Jane McBride, ceo of Avicus Group, foresees huge opportunities for companies willing to invest in the growth of China’s business aviation infrastructure. Front cover photo: Dotty Mulcahy.

China Crisis or a Rolling Stone?

It is one of the largest countries in the world and one of the major world economies, however unsteady it has seemed recently. It has approximately as many airports as the UK and thousands fewer than the US, but even so many remain closed to non-scheduled flights. Charter Broker talks to industry specialists with Far East experience about the pitfalls, opportunities and outlook for business aviation in China.

The business aviation market in China is younger than in other parts of the world. Not legal until 2003, the intervening years have seen fleet size increasing and private jet ownership encouraged. But this progress seems to have come to a standstill. We look at why, and consider what the future may hold.

“Is it a case of China Crisis or a Rolling Stone?” asks Saul Jones, an aviation consultant specialising in Asia. “China's business aviation market was set to boom, but expansion has tailed off. With a desire to clean up its act and interact on the world stage, there is no denying China wants to make a point. With the state of the money market and its new anti-corruption laws there were always going to be casualties, and one of them is business aviation.”

A man with one chopstick goes hungry – infrastructure is the biggest obstacle

Not all of China's airports are open to business jets and at Beijing Capital International airport private aircraft get just one slot per hour during peak times. Construction is underway on an additional airport in Beijing with seven runways and a passenger terminal which will accommodate 45 million passengers a year. It should be completed by 2018, though it is still unclear to what extent unscheduled traffic will be able to access the facility. Also in the pipeline are general aviation towns, where business and social life will revolve around flying and which aim to attract both an indigenous aircraft industry and high-end tourism by virtue of offering an airpark with shopping mall, amusement park, golf course and boutique hotel. Superior Aviation town and executive airport should house the first Chinese aero club as well as a flying school, the lack of which generally has contributed to a chronic shortage of pilots. There will also be a 2,400m hard-surface runway, taxiways, three FBOs, helicopter pads and aircraft parking areas.

But back to the present day and Jane McBride, ceo of Avicus Group Ltd, says: “The state of Chinese aviation-related infrastructure can only improve and expand. The lack of FBOs, the low service standards and the relatively few GA airports creates huge market opportunities for domestic and international companies.”

This is echoed by VistaJet coo Ian Moore who says: “Although business aviation infrastructure has improved, there are still only a handful of cities such as Beijing, Shanghai and Shenzhen that have FBOs that specialise in handling business jets at airports. In most Chinese cities, business aviation is sharing the same resources as commercial aviation, including airports and runways. “Infrastructure is improving, however, more changes are needed to cope with the growth in the industry. Service standards and processes are optimised for commercial airline operators and travellers and fall short of serving the needs of business jet operators and their passengers. This means the value, efficiency and flexibility of using a business jet is not fully maximised.”

With regard to staffing issues, Björn Näf, ceo of Hong Kong operator Metrojet, says: “Competition with commercial aviation mainly focuses on talent acquisition. It is quite a challenge to locate a specific type-rated pilot/engineer who is also Chinese speaking. It can be easier to locate qualified flight attendants with language skills, but commercial aviation takes priority over private/business aviation. Hence succession planning and training is essential to sustain the business aviation industry's growth.” Ringo Fan, director of charter sales at Hong Kong brokerage L'Voyage, says: “In China, up until now, you have had large Chinese operators; giants, who operate large aircraft which have flying times of around eight hours. However, most flights in China are six hours or less. The Chinese like ramp presence; they show off their wealth and they like to have the most expensive stuff.”

Tracey Deakin, co-founder of US brokerage Le Bas International, agrees: “The Chinese like to use large aircraft and don't particularly like the smaller ones. They like the Gulfstreams and the Globals, because it is a status thing. But once they land, there is no difference between regular air flight and corporate, private jets. A passenger on a private jet still has to alight and go through the same passenger terminal as everyone else. They still have to go to see the customs officer, although maybe they don't have to wait in a long line. But they do have to get off the jet and into a minivan to the main terminal, go through the passport areas, get stamped and then get driven back to the jet.”

But Fan points out: “At New York's Teterboro airport it costs a few hundred dollars in landing fees. In Beijing or Hong Kong fees can be around $4,000-5,000 per aircraft. This is another reason why people fly in bigger aircraft; it is more cost effective to land one large group than many small groups.”

Jessica Du, senior business development manager at Chapman Freeborn in Beijing, adds: “Before the Beijing Olympics in 2008 there was only one FBO in China located at Beijing International airport. Now there are seven, in Beijing, Shanghai, Hangzhou, Nanning, Sanya and Haikou, with another currently under construction at Changsha.”

Permission to land?

Jones explains how what was once a booming market has now become a trickle: “Sure there are still extremely wealthy individuals and corporations with the money and the realisation that private aviation works, but they are also cautious to show and invest in it.”

So commercial flights are more attractive for many Chinese, not only for monetary reasons but also to show that waste and over-spending is not tolerated.

“Realistically this affects the infrastructure of the network in China and indirectly all the services that rely on this being efficient. Companies cut back on facilities, staff and investment while brokers especially find it hard, with permits being difficult to obtain at short notice and restrictions on overflight permissions.

“All these have to be coordinated with sponsor letters and visas and this can get very complicated if you are new to the area. However, there are upsides; because of the general increase in private flights over the past four years, flight 
support companies have become more aware of the process and can generally service requests with consummate ease.” Du says there are two key challenges of note: “The first is the difficulty in obtaining permits. China's airspace is controlled by the air force, and all Civil Aviation Administration of China (CAAC) permits require air force approval before they are released. This makes it very difficult to obtain permits for same-day flights, and for some urgent charter requests the desired schedule is not possible.”

The CAAC's air traffic management bureau has led efforts to free up access to air space and to ease congestion. The amount of airspace now free from military use is about 20 per cent, but despite these gains the military still keeps a tight grip on the availability of most of the national airspace. More importantly, it often schedules air drills and weapons tests at short notice, disrupting both commercial and private aviation operators.

Du says: “The second operational challenge we encounter is very high ground handling fees, the cost of a stop at some airports can equate to the same as one hour of flying.”

Fan has noted that: “Europe has open sky but Asia doesn't. In China, operators must submit applications to fly three days in advance, and approval is only given the night before the flight. This is what the Chinese and their airports are used to. China is used to dealing in mass; mass production and mass handling. It's all about large size, and airports are more welcoming for large jets. With the private jet market, however, it is all about customisation.”

Chinese officials are starting to understand this, and are taking steps to improve the situation. New flight approval procedures initiated a couple of years ago mean that for the most part, business flights no longer need advance applications and approvals. New rules on flight permit procedures and low-altitude airspace management, 1,000 metres or below, will open a new chapter for light aircraft and helicopters.

McBride says: “In 2012, it took five days to get approvals for a charter. Now it's common to get approval within one business day. As the CAAC and related government authorities gain experience, we can expect to see greater efficiency throughout the system.” Recent reforms mean the flight plan fee of $4,000 has been waived for Chinese-registered aircraft and plans can be filed up to six hours prior to departure, but the restrictions and fees are still in place for foreign registered aircraft.

A particular shade of grey

Many feel that the grey market has had as much impact on the domestic charter market in China as have the austerity measures imposed by the government. McBride says: “Some charter operators report that their business has been down over 50 per cent. Many brokers openly market and sell Part 91 aircraft as they are cheaper.” And owners let friends rent their aircraft typically just for the cost of the fuel.

But Fan explains: “Policies and regulations are slightly different in China. There is less differentiation between AOC and non-AOC. The Part 91/135 AOC/non AOC issues will change, but it will take time because Chinese government policies change very slowly.”

Who wants to be a billionaire? Anti corruption and the economy

Since the first business jet charter by Hainan Airlines in 1995, business aviation grew gradually. Most customers were international corporations chartering flights for executives, but Chinese business people began to appreciate their convenience and privacy after the 2003 SARS outbreak, when many public flights were suspended and private jet ownership became legal.

But since the government now frowns on private jet ownership there is a backlash against business aviation. The reforms of President Xi Jinping's austerity measures were primarily directed at China's wealthy elite and its state-owned companies, and while executives insist that private jet ownership is necessary for conducting business, many Chinese look upon these aircraft as an ostentatious status symbol. Charters have halved since the 18th party congress in November 2012, after which the industry lost all business from government officials and state-owned enterprises.

Business leaders still need to fly, but they don't want to bear a large asset investment. Moore explains: “Business executives and entrepreneurs need to travel in order to stay ahead of the game and get business done. The government's anti-corruption laws have definitely created a slowdown effect in the whole aircraft sales market. However, the jet programme and charter market continue to benefit from strong demand for private flying. The drive for austerity in China has meant there is less demand to invest large sums of money in owning aircraft.”

When a nest is overturned no eggs go unbroken

While some wealthy Chinese may have reason to fear President Xi's crackdown, others will still take to private aviation as a time saving tool for their business affairs. Consequently operators who have cultivated private clientele have fared better than those relying more on government charter business.

Are business jets ostentatious status symbols, the exclusive preserve of the wealthy? As Chinese companies start to expand overseas, so executives have come to appreciate business aviation for its more tangible benefits, connecting

usinesses both within Asia and between continents.

The flower that blooms in adversity is the rarest and most beautiful of all

As to the future of air charter in China, McBride says: “We remain very bullish, based on the size of the population, the growing number of affluent travellers, the geographic expanse of the country, the government support for domestic tourism and the existing low number of aircraft available for charter.”

Fan says: “The worldwide trend is to fly in smaller groups, for reasons of flexibility, cost efficiency and aircraft handling. And this trend is coming to China, slowly. Change requires supply and demand. China will always give preference to Chinese operators, it protects its own planes. But it has always been open to non-Chinese aircraft, especially commercially.”

Could China overtake the US in the next ten to 20 years? With a large population, a growing segment of high net worth individuals, high-growth companies and a vast geography, the prospects for private jet aviation are good. The next couple of years may offer slower growth and internal political pressures, but in the long run the signs are positive.

“What needs to happen,” says Deakin, “is for industry and government in China to properly understand the value of private aviation for businessmen both internally and externally. It won't happen overnight, and at the moment it is going backwards. At the moment people don't want to be seen to have money. I've been told that if you are a well known individual who has money and a big corporation then fine, but if you are coming up through the ranks you don't want to get yourself noticed. It will have to change, but it will take time.”

Simon Wagstaff, ceo of ASA Group Ltd, adds: “We, as an industry, need to emulate the Chinese culture in taking a true long-term view. Change, expansion and growth are all coming, but possibly not as quickly as we would like. Nonetheless, those that build foundations and sincere partnerships in China now will reap the benefits long into the future.”

The best time to plant a tree was 20 years ago, the next best time is today

China has the largest business fleet in Asia, and the ratio of private jets to ultra-high-net-worth individuals is nowhere near as high as it is in the US. Its market shows signs of maturing, but this won't be realised if short-term issues are not addressed: the economic slowdown, lack of airspace, limited infrastructure and changing attitudes to wealth and private jet ownership.

Change is needed, says Moore: “Additional infrastructure within China to handle private aviation operations is essential. More in-country training facilities for pilots, engineers, operations and cabin service personnel are also top of the list of requirements. Many service personnel are recruited from commercial airlines so the service mentality needs to shift from one-style-fits-all to the tailored service that business aviation travellers are accustomed to, and air traffic control and flight operations procedures also need to be flexible.”

Näf says: “While the Chinese market appears to remain stagnant, corporations still need to use private jets as a business tool because efficiency is key in any major corporate decisions and there are remote sites where commercial airlines simply do not have access. The market may remain challenging over the next couple of years, but in the long run its growth cannot be undermined.”

Moore adds: “The current number of private jets in China is only about 280 while the number for the US is about 10,000, making the per capita ratio of aircraft in China very low. Therefore there is a great expectation of rapid growth in the market. People see private jets as a business tool that will efficiently take them from point to point wherever they need to go. They don't need to waste time waiting for a transfer flight to arrive at a remote destination or be constrained by a flight schedule. The Chinese government has been actively pursuing economic development strategies such as the One Belt, One Road policy - whereby China is pushing to take a bigger role in global affairs and to increase exports primarily with Eurasian countries – and investment with the ASEAN region. We look forward with much interest to seeing the market grow.”

Jones asks: “Will this market change and become buoyant? You bet it will. There is no denying China is in transition. They are investing heavily in their own infrastructure and this will increase the viability of foreign investment into China. 

Middle East companies are already looking into placing aircraft and personnel locally, waiting for the upsurge to start. “So the stone rolls on, hopefully with renewed vigour and an understanding that to compete they have to submit, for the greater good of aviation. It is an industry the Chinese love, they need it on a huge scale, and it is one that provides much employment. They will not let the people down, they are too shrewd.”