• Thu
  • Oct 30, 2014
  • Updated: 10:22pm
BusinessChina Business
AVIATION

Business jet services stalled by state firms

Corporate aircraft use is set to soar and as some companies are finding, keeping them in the air can be difficult and lucrative

PUBLISHED : Monday, 17 December, 2012, 12:00am
UPDATED : Monday, 17 December, 2012, 5:31am

Investing in aviation infrastructure for corporate jets on the mainland is often complicated by competition from the government-backed companies that run the airports.

Beijing Capital Airlines, better known as Deer Jet, the business aviation arm of the HNA Group, ran a fixed-base operator (FBO) in Beijing, providing ground handling services for business jets.

However, the FBO, opened for the Beijing Olympics in 2008, was forced out of business when Beijing Capital International Airport opened its own service shortly afterwards.

ExecuJet Haite Aviation Services, a joint venture between Zurich-based ExecuJet Aviation and Tianjin Haite Aircraft Maintenance, has yet to introduce its FBO at Tianjin Binhai International Airport, two years after the agreement was signed, because of delays in the approval and construction of its dedicated runway.

Meanwhile, the airport started building a new FBO in March.

But, a deal between Hawker Pacific, a Sydney-based maintenance, repair and overhaul (MRO) company, and the Shanghai Airport Authority to set up a jointly owned FBO and MRO facility has been successful.

"There is an invisible threshold for FBO or MRO on the mainland - they have to join hands with local airport authorities," said Kelvin Wu, the vice-president for North Asia sales and market development at Cessna, the world's largest manufacturer of general aviation aircraft.

"The prospect of such infrastructure is so lucrative that the airport doesn't want to pass them to other investors."

Local players and international business jet companies, such as Tag Aviation and Asia Jet, have held talks about setting up such joint ventures - but most of them have fallen through.

"There is a huge difference between their expectations from each other," said Candy Chung, managing director of Global Aviation Asia.

"Mainland partners want both know-how and capital from the foreign partners, while their international counterparts are hesitant to invest too much."

Metrojet, a business aviation operator owned by Hong Kong billionaire Michael Kadoorie, is one of the few firms outside the mainland that have made it work.

In an MRO joint venture with a mainland partner to be announced within the next three months, Metrojet would take a controlling stake in the management company that would run the maintenance facility, while the hangar and premises would be owned and invested in by its local partner, said Bjorn Naf, the chief executive of Metrojet.

"In the next five years, there will be 170 new business jets delivered on the mainland each year," Naf said.

"It will mean at least 700 business jets in China, and all of them need maintenance services."

Naf spent two years negotiating and identifying the right partner before he sealed this first deal.

"We'd rather go in small steps, as we have to watch out for dangers in the system," he said.

Chris Buchholz, chief executive of Hongkong Jet, said: "Chinese businessmen are very entrepreneurial. They are savvy business leaders in their core sectors, but it's not easy to be profitable in the business aviation industry if they are not familiar with the business models that work."

Making money on the mainland is hard for FBOs because jet fuel sales, the major revenue source for FBOs in the United States and other markets, such as Hong Kong, are monopolised by a state-owned firm.

FBO companies on the mainland have to rely on entrance and ground handling fees for revenue. However, with fewer than 200 private jets on the mainland there is not enough critical mass for FBOs to be profitable, except perhaps at the busiest airports.

Potential FBO firms were pinning their hopes on a possible break-up of China National Fuel Corp's monopoly of the jet fuel supply, as the mainland's three biggest upstream oil and gas companies were eager to enter the market, Wu said.

"More competition will mean lower costs for plane fuel, leaving room for FBOs to charge a premium when they resell it to the jet owners," Wu said.

But until then, it will be difficult for FBOs to break even.

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