Reality Check time.
China will eventually build such an airliner. The only questions are: when will they build one, at what point would such a venture be locally if not globally competitive (based on price and operating costs), and at what point China can catch and surpass Airbus and Boeing.
Eight-and-a-half Reasons Why The Odds Are Against This
Any of the above is, of course, a matter of opinion or informed speculation. I’ll resist the temptation to venture an opinion, but will instead throw a few facts out for everyone to consider:
1. No Experience: China has yet to design, build, and put into revenue service a transport aircraft that it has designed, developed, and manufactured on its own. The Y-7, a locally assembled Antonov An-24 derivative, is being phased out of passenger service, and in Beijing is usually only seen in freight-only configurations. The Y-8, another Russian turboprop, is suitable for little more than hauling cargo. Frankly, I go out of my way to avoid being stuck on a Y-7 – they’re apparently little more than flying cement mixers.
They still can’t build their own jets. They certainly couldn’t build a good MD-80 by themselves. They needed a very high percentage of expensive, imported talent to help build it up to Douglas’ quality specs. At peak, Douglas had 150 expatriates living in Shanghai working on the MD-80, and an untold additional number making regular trips from Long Beach.
2. Bad precedent: A range of government-sponsored ventures have been announced with great fanfare in the past, and all of them have passed into history before going into full production. The abortive Y-10 (a 707 knockoff) got the furthest, and the AVIC I and AVIC II Trunkliners never made it off the drawing boards. In all cases, the ultimate reason for discontinuing these ventures have been that despite whatever prestige benefits these ventures might bring, the price tag was too high for the central government to carry in light of its revenue challenges and the multitudinous demands placed on the national budget.
3. A Toothless Sponsor: The current initiative was announced by COSTIND. Even if this were a politically powerful organization, this project would require the go-ahead of at least one ministry and of the State Council. COSTIND will have much to prove to the higher-ups, most of whom are looking for more cost-effective ways to build national prestige while at the same time solving some very real and much more serious challenges – severe environmental degradation, bankrupt banks, a looming health-care crisis, and an educational system that lags even India’s.
But COSTIND is a bunch of leftovers, a dog’s breakfast of functions that mix the military and civilian. While COSTIND stands for Committee for Science, Technology, and Industry for National Defense, its real power originally lay in its position under the Central Military Commission. No more. In the government reorganization of 1998, all military related research and development projects were vested in the PLA’s General Armaments Department. COSTIND was left as a civilian agency with military pedigree overseeing the 10 SOEs manufacturing armaments. While this may suit it to try to convert fighter-plane production to building airliners, it doesn’t give it much knowledge of the business of designing, building, selling, and servicing airliners in revenue service.
And while we’re on THAT topic, let’s look at China’s fighter plane business. Apart from the fact that China’s SOLE recorded arieI victory in 30 years was Wang Wei’s suicide lunge at a lumbering whale of a US Navy surveillance plane, building advanced fighter aircraft remains a challenge. This is why the first two Su-30s built in China had to be completely rebuilt, and why locally made fighter planes make up a shrinking percentage of China’s true first-line fighter capability.
4. By 2020? Forget it. Note that not even COSTIND thinks this will land on the national agenda before 2010, and even then only to begin research and development, which we can expect to take at least a few years. This was a little factoid the Telegraph missed, even though it was covered nicely by China Daily.
5. We’re No Innovators: Local state-owned enterprises have proven that while they may be able to make a jump into a high-technology industry by developing and producing a product, they have not had equal success at turning such ventures into real businesses. China is making money in cars because of foreign help. The nation developed a local microprocessor, but it’s 4-5 generations behind the industry and they’ve yet to sell it. No other country in the world is taking up TD-SCDMA, China’s locally developed 3G standard, and the local carriers will roll it out because they’re being forced to do so. Even the local computer components and ODM business relies on American/European technology and management from Taiwan and Hong Kong.
6. Prestige and “Face” are not enough. As the cancellation of the Trunkliner, debate over the cost of prestige projects like the new national opera house, the CCTV tower, and dozens of others, the prestige argument has pull only if a decent economic case can be made, or if a project has presidential/State Council patronage.
Sure, designing and building a prototype would be a matter of national prestige. But if the plane flopped in the market and wound up being a hangar queen, the prestige would evaporate, and the cooler heads in Zhongnanhai understand that.
7. Cheap is not enough. Jets aren’t underwear, in that the cost of the item is not limited to the purchase price. If the quality stinks, the total cost of ownership rises through higher maintenance, higher fuel costs, and the attendant probability that lower-quality aircraft will turn into very expensive smoking craters.
8. China needs bigger planes, China’s biggest problem in the long term will be crowded airspace. If you want to see the future of Chinese aviation, look at Japan – almost all domestic routes will be using large jets to handle a growing percentage of the nation’s immense population taking to the air. Personally, I’d bet my first flight on an A380 will be Beijing to Guangzhou.
8-1/2. China has ZERO competence in critical subsystems. Huge chunks of these aircraft involve the kinds of technologies that are simply beyond the ken of Chinese industries right now. China can’t make turbine or turbofan engines, composite materials for hulls, complex avionics suites, or a host of other subsystems. Nor do they demonstrate much competency in other areas – including automobiles, in integrating them.
What’s Really Going On
Don’t get me wrong: if Airbus, Boeing, or both fall asleep at the wheel and stop innovating, they’re in big trouble. Long term, the only hope Boeing and Airbus have is to move the needle faster than the Chinese can catch up.
But somehow I don’t think they’ll drop the ball. The two of them are goading each other heavily in an intensely competitive market, and they have Embraer and Bombardier nipping at their heels.
Here’s what I think is happening.
COSTIND’s bureaucrats may be a lot of things, but they’re not stupid, and even if they were, the senior policy-makers in government are not. After canceling half a dozen major airliner projects in the last 20 years, they’ve gotten very good at it, which means they have a clear understanding of the technical, management, and commercial obstacles to creating a viable airliner.
This is the first and most public volley in an effort to get Boeing and Airbus to decide to produce A320s or 737s in China so as to prevent China from becoming a competitor. China will ratchet up the heat between the two with a promise for a gigantic airplane order, and the two companies will fall all over themselves for a chance at that order – even down to promising technology transfer of their family jewels.
And nothing would be worse. Because all Boeing and Airbus have is their technologies, and China never has been shy about appropriating those. I can think of little that would frighten me more as a shareholder or executive in either Airbus or Boeing than the prospect of going into business with COSTIND and its stable of defense factories. Come to think of it, given China’s propensity to take advanced technologies and go looking for a way to put them into military applications, I can think of nothing that scares me more period.
Airbus and Boeing have the fundamental strength to hold out against any ridiculous demands China makes, because China does eventually have to come to them for the aircraft that will keep the Chinese economy running.
I only hope they know that.
Sending a Boy to do a Man’s Job
I have no idea of the personal qualifications of Mr. Ambrose Evans-Pritchard, the gentleman who filed the Telegraph story. But I can say his credulity on both China and aviation suggests that his editors have little business assigning him to cover either.
— He quotes only a single “senior Chinese aviation official.”
— He questions not a single statement.
— He says that “the aircraft project makes commercial sense” but he doesn’t examine the commercial issues. He doesn’t ask whether or not such an aircraft can be competitive to sell or operate. He doesn’t mention that at a $3 billion price tag, they’ll need to sell 200 of them just to break even. He doesn’t ask if the airlines want this aircraft. In other words, he demonstrates not one whit of understanding of the economics of aviation.
— He mentions China’s ARJ21 regional jet. What he doesn’t mention is that both Chinese airlines and airlines around the world have thumbed their nose at the project, with a grand total of 35 local orders on the books – a flop in the making. He even notes that plane’s plans aren’t even finished, but misses the standing commitment to fly the thing by summer. Nor does he mention that even this relatively simple little jet needed GE to build the engines, Antonov to design and build the wings, Rockwell-Collins to make the avionics, and other international firms to make the landing gear, hydraulics, fuel system, electrical system, fire suppression system, environmental controls, flight controls, lighting controls, tires, and brakes. Basically, China is making an aluminum tube and some seats, and everything else is coming from elsewhere, and they STILL can’t sell it.
— Finally, he mentions that Beijing got Airbus to “commit” to plans for a Chinese assembly plant that could entail a major transfer of technology. WRONG. Airbus agreed to study the concept only. No commitment was made.
— He also notes that Airbus’ “commitment” was a quid-pro-quo for an order of 150 A320s. Of course, he doesn’t mention that a month earlier Boeing took a similar-sized order for 737s without any such commitment.
But that’s what passes for journalism when covering business in China. Some people will question anything that comes from a British or American bureaucrat, but if a Chinese says it, it must be believed.