Beijing aviation dream in doubt after first-half losses at AVIC Aircraft

Slow product deliveries push Avic Aircraft into the red in the first half

PUBLISHED : Wednesday, 20 August, 2014, 1:34am
UPDATED : Wednesday, 20 August, 2014, 1:34am

Steep losses at mainland jet manufacturer Avic Aircraft may be a signal that Beijing's ambitions to develop home-grown planes to compete with global giants may not be possible for several years to come.

Avic Aircraft, part of Aviation Industry Corp of China, reported yesterday net loss after extraordinary items of 136.8 billion yuan (HK$172.4 billion) for the first half, compared with a profit of 57.2 billion yuan in the same period last year.

The Xian-based company is the manufacturer of Modern Ark regional jets and a supplier for Commercial Aircraft Corp of China's bigger C919, the mainland's answer to Boeing 737 and Airbus A320, whose completion is two years behind schedule and counting. It also makes military planes and aluminium products.

Avic Aircraft blamed the poor results on the delivery schedule of its products. The company delivered only one Modern Ark jet in the first half. The target for the year is 10.

Revenue dropped 10.73 per cent to 7.04 billion yuan.

Analysts are not optimistic that the mainland's home-grown aircraft will be a hit.

"I don't think China's home-grown aircraft would be able to compete against Boeing or Airbus anytime soon. Their technology is several years behind their Western rivals'. By the time they come out, their planes are outdated anyway," one analyst said.

Avic Aircraft said its performance should improve since deliveries of its products "are concentrated in the second half". Joy Air signed an order on August 1 for at least 30 Modern Ark jets worth 2.7 billion yuan in the single biggest deal for the plane.

The mainland has been gearing up to develop its own passenger jets, given that it has the fastest-growing aviation market in the world, but that is dominated by foreign players.

Avic Aircraft's Modern Ark and Comac's ARJ21, the first domestically developed jet, are the competitive models to tap the growing regional market, currently split between Brazil's Embraer and Canada's Bombardier.

Bombardier forecast China would be the largest region after North America by commercial aircraft deliveries in the 20 to 149-seat segment, with 2,280 deliveries expected over the next 20 years. At the moment, Embraer enjoyed a market share of 78 per cent, said Haitong Securities.

Avic Aircraft said Modern Ark's two models, MA60 and MA600, had received orders for 209 by the first half of the year, with 92 already delivered to 25 customers. Domestic customers made up 106 of those orders.

Comac's 168-seat C919 has been hit by delays. Its maiden flight, originally scheduled for last year, is now postponed to next year. The firm has received 400 orders.

Avic Aircraft also makes the body for the ARJ21, which carried out a test flight in June after likewise being hit by delays.

Mainland players have been making aggressive moves into the aviation business recently. Avic Capital confirmed last week that it was in talks to acquire Dublin-based aircraft lessor Avolon.


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