Sunday, March 09, 2014

Fledgling general aviation market in China already overcooked

Though investors are interested in China's general aviation industry, many observers feel that capital has not been used properly for the development of the sector, according to the Shanghai-based National Business Daily.

Economies of scale have not really been achieved in any of the general aviation industrial parks in China and companies in the sector have been surviving with the help of government subsidies, said an industry researcher.

According to the Daily, market observers are concerned that the construction of industrial parks has grown rapidly before general aviation firms have had a chance to become profitable,

Figures from the Aircraft Owners and Pilots Association of China (AOPA) show the country had 116 cities at county level and above that are constructing or are planning to build industrial parks for use by the general aviation industry. In the 56 disclosed projects, investment in each park stood at an average of 11.23 billion yuan (US$1.84 billion).

Several cities in Sichuan province in southwestern China plan to build such industrial parks, as does the neighboring municipality of Chongqing. In one project there, construction began in August 2012 on a site covering 790 acres and involving investment of 600 million yuan (US$98 million).

Baotou in Inner Mongolia and Kunming in Yunnan both have similar plans, with Baotou constructing a more than 2,000-acre aviation production base.

However, a market observer notes that the domestic production capacity for general aviation industrial parks in China are already enough to meet global demand for a couple of years at just over 1,000 small-size aircraft a year. A single industrial park in China can turn out 500 small aircraft a year. They warned investors to watch out for these possible traps before investing their money.

As of 2013, China had 178 general aviation operators and an additional 110 were in the course of being established. The majority of them have made losses as their business model has been too simple.

A securities firm stated that the general aviation sector in China mainly covers agricultural use, while the complete activities for the sector could run to 34 categories.


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