China moves on aero engine business

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News from China is that the state has formally created the Aero Engine Corp of China. Headquartered in Beijing, the  company has a registered capital of 50 billion yuan ($7.5bn), and 96,000 employees.  The new company will consist of three current firms being merged.  AVIC Aviation Engine Corp, Sichuan Chengfa Aero Science and Technology Co Ltd and AVIC Aero Engine Controls Co Ltd are the three firms that will together create the the Aero Engine Corp.

The WSJ reports China’s president sees this as a strategic move.  This is no surprise since aerospace is seen as a national industrial priority in China.

China has struggled with the development of aero engines.  It managed to copy the SU-27 to create an indigenous fighter.  But China could not effectively copy the engines.  China’s best fighters use Russian-made engines.  Chinese commercial aircraft all use western-made engines.

The consolidation mirrors, to an extent, what Russia did with its aerospace sector.  There is an argument in favor of consolidation because of resource limits. But the counter argument that competition spurs innovation is more compelling.  A big national champion does not ensure success.  China has long been known to find creative ways to acquire western technologies and attempt to copy it.  This goes back as far as the 1970’s with an attempt to copy the Boeing 707.  Even then the Chinese had to use P&W engines.  Today’s ARJ-21 is a thinly veiled copy of the DC-9 and it requires western engines.

So much for the negatives.  China does have the financial resources and, crucially, the patience to try, fail and try again.  They will eventually succeed.  But as we have seen with the progress from the ARJ-21 to the C919 – the learning curve is very steep. By the time China delivers the first C919 it will be outclassed. As the ARJ-21 is now.

Western firms have found that nothing beats competition to drive innovation – especially with limited resources.  National champions mostly turn out to be job creation machines rather than sources of wizardry.

© 2016, Addison Schonland. All rights reserved.

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