Business jets take off in China
May 27, 2011, Geneva, Sui. - The world's makers of executive jets are pinning their hopes for sales growth on the swelling ranks of China's super-rich.
May 27, 2011 By David Perason The Wall Street Journal
The Chinese market is booming while mature markets in Europe and North America remain lackluster after nose-diving last year. For example, half of new orders for Dassault Aviation SA's Falcon jets since the beginning of this year have come from China.
"China has become a very important part of our business," John Rosenvallon, head of Dassault's Falcon division, said at the annual European Business Aviation Convention and Exhibition here last week.
What the business-jet builders like about the Chinese market is that it is virtually untapped. Almost all the new orders are from customers who have never owned an aircraft before, unlike in the U.S., where some two-thirds of new orders are from repeat customers. And unlike in the West, Chinese buyers are jumping in at the top end of the market, buying planes with sticker prices over $50 million.
"In the U.S. business-aviation market, people tend to start with a small aircraft and then graduate to bigger aircraft—for example, going from a Cessna to a Hawker Beechcraft to a Gulfstream, and finally they get to a Boeing business jet," says Li Bing, head of Boeing Co. business-jet sales for China and South Korea. Boeing has sold eight business jets to Chinese buyers in the past four years and is aiming to retain its 50% share of the Chinese market for large business jets.
Meanwhile, Airbus, of Toulouse, France, expects to continue selling about five corporate-jet versions of its commercial aircraft a year to Chinese customers. These top-of-the-market jets typically sell for $65 million or more apiece.
Airbus, a unit of European Aeronautic Defence & Space Co., has sold 25 corporate models of its commercial airliners in China, Hong Kong and Macau over the past eight years. Both Airbus and Boeing offer cabin designs tailored to Chinese customers, including a circular dining table with a lazy Susan, to allow passengers to eat "family style" or play mahjong.
"The potential for long-term growth in China is huge," says Charles Edelstenne, chief executive of Dassault Aviation.
Well-heeled Chinese individuals aren't shy about flaunting their wealth, and it is one of the few markets in which manufacturers can openly vaunt the luxurious nature of their products. Mr. Edelstenne says Chinese buyers able to spend tens of millions of dollars on executive jets tend to be entrepreneurs, often in real-estate or mining. And they often pay cash.
At present, there are just over 130 executive jets registered in China, a fraction of the 15,000 in the U.S., which has only a quarter of China's population.
The Chinese authorities are struggling to deal with a massive influx of registration requests from foreign aircraft manufacturers. For now, big Chinese state-owned companies are chartering rather than buying planes, but it is only a matter of time before they start leaning toward outright ownership, industry experts say.
The current leader in the Chinese market is Gulfstream, a division of General Dynamics Corp. It has close to 40% of the Greater China market, with sales of more than 58 planes, half of which are based in Hong Kong. "The Chinese market barely existed 10 years ago," says Jeff Miller, Gulfstream's head of communications. But, he adds, it would be a mistake for the company to embark on a major sales push before it has established a proper infrastructure offering quality after-sales service. "We're being realistic. We don't have stars in our eyes," he says.
The Chinese government's latest five-year economic plan places heavy emphasis on developing private aviation by easing flight restrictions and building a huge number of airports. "The important thing right now is the relaxation of aerospace control by the army at lower altitudes," says Bill Boisture, chief executive of Hawker Beechcraft Corp., one of the leading U.S. business-jet builders.
The relaxation and airport expansion should automatically lead to a significant increase in demand for aircraft, he says. Sales numbers to date have been low, "but five to 10 years from now we'll see a market that's able to grow," he says. China will become "one of the engines of the industry," he says.
Business-jet makers say the infrastructure ramp-up must also include developing fixed-base operators—essentially, aviation gas stations with maintenance and flight-crew facilities and amenities for upscale travelers—and this will require the involvement of the private sector financially and operationally. As the general aviation infrastructure develops in China, Chinese companies are expected to set up manufacturing facilities in more distant parts of the country, increasing business-jet traffic and creating even more demand for facilities.
VistaJet Holding SA, a Swiss luxury-jet charter and aviation-services company, is considering a move into China alone, with a local partner or through a franchise agreement, Chief Executive Thomas Flohr says.
Like other industry players, Vistajet knows that moving into China entails a steep learning curve as the country develops an entire industry largely from scratch. Mr. Flohr says he is taking his time to sound out the potential market, to understand what Chinese customers need in terms of types of aircraft and to figure out how to organize his sales force.
"Once these elements are defined, we will go," he says.