China bid to sell US 'copters just spin?
Irene Jay Liu
China wants to bid for the contract to build the next US presidential helicopter, and build a brand for its defence industry in the process.
State-run aviation giant the Aviation Industry Corporation of China (AVIC), is teaming up with a small, struggling American defence contractor to prepare bids for two US military contracts, including one to replace the ageing presidential helicopter fleet Marine One, a person familiar with the deal said.
No final decision has been made yet, and AVIC and its partner, US Aerospace, still have to iron out their co-operation agreements before they can go ahead with the plan.
Even if they decide to proceed with the bidding, Chinese observers say they are highly unlikely to win the contracts. They suspect the move is more about burnishing the image of China's defence industry in the international arms market.
State media outlets have already begun touting its significance as a symbol of China's emergence as a global player in the high-end military arms industry.
In an interview in the state-run Global Times, Chen Hu, editor-in-chief of the Beijing-based World Military Affairs magazine, said AVIC's potential bid was an indication of Chinese military industrial enterprises' 'great strides in technology and production capacity'.
And, speaking in terms that will no doubt feed directly into America's fears about military outsourcing, Chen said: 'AVIC will benefit from the co-operation if they win the bid, since the company has to update its original technologies to produce helicopters that meet US civil aviation technology standards.'
In an interview on China National Radio, Xia Qunlin, vice-president of Avicopter, AVIC's helicopter manufacturer, declined to confirm or deny the report of a possible bid. But Xia said his company's successful test flight of the AC313 - the helicopter that would be offered for the Marine One contract - meant China had fully mastered large helicopter technology and could compete on the international market.
'Only very few countries in the world can produce 13-tonne helicopters. The Russian one has a smaller payload than ours. The French one is also smaller than ours - at only 11 tonnes. We are confident that our helicopters can compete with the world's best. We are proud of that.'
If AVIC won the bid, it would be the first Chinese arms sales to the US. The idea of China being ready to bid for US military contracts itself is highly symbolic and is a clear indication of the Chinese defence industry's surging ambition and confidence.
Likely competitors for the Marine One contract include the Agusta Westland AW101 and the Sikorsky S-92 medium-lift helicopters.
Analyst Antony Wong Dong, president of the International Military Association in Macau, said that while China is technically qualified to bid on US military contracts because all its military weapons followed the US army's standard, politics in the US would scuttle any chance of a successful bid.
'It's impossible for the US army to accept China-made aircraft, even though the prices are much lower,' Wong said.
'But AVIC still takes part in the game because it realises that its participation will provide free propaganda to polish its image in the international arms market, and tell its potential clients that China's aircraft industry technologies are able to compete with US and European competitors.'
AVIC is also preparing a bid for the US Air Force's T-X programme, which is expected to see the purchase of around 400 advanced jet trainers to be used to train pilots to fly the US F-22 and F-35 stealth fighters. For that proposal, AVIC would offer the Hongdu L-15 Falcon advanced jet trainer, which made its international debut at the Dubai Air Show in November 2009.
In preparing the bids, AVIC - which in 2009 made the list of Forbes' Global 500 largest companies - is partnering with unprofitable military contractor US Aerospace (USAE), according to a person familiar with the negotiations between the two firms. Trade publication Jane's Defence Weekly, quoting USAE lawyer John Kirkland, first reported the planned bids.
Kirkland, who declined to comment for this story, made waves in March last year when he announced to the media that Russia's United Aircraft Corporation, in partnership with an unnamed American company, was planning to submit a proposal for the US Air Force's US$50 billion KC-X aerial refuelling tanker modernisation programme. UAC quickly denied the reports and the bid never materialised.
While both sides are working together to prepare bids, the two companies have not yet reached a formal agreement to submit proposals to the US government.
USAE, which filed to deregister its stock on January 28, reported a US$11.5 million net loss for the quarter ending September 30, on revenue of US$660,144. The company was in default on several debts during the same period, according to the company's latest SEC filings.
Over the past year, the company has undergone what it calls an 'extraordinary transformation', replacing its board of directors and top management, shedding unprofitable businesses and focusing on a strategy of using foreign subcontractors for American military and commercial aerospace contracts.
In a letter to shareholders in July, its chairman, Jerrold Pressman, wrote: 'Enabling the expanded utilisation of foreign subcontractors will provide the US government with the unique ability to utilise the defence budget in a new geostrategic role that fosters economic co-operation among those who are and would strive to be our allies.'
Since then, the firm has been on a quixotic quest to win big-ticket US military contracts in partnership with foreign defence companies.
In July, USAE announced that it had signed a strategic partnership with Ukraine's state-owned Antonov Company, maker of the world's largest aircraft, to bid for the KC-X tanker programme, the same contract that Kirkland had claimed the Russians had been pursuing.
But their lofty ambitions quickly suffered a setback, when the air force rejected the company's proposal on the grounds that it was not received in time.
On August 2, USAE filed a protest with the US Government Accountability Office (GAO), accusing air force staff of arbitrarily marking the proposal as having been received too late, giving the USAE courier incorrect directions and suggesting that air force officials intentionally delayed the messenger due to political issues with USAE's partnership with Antonov. In October, the GAO concluded its investigation, dismissing the company's protest.
On August 18, just two weeks after the failed bid with the Ukrainians, USAE announced a strategic partnership with the supply chain management and procurement division of AVIC International, a division with US$7 billion in assets, 30,000 employees and US$5 billion in annual revenue, according to USAE's filing to the SEC. Under the agreement, AVIC agreed to supply all personnel, materials, facilities and other resources to produce aircraft components and equipment.
In a press release, USAE said the parties 'agreed to negotiate in good faith to invest together in the United States, including the purchase of manufacturing facilities, and for AVIC to invest in the company, including the potential purchase of USAE stock'.
USAE senior adviser Charles Arnold declined to comment on the specifics of any plans, but said his company was 'working with AVIC to get this transition over' and that he hoped to be able to discuss matters more openly in the next few months. 'We're very excited about our relationship that we have established with AVIC and we think this is the future of aerospace,' he said.
Additional reporting by Minnie Chan
David and Goliath
While US Aerospace had quarterly earnings of US$660,000, its AVIC partner had annual revenue of: $5b
Flying in the face of reality
How AVIC?s candidate to replace Marine One might look
The AVIC craft would be an upgrade of its CHAIG 7-8 model, a prototype of which made its maiden flight in March
Cargo: 4 tonnes internally or 5 tonnes on a sling
Payload: 13.8 tonnes max
Range: 900 kilometres
Composite materials are used on 50% of the helicopter and titanium is used for the remainder
Made of titanium
Three Pratt & Whitney Canada engines provide the heavylifting capabilities
Seats two pilots
State-of-the-art electronic flight information system
Current civilian set-up has 27 passenger seats
Hongdu L-15 Falcon
AVIC?s Honogdu L-15 Falcon advanced jet trainer, which it will put forward to train pilots for the United States Air Force?s F-22 and F-35 stealth fighters
Current Marine One
Sikorsky Sea King is the main presidential helicopter
Source: Jane's, Flightglobal