Asia Puts Its Stamp on Aviation

The future of the aviation industry has an Asian face, industry watchers say – and it is changing fast thanks to the rapid growth in passengers in the region that is creating strong demand for aircraft.

Sharon Lorimer

“Some two-thirds of the total global aircraft orders are for aircraft in the Asia-Pacific and Middle-East regions,” Peter Harbison, the executive chairman of the Sydney-based Centre for Asia Pacific Aviation, said. “This promises to reshape the face of aviation in the next decade.”

In all, there are 2,226 planes on order for Asia and another 710 for the Middle East, according to the center, which tracks aviation trends. That’s out of a global total of 5,601, with 1,438 on order for Europe, just 798 for North America and only 429 for South America.

It is China that is at the forefront of the boom, consistently seeing double-digit growth in passenger numbers over the last five years. With Japan’s market stagnating and Japan Airlines even reducing its overall fleet, Chinese airlines now constitute around 40 percent of the aircraft orders in Asia.

Chinese airlines saw total traffic of 21.5 million passengers in May, up 18.2 percent over the same time a year ago. That’s an annualized rate of around a quarter of a billion passengers per year, 93 percent of them domestic.

“It is the domestic market that is really firing,” Harbison said, creating a lot of demand for narrow-body, short-haul planes. But as Chinese airlines expand internationally, that should driven demand for bigger long-haul aircraft.

In fact, the demand for wide-body aircraft is even more starkly weighted toward the East, with 1,211 of the 1,906 wide-body planes currently on order destined for Asia and the Middle East. Those are mainly planes such as the Boeing 787 and the Airbus A350 that will make more direct flights between smaller cities possible. Together with greater liberalization of access to airports in Asia, new travel hubs are likely to spring up in region.

“The shift in the balance of power in long-haul flying is the most obvious conclusion to be drawn from this,” Harbison said. “The airport hubs of the future will be developed in Asia.”

Still, the Chinese airlines are still some way from matching their U.S. counterparts in terms of size. In 2009, Delta Air Lines carried 161 million passengers worldwide, making it the largest airline in the world – although it is not the largest within the United States, where Southwest Airlines carries the most passengers.

By contrast, China Southern, the largest Chinese airline in terms of passenger volume, is around one-third of the size, carrying only 61 million passengers last year. But it is in rapid expansion mode, with 316 aircraft already in operation and 134 on order, a 42% increase. Delta, on the other hand, has 446 aircraft in operation but only 38 on order, or 9% of its fleet.

“This is where you see what the future is,” Harbison said. Delta also saw a decline of 10 million passengers last year, compared with the previous year, while China Southern’s tally grew by 3 million.

The trend holds true throughout the Chinese aviation industry. China Eastern, the second-largest carrier in the country, flew 44 million passengers last year, up 7 million over the year before. It has a fleet of 244 planes, and has 102 on order, a 42 percent boost.

Air China rounds out the triumvirate of major Chinese airlines. It carried 40 million passengers last year, an increase of 6 million, and is China’s main international operator. It currently operates 244 aircraft and has another 139 on order, a 57 percent increase.

Air China’s new planes will be roughly evenly split between Boeing and Airbus, with the largest orders on the assembly line for 37 Boeing 737s and 30 A320s. It’s the same case for China Southern, with a balance between the Boeing and Airbus, and large orders for the 737 and A320. Although China Eastern’s orders are skewed toward the 320, with 62 on order, the lack of favoritism is not surprising. China still has a centralized ordering system for its airlines.

Its domestic airline construction industry is still nascent. But China, having cooperated with both Boeing and Airbus, is keen to put that knowledge to use in developing its own planes.

The Commercial Aircraft Corporate of China, or COMAC, is currently developing China’s first home-made jumbo jet, the C919. China Eastern, China Southern and Air China are all likely customers, with the first orders possible before the end of this year, according to the Beijing Daily.

Honeywell International, which has won a contract worth more than $1 billion to supply the flight-control system for the C919, says the aircraft is scheduled to enter service in 2016, with more than 2,000 to be built over the next decade.

China is building on a huge aeronautics industry, based around both military and commercial aircraft and parts. The Aviation Industry Corporation of China, the umbrella state-owned company, has more than 400,000 employees and 200 subsidiaries. So it’s no surprise Chinese companies will start to take on Boeing and Airbus. But it remains to be seen how long it takes before they establish themselves as significant competitors.

Farnborough International Air Show 2010 - A CNBC Special Report
Farnborough International Air Show 2010 - A CNBC Special Report

“I think everyone who is realistic realized it was going to happen sooner or later -- it’s just a question of when that will be,” Harbison said. “They’re targeting having the capability in the second half of this decade. But it’s a long time between having the capability and becoming a major market player.”