China’s COMAC: An Aerospace Minor Leaguer
December 7, 2020Trustee Chair in Chinese Business and Economics > Trustee China Hand
By Scott Kennedy
Today our program is issuing a video report, China’s Stalled Aircraft Dreams, which documents China’s failed efforts over many decades to develop their own commercial aircraft. This blogpost elaborates on elements introduced in our video report, providing a fuller picture of China’s aircraft woes and why we believe a sanctions-oriented approach to be wrongheaded. Information for this project was gathered over the past two-and-half years, and included in-depth interviews with aerospace companies, aviation regulators and industry analysts in China, the United States, and Europe.
At the heart of the story sits COMAC, the Commercial Aircraft Corporation of China. The U.S. Commerce Department is reportedly considering issuing a rule identifying COMAC and 88 other Chinese firms as associated with China’s military and as “military end-users.” Depending on how it is implemented, American companies could potentially be barred from supplying components to COMAC, which could then result in the grounding of COMAC’s regional jet, the ARJ21, as well as interrupting further development of the C919, a narrow-body jet that China hopes will become its alternative to Boeing’s 737 and Airbus’s A320 and cement China’s status as a high-tech superpower.
COMAC is connected to China’s military, but these potential sanctions are not in America’s national interest. COMAC has received massive state funding and global attention, but it is not in the same league as world’s top commercial aircraft manufacturers – Boeing, Airbus, Embraer and Bombardier. COMAC isn’t even as capable as its long-time Russian counterparts Ilyushin, Sukhoi, and Tupolev, which have more advanced technology but still have struggled commercially. (In 2006 they and other Russian aerospace firms were placed under a single holding company, the United Aircraft Corporation.) Punishing COMAC with sledgehammer sanctions would hurt the U.S. aerospace industry and ultimately American national security far more than they would harm China.
Source: Scott Kennedy
Q1: Is COMAC a part of China’s military?
COMAC, which is headquartered in Shanghai, is loosely affiliated with the People’s Liberation Army Air Force (PLAAF), but it is not owned by the military and is not a defense contractor.
COMAC was founded in May 2008 when the Aviation Industry Corporation of China (AVIC) split off two of its Shanghai subsidiaries into a new standalone company and transferred with them the intellectual property for the ARJ21, a regional jet which was still in its early days of development. At the same time, COMAC took on five other investors: the State-owned Assets Supervision and Administration Commission (SASAC) under China’s State Council, the Shanghai Guosheng Group, the Aluminum Corporation of China (CHALCO), China Baowu Steel Group, and Sinochem. In late 2018 three new shareholders were added: China National Building Materials Group, China Electronics Technology Group, and China Reform Holdings.
Although AVIC holds only a minority share of the ownership (12.35%), it has an outsized influence on COMAC’s operations. Much of COMAC’s original leadership, employees, facilities, and technology came from AVIC. It has continued to draw on talent and technology from AVIC and other organizations from within China’s aerospace sector. Founded in 1993, AVIC is intimately connected to China’s military. In 2003, the company was formally placed under control of SASAC, but this administrative change has unlikely diluted its ties with the PLAAF. Based in Beijing, AVIC’s 450,000 employees work in hundreds of subsidiaries around the country to develop and produce commercial and defense aerospace products. AVIC also has extensive American investments, including Cirrus Aircraft, Continental Aerospace Technologies, and Nexteer Automotive Group.
Q2: How much funding has COMAC received from the Chinese government?
Tens of billions of dollars, but pinning down precisely how much is an almost impossible task because of how opaque COMAC’s finances are. As an unlisted state-owned enterprise, it has no responsibility or incentive to be transparent to outsiders. We do know that company started off with RMB 19 billion in paid-in capital from its six original founders, but everything else beyond that is educated guesswork.
By late 2016, financial institutions had reportedly provided at RMB 253.5 billion in financing. This includes RMB 50 billion from the China Export-Import Bank to support R&D, manufacturing and sales. As of late 2016, COMAC had issued RMB 55.5 billion in 15 tranches of corporate bonds, which most likely are held by state-owned entities. In contrast to these massive amounts of financing, COMAC reports that it has received direct government subsidies of only RMB 528 million over the past decade, or less than 0.2% of the full support we identified.
These figures, which total to RMB 328.5 billion (or $49 billion), certainly are far from complete. (This estimate is an update from the video report’s figure of $45 billion.) If COMAC continued to obtain loans and issue bonds at the same average pace it did during its first eight years in existence (RMB 38.7 billion per year), that would translate into roughly another RMB 155 billion ($23.1 billion), bringing the potential total government support through 2020 to $72.1 billion. Of course, this still does not include any unreported subsidies for R&D, free or low-cost land and utilities from the Shanghai government, tax benefits, and revenue from sales of the ARJ21 to state-owned airlines, who possibly would have bought regional jets from Embraer or Bombardier instead if given complete freedom. It’s no surprise that the first air carrier to buy ARJ21s was Chengdu Airlines, which is 50% owned by COMAC, or that the airline’s first route was between Chengdu and Harbin (a city located in a province whose provincial party secretary, Zhang Qingwei, served as COMAC’s first chairman).
With somewhere between $49 billion and $72.1 billion in state-related support, COMAC has benefitted from far more largesse than the $22 billion the WTO determined Airbus had received over many years from the European Union, Germany, France, the United Kingdom and Spain. Worse, COMAC has a lot less to show for it.
Q3: Who are the C919’s major suppliers?
It is misleading to call the C919 a Chinese plane because almost all of its components, including everything that keeps the plane aloft, are imported. Using data from Airframer, which monitors the primary suppliers for commercial aircraft around the world, American companies account for almost three-fifths of the C919’s top suppliers. Almost one-third hail from Europe. Only 14 key suppliers are from China, and seven of those are Chinese-foreign joint ventures.Figure 1: Regional Distribution of C919’s Primary Suppliers
|Airframe||9 (1)||6 (3)||3 (1)||8 (3)||22 (4)|
|Avionics||12 (2)||1||1||2 (2)||14 (2)|
|Power Systems||10 (3)||11 (4)||2 (2)||2 (1)||20 (5)|
|Components||14||4 (1)||0||2 (1)||19 (1)|
|Total||48 (6)||26 (8)||6 (3)||14 (7)||82 (12)|
If we look at a visual graphic of the plane itself, it becomes even clearer how un-Chinese the C919 really is.
The dependence on foreign suppliers goes beyond the individual components they sell to COMAC. Since they have decades of experience supplying parts to other commercial aircraft, they have an immense amount of knowledge about the process of integrating the various components together. Guidance from international suppliers has been critical in the C919’s development.
Q4: Has the C919 been certified yet?
Not at all. There are three levels of certification a plane needs to go through before being able to fly commercially:
1) Type Certification (TC): Verifies the airworthiness of an aircraft design or “type.” After this point, the plane cannot be re-designed, and if a supplier is changed, the type certification needs to be redone;
2) Production Certification (PC): Conveys the approval to manufacture duplicate planes according to the original type certification. The final assembler and suppliers need to prove they are able to produce according to the original design; and
3) Airworthiness Certification (AC): Is issued for each individual plane that is produced based on a detailed test and examination.
The Civil Aviation Administration of China (CAAC) is China’s commercial air regulator. It has a wealth of experience monitoring and regulating air traffic, but it has a very short record of certifying commercial aircraft. The only other major commercial aircraft built in China that it has certified is the ARJ21, which was first delivered to airlines in 2015. It has modeled its certification system on that of the U.S. Federal Aviation Administration (FAA), the gold standard for aviation safety.
The C919 had its first test flight in 2017. Since then 6 models of the C919 have collectively made around 30 test flights totaling 130 hours, which is less than the typical flight test record of other major commercial aircraft from other countries preparing for certification. In late November CAAC’s Shanghai office formally authorized the C919 to begin the process of being tested for its TC. This is an important milestone, but the C919 is still a long way from final certification by CAAC, and even further from being manufactured for delivery to an airline, let alone the operation of a sizeable fleet. COMAC has consistently over-promised on its ability to get through each of these stages, and hence, it is not worth speculating how many more years remain before the first paying customers find their seat for a regular commercial flight.
Equally important, in order for China to export the C919 or have Chinese airlines pilot it outside the country, the plane will need to be certified by either the regulators of those countries or, if they lack their own, regulators those governments (and their passengers) trust. The United States and many other countries depend on FAA certification before allowing commercial planes into their airspace. The world’s other major regulator is the European Union Aviation Safety Agency (EASA), which regulates commercial aircraft flown within the EU and other European countries. In October 2017, CAAC and the FAA signed a bilateral aviation safety agreement to streamline certification procedures for aircraft, but this does not mean that once the CAAC certifies the C919 that the FAA would simply accept CAAC’s decision. The FAA would still need to certify the C919 itself before the plane could enter American airspace as well as the airspace of other countries who depend on the FAA’s judgment. Although the FAA has maintained communication with CAAC, one can expect it would be challenging for the C919 to make it through the FAA’s review process.
Q5: How many C919s have been ordered?
In addition to over-promising how quickly the C919 would be designed, built, certified and delivered, COMAC has also exaggerated the plane’s commercial potential. Starting in 2010, COMAC has held glamorous events and issued enthusiastic announcements trumpeting orders for the C919. To date, airlines and aircraft leasing firms have put in orders for 1,065 planes. That is an impressive amount, and if realized, would generate billions in revenue for COMAC. However, the reality is likely less spectacular. The fine print in these announcements suggest that only 148 of the 1,065 are confirmed orders; 86% reflect either only an intention to buy the plane or have left their commitment level ambiguous.
Figure 3: Notional Orders for the C919
|China Eastern Airlines||5||15||-||2010|
|China Southern Airlines||-||-||20||2010|
|GE Capital Aviation Services||-||-||20||2010|
|Bank of Communication Leasing||-||-||30||2011|
|China Aircraft Lease||-||-||20||2011|
|Bank of China Aviation||-||-||20||2012|
|Agriculture Bank of China Leasing||-||-||45||2012|
|CIB Financial Leasing||-||-||20||2013|
|CMB Financial Leasing||-||30||-||2014|
|Huaxia Financial Leasing||-||20||-||2015|
|Pingan Financial Leasing||-||50||-||2015|
|PuRen Airlines (Germany)||-||7||-||2015|
|City Airways (Thailand)||-||7||-||2015|
|Pudong Development Bank Leasing||5||15||-||2016|
|CITIC Financial Leasing||18||18||-||2016|
|Agriculture Bank of China Leasing||20||10||-||2017|
|China Nuclear E&C Group Leasing||20||20||-||2017|
|AVIC International Leasing||15||15||-||2017|
|Everbright Financial Leasing||-||-||30||2017|
|Huarong Financial Leasing||-||-||30||2018|
|China Express Airlines||50||-||-||2020|
Sources: COMAC, Chinese media reports.
Elsewhere in the world a typical confirmed order would involve the buyer putting down a hefty non-refundable deposit. It is not at all clear that any of the C919’s buyers have put forward anything tangible that would lock them into a deal. It is more likely that deposits will not be required until the plane makes it completely through certification and large-scale manufacturing commences. If so, we will be witness to an entirely new round of public relations spectacles, and one would expect that actual orders would be a fraction of the currently publicized total.
Q6: Why would U.S. sanctions be counterproductive?
China has a huge market, and COMAC has essentially been given a blank check by China’s top leadership to complete and deliver the C919. Nevertheless, COMAC’s struggles developing and manufacturing commercial aircraft are not going to end any time soon. Although China has gained ground and in some cases caught up with others – for example, in high-speed rail and telecom – the story is different in commercial aircraft. COMAC is far behind, and it is not catching up. In fact, the gap is growing, as Western aerospace firms are already focused on developing the technologies of tomorrow, such as supersonics, while China is still struggling to master the technologies of today – or rather from two decades ago. Boeing and Airbus face two much larger dangers than competition from China. The first is their own complacency and the accompanying disastrous mistakes that can erode passengers’ trust (as the recent crashes of the 737 Max have shown). The second is the broader transformation of transportation models and technologies that could make traditional commercial air travel or the way planes are made obsolete and threaten their entire business model.
Listing COMAC as a military end-user and potentially restricting or banning U.S. firms to supply the C919 does not serve the American national interest. Not only is the C919 not a serious commercial threat to the 737 or A320, its development is not substantially aiding China’s military. The core technologies that go into the Western-supplied engines, avionics and other components are already protected through export controls and investment restrictions. Halting business with COMAC would likely mean Chinese retaliation against Boeing and many of COMAC’s American suppliers, which would hurt these firms’ bottom-lines and reduce their ability to engage in R&D that would eventually redound to the US military and America’s strategic partners. And it would also push China further down the path of self-reliance and out from under the current aerospace technology hierarchy led by the United States and its allies. American sanctions in this case would mildly harm China in the short run, but they would be highly damaging to the United States both now and well into the future.Scott Kennedy is Senior Adviser and Trustee Chair in Chinese Business & Economics at the Center for Strategic and International Studies.
This report is made possible by general support to CSIS.
Related Trustee Chair Activity
Video Report: China’s Stalled Aircraft Dreams, December 7, 2020.
Report: China’s Uneven High-Tech Drive: Implications for the United States, February 27, 2020.
Event: “China’s Turbulent Aircraft Sector: Challenges, Opportunities and Prospects,” October 11, 2018.