China’s aviation industry is set for takeoff!

September 2, 2015

This article was first published in Inside Counsel Magazine http://bit.ly/1iiAjZ0

That roar you hear in the distance may be China’s air industry shooting up into the stratosphere. Thanks to its growing engagement in international business, surging tourism, and lower fuel costs, more people than ever are flying into China. As reported in Business Insider inbound tourists topped 128 million in 2014 – despite concerns about China’s air pollution and market volatility.

At the same time, outbound travel from China has also grown. Chinese leisure travel is being boosted by China’s rising middle class and the easing of visa restrictions in the U.S., France and Australia. Flights to and from major hubs around the world are now to be added to second-tier cities like Nanjing and Wuhan.

Flying by the numbers

More than 107 million Chinese citizens traveled abroad in 2014, which is an increase of almost 20% from 2013. This marks the first time that Chinese outbound leisure travel has topped 100 million, and this number is expected to increase by at least another 10 percent this year as more and more Chinese families sightsee, visit family members, and invest abroad.

And as Forbes noted in a recent article, China’s president, Xi Jinping has laid out plans for a “New Silk Road” that is intended to expand trade between Europe and China. This initiative – which is part of China’s bigger plan to better integrate into the global economy – will mainly focus on improving rail and highway links between Europe and Central Asia, but it will also include adding new air routes.

In order to keep up with this increased demand for flights, China is expected to invest more than $80 billion in aviation projects this year alone, according to Business Insider. This includes expanding more than 60 inland airports and building 30 new regional airports. Airports are also being built on several artificial islands along the coast.

In addition to increased commercial flights from large jetliners, China is also opening its skies to more general aviation. Beginning in 2015, private planes will be allowed to fly below 1,000 meters, marking the first time private aircraft, such as those used for business flights, will be allowed to fly in lower altitude airspace without military approval.

Until now, any private aircraft flying wishing to fly below this threshold had to go through a complicated and time-consuming approval process, according to Beijing Review. But starting in 2010, the government began rolling back low-altitude restrictions over some island cities a few years ago as a trial. Well, the trial was apparently successful as this reform is now set to go nationwide.

Taken together, these changes are creating an almost gold rush mentality. Unemployed people are scrambling to get into pilot training schools (the CAAC has said it will need 500,000 more pilots by 2035), businessmen are looking to buy their own airplanes, and investors are hoping to get in on this aviation action while it is still on the ground, before it soars off out of reach.

Is anyone on board a pilot?

As the Beijing Review notes, there are currently only 1,736 privately-owned aircraft in China and 226 general aviation companies in all of China. But that will change quickly thanks to these civilian-friendly reforms. The CAAC expects there to be 5,000 privately owned aircraft by 2020. And almost 200 more general aviation companies have already applied for approval.

Taken together, these changes in China could translate in potential aviation market demand of $15.5 billion. And the growth of China’s aviation industry is also reflected in strong midyear financial results among the country’s major airlines. China Southern Airlines, for example, reported net profits between $547 and $578 million. Other Chinese carriers performed similarly well.

Meeting the demand for pilots, however, is not going to be easy. More and more young people are likely going to want to learn to fly because the money is not bad and because the job sounds so exciting. But, as reported by Reuters, the CAAC can only train up to 100 students per year within its own programs, and the rest of China’s dozen or training schools are completely filled.

Increased demand for FBO and MRO

In addition to pilots, China will also likely see an increase in the demand for fixed-base operators (FBOs). These are commercial businesses that are the primary providers of support services to general aviation operators at a public-use airport, usually located on airport property. They provide such services as maintenance and repair operations (MROs), fueling, parking, hangaring, etc.

Conclusion

The impact of China’s aviation boom will stretch far beyond the country’s borders. Over the next 20 years, Chinese carriers are expected to expand their fleets by more than 1,500 aircraft – a number that represents 20 percent of the demand worldwide. The industry’s expanding infrastructure and increased demand for aircraft of every type and size will create new opportunities for western suppliers of:

Air traffic management systems
GPS, navigation and landing systems
Surveillance and security systems
Flight simulators
Other avionics services

Along with these new opportunities come risks. International business dealings have countless legal concerns, from export control issues to intellectual property rights to taxation questions. As with any aspect of international business, success requires working with experienced legal counsel to minimize risks.

Contributing Author

Jeffrey C.P. Wang

Jeffrey C.P. Wang is the managing partner and founder of WHGC, P.L.C. Mr. Wang’s practice focuses on handling the legal concerns of international and domestic…

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