Chinese aircraft maker charts expansion course

After taking over leading US general plane manufacturer Cirrus, the Zhuhai firm is looking at more acquisitions overseas

PUBLISHED : Saturday, 20 April, 2013, 12:00am
UPDATED : Saturday, 20 April, 2013, 6:10am

Meng Xiangkai is reaching for the skies. He is eyeing more overseas acquisitions after his company acquired leading general aircraft maker Cirrus Aircraft in the United States in 2011.

The money offered by cash-rich China Aviation Industry General Aircraft (Caiga) helped the once debt-ridden Cirrus develop new products and expand its share in the global market to more than 30 per cent from about 20 per cent before the global financial crisis, Meng said.

"We have more acquisition plans," he said. "But our globalisation push isn't just limited to mergers and acquisitions.

"We also aim to set up overseas centres for research and development, marketing and client services."

Meng is the chairman of Caiga, a unit of state-owned China Aviation Industry Corp (Avic), the country's largest aircraft maker.

The acquisition of Cirrus was the first made by China's aviation industry in the US aircraft manufacturing sector.

The takeover came when Cirrus, the world's largest maker of four to six-seater general aircraft, struggled with funding and began to lay off staff to cope with the global financial turmoil.

The terms of the takeover deal were not disclosed.

By the end of this year, Minnesota-based Cirrus would roll out a single-engine, very light business jet of seven to eight seats. Trial flights are due next year.

General aviation excludes military and commercial aircraft. The private aircraft targeting small companies and families has met strong demand - 511 orders by the end of last year - despite the economic downturn in the West.

The price for the aircraft, about US$1.8 million for early orders, might rise to more than US$2 million closer to delivery time, Meng said.

The merger with Cirrus had allowed Caiga to share resources and talent in the US and in China, he said.

Having a production base overseas could also help Caiga overcome potential trade barriers, he said.

Meng said Caiga also planned to set up overseas research and development centres in Europe, including France and Germany.

"The global crisis offered us an opportunity for acquisition. It also pushed us to transform our operations," he said.

Private business aircraft valued at between US$600,000 and US$2 million, including those produced by Cirrus, account for 80 to 90 per cent of Caiga's business.

The company's revenue had been growing more than 10 per cent annually, Meng said.

Caiga has assets of 43 billion yuan (HK$54 billion), according to its website.

Despite its fast growth, Meng said the company, based in Zhuhai in Guangdong province, might postpone its plan to list on the stock market because of further acquisitions.

Mergers and acquisitions were "a game" in which information should not be made too transparent, he said.

"We had a relatively aggressive plan targeting a public listing by 2015," he said. "But the plan looks a bit remote now. We would like to focus on business development first," he said.

The acquisition of Cirrus was not Meng's first overseas deal.

Meng studied avionics at Northeastern Polytechnical University and foreign trade at Beihang University.

He spent nearly 30 years at Avic Xian Aircraft Industry, which makes large and medium-sized civil and military aircraft.

Meng became president of Caiga in 2010 and was promoted to chairman in November 2011.

He won his reputation for forging overseas merger and acquisition deals when in 2009 he made the Xian company, the first supplier outside of Europe for Airbus' A320 wings.

In December 2009, Avic Xian, along with another investor, bought 91.25 per cent of Austria's Future Advanced Composite Components (FACC) for €100 million (HK$1 billion), in the largest acquisition by a Chinese in central Europe at the time.

Chinese buyers, particularly those with government or military background, said they faced close scrutiny from foreign regulators on national security concerns.

Network equipment vendor Huawei Technologies, for example, met setbacks in its expansion in the US market as regulators cited its Communist Party links for concern.

Asked if he had met similar scrutiny from Westerners in the past, Meng said: "Of course. To them, we were rich strangers from an unfamiliar nation."

Rather than complaining, he would spend time studying their concerns and work hard to win their respect and trust.

"After more than a year of talks and negotiations about the FACC deal, I also developed good personal relationship with Hannes Androsch, the former Austrian prime minister and shareholder of FACC. We are still good friends today," he said.

Despite its military background, Meng said Caiga was open to introducing foreign and private investors, including fund managers.

Asked if this might hurt national security, he said: "It is not a worry. Look at aircraft giants EADS in Europe and General Electric in the US - they all have military ties but have worked well as listed companies."

Caiga's home-made aircraft are mostly used in areas such as flight training, natural disasters emergency photography, and maritime salvage services.

Meng said the company had introduced a new production line from Cirrus in Zhuhai to meet growing domestic demand for private jets.

The first 50 aircraft would be delivered later this year.

The mainland general aircraft market, with manufacturing, services and flight training, is likely to generate income of more than one trillion yuan a year in the future.

Meng said Beijing was expected to relax limits for low-altitude airspace by 2015, which would give the industry a major boost.