs and thus be welcomed by the industry. It should also help make up the industry’s sales deficit caused by the steep fall-off in fractional deliveries. However, the greatest impact of this growth will probably not be felt in this decade but rather the next, assuming that by then China's needed airport, airspace and regulatory infrastructure will be in place to support a more robust growth curve.

FMI: www.BRiFO.com