Aerospace Manufacturing: Easy as A-B-C919
In 1958, the launch of the first commercially successful jetliner, the Boeing B707, catapulted the American aerospace industry to the forefront of commercial aircraft manufacturing. The United States led the industry for over 30 years until Airbus’ introduction of the A320 in the late 1980’s. For the past 30 years, Boeing and Airbus dominated the industry as a duopoly. However, the next 30 years will likely feature a new competitor who is rapidly gaining expertise in aerospace manufacturing.
The Commercial Aircraft Corporation of China (COMAC) is a Chinese state-owned enterprise founded in 2008 to satiate China’s projected $1 trillion demand for commercial aircraft over the next 20 years with domestic products. COMAC has already produced one commercially viable product, the ARJ21 regional jet, which completed its first commercial flight eight years behind schedule in June 2016. Now COMAC’s sights are set upon the large commercial aircraft market, dominated by the Airbus A320 and Boeing B737 families of aircraft. COMAC’s entry, the C919, completed its first test flight in May 2017 and is scheduled to enter commercial service with China Eastern Airlines in 2021.
China made two previous forays in the domestic manufacture of a commercial airliner. In 1970, state-owned Shanghai Aircraft Manufacturing Factory (SAMF) began development of the Y-10, a design based on the B707. The first Y-10 flight occurred in 1980, but doubts over the viability of the dated design led to the program’s cancellation in 1983. In 1986, SAMF entered into an agreement with McDonnell Douglas to buy MD-80 aircraft, under the conditions that the aircraft are built in China and Chinese engineers participate in the design of McDonnell Douglas’ next generation of commercial aircraft. A 1986 Fortune Magazine article describing the venture warned, “China will probably continue demanding that vendors sell it not just products but also technology and management expertise.”
COMAC requires that foreign suppliers to the C919 program enter joint ventures with Chinese suppliers for key components and systems. The joint venture partner is often state-owned Aviation Industry Corporation of China (AVIC), which owns a 38% stake in COMAC and is the sole domestic supplier to the Chinese military. A 2015 COMAC press release boasted that the result of the 16 C919 joint ventures, “improved the overall level of China’s aerospace R&D and manufacturing through technology transfer, diffusion, and spillover.” To address gaps in domestic Chinese aviation technology that can’t be acquired via joint venture, AVIC invested over $3 billion into European and American aerospace companies and purchased seven U.S. general aviation manufacturers.
The development of a large commercial aircraft is seen as a matter of national pride. The policy underscoring the importance of this effort is Made in China 2025, which is a strategic framework for modernizing and upgrading the quality and capability of Chinese manufacturing. As the country develops and can no longer compete as a cost-leader, it must evolve its manufacturing base to produce higher value-added products. The aerospace and aeronautical equipment sector is specifically named as a priority sector in this effort. The framework sets goals for domestic content of core components and basic materials to 40% by 2020 and 70% by 2025.
Once state-owned aerospace enterprises acquire the intellectual property and manufacturing knowledge to make aerospace components currently supplied by foreign businesses, it is likely that these joint ventures will be phased out in favor of domestic production to meet the content goals of Made in China 2025. Foreign aerospace companies that rely on intellectual property for a competitive advantage should be mindful of the risks of participating in the Chinese aviation market. Airbus and Boeing should also note that this market may not be as appealing as it once seemed. Domestic Chinese airlines, who are also state-owned, may be pressured to purchase the domestic product. COMAC already has 785 orders for the C919, with all but 20 coming from Chinese companies. It remains to be seen if the C919 poses an international threat to Airbus and Boeing, but the aircraft will make up a large portion of China’s future commercial airline fleet. Lessons learned by COMAC during the development and production of the C919 lay the groundwork for China to become the third titan of aerospace manufacturing in the world.