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Airplanes

The Chinese are finally building their own aircraft.  They’re on the verge (two years away anyway) of having a 70 seater aircraft (ARJ70) ready for delivery to their airlines, and to airlines around the world.  Good for them, it’s about time!  Of course this is not a question of cheap labor; making aircraft requires very experienced engineers, people that are expensive to train (5 years for full engineer ticket) and have to be retained (not low paying jobs).  So we are talking here of direct competition to Embraer (Brazil) and Bombardier (Canada).   

Of course what few notice is that the market for 70 seater aircraft is not in China, it is in Europe and America.  A news article this morning talked about a Californian executive having to wait 5 days to get a flight out of China to the U.S.  (no seats available).  Now these stories have a tendency to exaggerate the real problem, but it remains that China’s density, wealth and growth (coupled with horrible land transport infrastructure) make bigger aircraft a necessity.  So the Chinese have now announce the manufacturing of 168 seat aircraft (same size as A320 or B737 aircraft).

First, the Chinese have a steep leaning curve so the first 168 seat aircraft are not set for delivery until 2020 at the earliest – they have to build an entire infrastructure to manufacture these aircraft.  Although Boeing builds an aircraft every other day, the reality of building a new aircraft is a 2-4 year process (from manufacturing the first wing spars to the million of aircraft grade rivets that will be required).

In fact, these new aircraft will not compete with Bombardier C Series aircraft, but with the generation after that.  This is also true of Bombardier and Embarer’s smaller regional jets.  Although delivery of the ARJ70 will begin in two years, the production ramping up is complex, expensive and difficult.  

A very interesting development.  It will be interesting to see how the Chinese will include global engine (25%), electronics (15%) and landing systems (10%) manufacturers in their building process.  Both Boeing (B787) and Airbus (A380, A350) have experienced difficulty recently.

In the short and medium term, the entry of the Chinese in the market will have limited or no impact on Embaraer or Bombardier.  However, around 2015-17 period, these manufacturers will find the road to Chinese markets more crowded with local players involved

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