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SCMP Reporter

Allied Signal, the giant United States aerospace and automotive components group, has been thwarted in its attempts to build military jet engines in China, after the US Commerce Department made it clear that permission to export the technology would not be granted.

In what threatens a 'multi-million dollar deal', Allied Signal officials yesterday confirmed it had been informed it would receive a 'no answer' response from the department to its application to export technology to build the Garrett TFE731 turbofan engine.

 It is believed the export of such technology may be in breach of the Enhanced Proliferation Control Initiative, designed to block export of products to countries suspected of trading missiles and components for nuclear and chemical weapons.

 The engine is used to power the Nanchang/PAC K-8 Karakorum trainer aircraft, a two-seater jet used by the People's Liberation Army to train pilots to fly military jet aircraft.

It also can be used as a light ground-attack plane.

 The decision puts in jeopardy any further PLA purchases of Allied's engine, because China is keen to increase rapidly the percentage of local content used in its aerospace manufacturing industry, and may switch to an aircraft which has a larger indigenous content.

 By the end of this year, Allied will have exported 59 TFE731 engines, as part of a contract signed in 1992 not controlled by the Commerce Department.

However, it is thought China has made no indication that it will renew the contract when it expires at the end of the year.

 The action by the Commerce Department also has major ramifications for the mainland ambitions of Lucas Aerospace, the aircraft components arm of British group Lucas Industries which has been working on establishing a landmark joint venture with China for more than 18 months.

 In what is a much-coveted aerospace deal, Lucas is close to signing an agreement with China National Aero-Import and Export Technology (Catic), and Aviation Industries of China (Avic), which would establish Lucas as the preferred partner in the provision of flight control systems, fuel systems, and electrical power generation systems.

 Catic, Avic and Lucas all had been expecting China to continue buying TFE731 engines, enabling Lucas to provide their electrical power generation systems.

 'If China stops buying the K-8, then all three sides are wondering if a deal will be financially viable,' a source close to the issue said.

 In a major British trade mission this week led by Deputy Prime Minister Michael Heseltine, officials from Lucas Aerospace will examine ways that could allow the venture to make commercial sense, while Allied also is believed to be looking for a solution.

 The delay, while being an irritant to Lucas, also will be a great disappointment to Allied which has made a major commitment to the mainland.

 Earlier this year it teamed with Hong Kong Aircraft Engineering Co and Taikoo (Xiamen) Aircraft Engineering Co in a US$11 million deal to develop an aircraft components repair and overhaul centre.

It is also keen to foster friendly links with the mainland, setting up a coalition of Michigan businesses to lobby the US Congress to stabilise and improve relations between the US and China.

 It is unclear why the Commerce Department indicated its 'no answer' response to Allied, although there were suggestions yesterday that it might be linked to reports that China had sold ring magnets to Pakistan, used in the manufacture of nuclear weapons.



China aviation project in doubt