Reports have surfaced that the Commercial Aircraft Corporation of China (COMAC) C919 airliner program is struggling, with first deliveries pushed back to 2018, two years later than scheduled. Local newspapers have run positive stories about progress, but the tone is defensive. Aviation Week has long been reporting delays, not surprising given problems plaguing Boeing's Dreamliner program and threatening Airbus.
How competitive is the Chinese aviation industry? A recent report suggests China will soon vault to global market-share leadership in unmanned aerial vehicles; others say China's 'jaw dropping' drone fleet is expanding fast and could soon surpass Western capabilities. Considering American drone capabilities today, this would be sensational. The Pentagon is worried. Similar angst accompanied that famous roll-out of China's J-20 fighter, which was quickly declared a 'game changer', although some recent assessments have been more modest.
Why are Western observers always 'shocked' by China's catchup? How many Sputniks are needed? Perhaps, like Russia, China is better at military aviation than civil aerospace. We can't know, because China is paranoiacly secretive about its defence programs.
By contrast, secrecy and civil aerospace don't mix well. Transparency is at the heart of the certification process for manufacturing, and indeed for the entire operation of a safe civil aviation industry (great read here). So to build airliners and business jets, China is opening up — coyly, with state-backed joint ventures with wary foreign contractors and a strong dose of industrial policy. And being more transparent, we can gauge China's progress in civil aerospace.
A recent RAND report analyses how effectively Chinese industrial policy will support its commercial airliner program, in particular the C919 single-aisle jet and its troubled regional jet predecessor, the ARJ-21. RAND's conclusions are more circumspect than the hype on the military side: 'China is spending well over US$7 billion for the C919; the ARJ-21 has also been expensive. Yet most (interviewees) were skeptical that either the C919 or the ARJ-21 will ever be commercial successes.'
If Chinese state-owned airlines are dragooned into buying C919s, that too will be contentious. The same RAND report notes that 'COMAC has set ultimate production goals for the C919 of 150 aircraft per year, (supplying) one third of domestic demand and 10% of the international market.' But 'government dictates...on (purchasing) decisions by Chinese state airlines...appear to be a violation of China's commitments under WTO.' Foreign complaints won't deter Beijing, however. As the RAND report says:
WTO accession did not affect the basic mindset in China about the goal...or its means – catch up to the world leader, use industrial policy to do so, build everything you can at home, and buy as little from abroad as possible. China's strategic industry promotion efforts are probably not WTO compliant, but they are probably not going to be challenged either...
Both the US and EU face a conundrum. China's leadership appears convinced of the efficacy of industrial policy...In contrast, the US and EU have attempted to negotiate agreements to restrain such policies because of their cost, lack of [effectiveness], and [their] interest in creating a level playing field for businesses.
China too may attempt a subsidised market-share grab. But there's a catch. Airlines forecast 'life-cycle costs' over 25 years of expected service. Fuel, downtime and spare parts are far more costly than depreciation. In other words, an inefficient or unreliable airliner can't even be given away for free. As RAND says, 'the challenge for China is not "Can you build an airplane?" but "Can you run a company that produces airplanes that are consistently competitive over time?"' RAND notes industrial policy has worked well for products like trains and wind turbines, where different life-cycle economics apply and — significantly — the customers are state companies. By contrast, auto industry policy, which has also forced foreign companies to pair up with SOE partners, has failed because private buyers are brand and quality conscious. The intended technology transfer hasn't played out either.
Beijing wants to be a full-spectrum industrial competitor. The Aviation Corporation of China, the sprawling uber-company of Chinese aerospace and defence which owns a slice of COMAC, targets an astounding one trillion yuan of revenues by 2017, more than Lockheed, Northrop, General Dynamics, BAE, and Raytheon combined. Can such expansive, top-down ambition succeed? If anyone can scale the entry barriers in aviation, it is surely the Chinese state.
Image courtesy of Wikipedia.