Chinese Aviation Industry

Struggling aircraft maker Hawker Beechcraft announced Monday that it had reached a US$1.79 billion "exclusivity agreement" with a Chinese aerospace manufacturer for the sale of its business jet and general aviation operations in a deal that will save thousands of jobs in Kansas and Arkansas.

Under the agreement Beijing-based aerospace manufacturer Superior Aviation Beijing Co., Ltd., will buy Hawker Beechcraft and make payments over the next six weeks to support ongoing operations until the deal is finalized.

The sale does not include Hawker Beechcraft Defense Co., which will remain a separate entity.

If the transaction is completed, Superior intends to maintain Hawker Beechcraft's existing operations while putting "substantial capital" into the company and its business and general aviation product line, saving thousands of American jobs, the company said.

Hawker Beechcraft filed for bankruptcy protection in May to expedite a prearranged restructuring of the company and some of its subsidiaries. Hawker Beechcraft Corp., which is owned by GS Capital Partners and Onex Partners, has struggled with tepid demand for its military planes and business jets.

The company employs about 7,400 people, with roughly 4,700 working at its Wichita, Kan., facility. It also has factories in Little Rock, Ark., the U.K. and Mexico, as well as more than 100 service centers worldwide.

Steve Rooney, president of the local for the machinists union, did not immediately return a call for comment.

Robert Miller, CEO of Hawker Beechcraft Inc., said in a news release that Superior first approached Hawker Beechcraft years ago regarding a potential partnership. He cited Superior's "demonstrated ability to quickly restore a business to profitability after emerging from Chapter 11" and said a transaction with Superior would maximize value for Hawker Beechcraft and its stakeholders.

"Importantly, this combination would give Hawker Beechcraft greater access to the Chinese business and general aviation marketplace, which is forecast to grow more than 10 percent a year for the next 10 to 15 years," Miller said.

Bill Boisture, chairman of Hawker Beechcraft Corp., said Superior's bid for the company was the most attractive received during Hawker's strategic review. Its plan also offered the most continuity for Hawker Beechcraft, allowing the company to preserve jobs and product lines and maintain commitments to customers.

Under the agreement, Superior intends to make Hawker Beechcraft its flagship investment, maintain its U.S. headquarters, management team and employees and continue product development throughout its lines. If the parties negotiate a definitive agreement during the 45-day exclusivity period, it would be subject to an auction, Hawker said.

While neither ownership nor control of Hawker Beechcraft Defense Co., will transfer to Superior, up to US$400 million of the US$1.79 billion purchase price will be refundable to Superior in the event HBDC is sold.

The deal is also subject to regulatory approvals from the Chinese and U.S. officials. Bankruptcy court approval is also required.

If the deal collapses, Hawker Beechcraft said it will proceed with its bankruptcy reorganization plan to emerge as a stand-alone company.

Superior Aviation is 60 percent owned by Beijing Superior Aviation Technology Corp., Ltd, a closely held private entity, and 40 percent by Beijing E-Town International Investment & Development Corp., Ltd, a company controlled by the Beijing municipal government.

Since its founding and highly leveraged 2007 purchase of Raytheon Aircraft, Hawker Beechcraft has carried a heavy debt burden, reporting total debt of US$2.3 billion at the end of 2011, according to its annual statement to the Securities and Exchange Commission.

Hawker Beechcraft said that the proposed combination of Hawker Beechcraft and Superior "will not require a financing condition."

In December 2010, Hawker Beechcraft struck a deal with state and local officials to keep its aircraft operations and at least 4,000 jobs in Kansas until 2020 in exchange for US$45 million in incentives.

On Monday, the only comment from the Kan. Gov. Sam Brownback's office was a one-line response sent in an email: "The state is following the situation closely."

Also monitoring the situation are city leaders in Wichita, who also issued a brief statement saying they would work diligently to protect the city's investment and aviation jobs.

"At this time, the City is working to gain a better understanding of how the proposed acquisition may impact our community," Mayor Carl Brewer said. "We understand the financial challenges Hawker has faced and are optimistic this acquisition could preserve jobs and help Hawker avoid difficult financial decisions."

Hawker Beechcraft traces its Kansas roots to Beech Aircraft Corp., a company founded by Walter and Olive Ann Beech that began making aircraft in the 1930s.

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China's AVIC International has reached a 61 billion CFA francs (US$116.3 million) deal with Cameroon for the delivery of three of the aircraft maker's MA60 turboprop planes, the company said on Wednesday.

The aircraft, which seat about 60 passengers, will be delivered by September and will be used on domestic and sub-regional routes by the central African nation's revamped state-run airline Camair Co.

The airline's fleet includes a Boeing 767-300 and two 737-700s.

Xu Bo, an AVIC executive who signed the deal with the Cameroonian government, told journalists two of the planes would be sold to country while the third would be a gift.

She said AVIC will also provide spare parts and training to Camair Co staff.

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On June 28, the ARJ21-700 aircraft, China's self-developed regional jet with independent intellectual right, finished engine inlet splash test, one of the most critical airworthiness tests, in Yanliang, Xi'an. This is the very first time for China's airworthiness certification group to carry out the trial. The Civil Aviation Administration of China (CAAC) representatives and the U.S. Federal Aviation Administration (FAA) shadow audit representatives witnessed the test.

At 2:12 p.m. the same day, the ARJ21-700 glided through a specially-built test sink of 100 meters long and 8 meters wide, with a minimum depth not less than 12.7 mm on the runway. It splashed a white mist that shrouded the aircraft. Inlet splashing test is an important subject of the airworthiness certification of civil jetliners, mainly to verify whether the water possibly inhaled by the aircraft engine inlet would impact the engine stability during taxiing, takeoff and landing.

The test was conducted with the entire landing gear into the test pool. The ARJ21-700 aircraft inlet splashing test lasted from June 22 to 28. Ten tests were conducted on a puddled runway at different speeds under aircraft taxiing, takeoff and landing conditions.

The ARJ21-700 is China's first independently designed regional jet in full accordance with international airworthiness regulations. It is also the first jetliner to apply airworthiness certificate with both CAAC and FAA and get accepted. Since its successful maiden flight on November 28, 2008, a total of 4 flight test aircraft and two strength test aircraft have been used in a series of tests and finished airspeed calibration, flutter test, stall test, minimum rotation speed test, and minimum controllable speed test.

The test team also went to places like Hailar, Jiayuguan, Urumqi to conduct extreme weather test, such as alpine cold weather, strong crosswind and natural icing conditions. The ARJ21-700 aircraft finished research and development test flight and some compliance verification test flight, with an accumulated of over 2,400 safe flight hours and 1,100 takeoffs and landings.

On February 29, the ARJ21-700 aircraft started its final airworthiness certification stage. There are 280 different categories, about 1,500 hours of flight test. Currently, airspeed calibration test, natural icing condition test, engine icing test, strong crosswind test have been completed. Stall test is also in preparation.

The ARJ21-700 project has entered its final sprint stage after 10 years of research and development. It is the last and critical step to pass all airworthiness tests and get the airworthiness certificate. It will also act as the pathfinder for China's large passenger aircraft project.

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On July 2, the third ARJ21-700 (serial number 103), designed by Commercial Aircraft Corporation of China, Ltd. (COMAC), took off from Dongying Shengli Airport, and successfully completed its test flight mission.

It is learned that on June 15, the ARJ21-700 was transferred from Shanxi Yanliang Airport to conduct its test flight at Dongying Shengli Airport. From June 21 to 30, there have been 9 take-offs and landings with a total flight time of 17 hours and 23 minutes. The ARJ21-700 finished local test flight, ATC communication test, VOR/DME and other navigation equipment test.

This test flight also tested the flight test airspace, and established a coordination mechanism to test the Dongying Airport testing conditions. It also laid the foundation for the establishment of Dongying airport as a flight test center for home-made aircraft as well as the follow-up intensive test flight.

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Commercial Aircraft Corporation of China, Ltd. (COMAC) showcases the models of its large passenger aircraft C919 and ARJ21-700 regional jet at the 48th Farnborough International Airshow running from July 9, 2012 until July 15, 2012.

At the airshow, COMAC demonstrates models of its large passenger aircraft C919 and regional jet ARJ21 at B27, Hall 3, with an area of 200 square meters. A 3-D screen has been installed to present C919's mixed and all-economy cabin layouts, as well as the new regional jet ARJ21's cabin layouts varying from mixed, all-economy, premium economy, administration to business configuration.

Though this is the second time COMAC participates in the Farnborough Airshow, it is for the first time that COMAC has showcased publicly its administration and business configuration of ARJ21.

Particularly, COMAC's airshow delegation headed by the general manager He Dongfeng will ink a Memorandum of Understanding (MOU) with International Airlines Group (IAG) and sign a purchase contract on water and waste systems with U.S. Monogram Company during the airshow period.

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In 2002, United Technologies Corporation was coming off its most profitable year ever. The various units of UTC, which owns businesses ranging from helicopter manufacturer Sikorsky to Otis (“the world’s leading manufacturer, installer, and maintainer of elevators”), had a net income of $1.9 billion off $27.8 billion in sales in 2001. Pratt & Whitney, the aircraft engine unit of UTC, was poised to bring in billions more from defense contracts, supplying the engines for Lockheed-Martin’s F-22 Raptor, the F-35 Joint Strike Fighter program, and the Boeing C-17 Globemaster III cargo plane.

But there were still opportunities to make even more money. One of the most promising came from Pratt & Whitney’s Canadian subsidiary, which had a plan to open up an entirely new market—China. Large risks were involved, however: the program was shrouded in secrecy, for one. It also involved working with partners who had a reputation for ripping off technology.

And it just happened to be illegal.

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On July 10, National Civil Aviation Mid-Year Work Conference was held in Beijing. Li Jiaxiang, chief of Civil Aviation Administration of China (CAAC), made a report on the whole industy's operation performance in the first half of 2012.

According to the statistics, as of June 30, the whole industry has realized 2.998 million flight hours operating 1.34 million aircraft movements in the first half of 2012, up 11.2% and 9.1% year on year respectively, with no accident reported.

The total turnover volume climbed 4.9% year on year to 28.695 billion tonne kilometers, while passenger volume was up 8.7% year on year to 151 million. Cargo and mail volume stood at 2.525 million tonnes. The midwest and northeast China airports saw much quicker growth than airports in east China in terms of passenger volume. The traffic structure was improved as well - with 89 aircraft newly introduced, the total aircraft fleet of the whole industry has reached 3,089.

Faced with the combination of slow growth in transport production and high oil price, the industry still managed to make profit. The flight time completed and aircraft movements handled in general aviation saw year-on-year growth of 24.4% and 32.3% respectively. 11 new general aviation companies were founded, making the total number of enterprises in the general aviation industry to reach 134.

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The first delivery of domestic-made ARJ21 regional jet is likely to be postponed for 2 years till the end of 2013, Commercial Aircraft Corporation of China Ltd. (COMAC) has reconfirmed the delivery deadline at Farnborough International Airshow.

It is reported that the ARJ21 was originally scheduled to be delivered in 2007. However, the company encountered several hard problems during the aircraft research and development so they pushed the delivery deadline to the end of 2011. The second delay of delivery was also resulted from problems of aircraft certification.

Tian Min, the chief financial officer of COMAC, announced at the Farnborough Airshow that COMAC plans to hand-over the jet to its launch customer - Chengdu Airlines in the end of 2013. It is the first time that COMAC has clearly declared a target deadline since it failed to deliver the jet in 2011.

Tian Min also said that the company expects the certification of both the U.S. FAA and Civil Aviation Administration of China in 2013. "The program is now undergoing the certification tests and flight test stage. There are still some problems but it's an inevitable part of the process. And there are no serious issues .The progress is good over all," added Tian.

The delays in ARJ21 program will have spin-off effect on the C919 program. The C919 was originally scheduled to launch its first flight in 2014 and to be delivered in 2016. However, both plans are likely to be delayed for the reason that the company has to devote its limited resources to the ARJ21 and try to finish the program, which they began 10 years ago, as soon as possible.

It is reported that both the two aircraft programs have several western suppliers, but the company's design is limited - most technical experts of the program are domestic designers who have been engaged in military aircraft project for years.

The ARJ21 and the C919 are China's first large commercial aircraft programs aimed at designing and producing a competitive commercial aircraft in the international market. When asked whether the C919 program will be affected, Tian Ming replied: "The experience we gained from the ARJ21 will be of great help for the C919's design and development."

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