China’s impact on the freighter industry: Strengths and weaknesses

ATLANTA — As China recovers from its zero-COVID policy and finds a new normal, the country is dealing with its supply chain, growing tensions with the United States and development of an aircraft manufacturing industry, according to panel of speakers at MRO Americas 2023 this week. Supply chain to have multiple links The supply chain industry shifted from being dependent on China to diversifying its global supply network, a shift that may be permanent, said Kin Chong, executive vice president for business coordination at Evergreen Aviation Technologies Corp. Evergreen is a maintenance repair and overhaul (MRO) facility that is a joint venture of EVA Air and General Electric. [caption id="attachment_56725771" align="alignright" width="450"] GAMECO is confident China will strengthen and modernize its supply chain. (Photo/GAMECO)[/caption] “I believe that this shift is going to be permanent,” Chong said. “It is a wake-up call to many of the suppliers to realize that there are alternatives. China is not necessarily the low-cost manufacturing base that it used to be, and COVID also amplified a lot of the policies in China and how they ensure that these policies are only to their benefit and do not necessarily take into consideration other interest groups.” China-based Guangzhou Aircraft Maintenance Engineering Co. (GAMECO) General Manager Marc Szepan offered his view through the lens of GAMECO’s long-term strategic planning. “From a manufacturing point of view, for several years it has not been about cost. Costs are not necessarily the lowest cost, but they are reasonable. It is about the efficiency of the manufacturing ecosystem in many parts of China,” Szepan said. Many companies have chosen to relocate but have faced adversity replicating the supplier subsystems that China has built, he said, adding that the country is focused on rebuilding its economy with high-quality product development. Jason Dickstein, general counsel at the Aviation Suppliers Association, provided a similar outlook on the direction of China’s supply chain. “I think that China potentially could be a very important long-term partner for the entire aviation world because their quality standards are going up,” Dickstein said. “They are meeting the expectations of the aerospace community.” Over the past two years, conversion companies have continued to set up new conversion sites in China, with the most recent being the Sichuan Aircraft Maintenance Engineering Co. MRO in Chengdu (CTU) for 321 Precision Conversions and the Haite facility in Tianjin (TSN) for Elbe Flugzeugwerke . Trading differences between U.S. and China While China remains committed to strengthening the quality of its supply chain, tension between the U.S. and China will continue to limit resource accessibility to U.S. businesses, the panel said. “For the United States, we still have the 25% tariffs on Chinese aerospace goods, and I think that is going to impede China’s participation in the U.S. supply chain,” Dickstein said. “But for other countries where they don’t have that sort of 25% tariff, I think that there’s much more of an opportunity to rely upon the increase in quality standards in China, for them to continue to be an important part of the supply chain.” Evergreen’s Chong said that China is not afraid of the U.S. limiting or banning its access to the U.S. aviation trade market. “If you look at the lessor market today, the top ten lessors, you will find notable Chinese-owned lessors and they will be placing orders for Chinese built aircraft,” he said. Meanwhile, Dickstein believes there would be no benefit if the U.S. imposed sanctions on China limiting the flow of trade between the two countries. “If you take a look at the satellite technology, the United States banned general exports of satellite technologies in order to try and corner the market,” Dickstein said. “The result was that the United States went from being a 95% producer of satellites to producing less than half of the world's satellites. When we banned the export of that technology, the rest of the world just developed technology for themselves.” ‘Made-in-China’ China’s mandate to develop its own aircraft resonates with its citizens, panel members noted. “You don’t need the Chinese government to force them to buy Chinese aircraft,” Dickstein said, giving an anecdote. “I attended a conference in China about eight years ago and was listening to the speakers through simultaneous translation. China Eastern was asked a question about the COMAC C919 and before I could get the translation, the entire audience was on their feet cheering. China Eastern said that they were proud of the fact that they're the C919 launch customer and they are looking forward to the day when they can only buy Chinese aircraft.” China is committed to building the product first and then constantly revising what it has created until it surpasses the performance capability of its competitors, Dickstein stated. “They will be successful,” Chong said. “It may be the COMAC C939 or the Russian-Chinese joint venture CR929 widebody aircraft, but in regard to the air freight, it may be one or two generations later, but they will surely chase the mark.” At the end of the day, Szepan said, China must mend the supply chain ecosystem that was disjointed by the pandemic and then accelerate development to be recognized as a global competitor in the industry once more. “Once they’ve managed to bring that together, there will be a step up in performance for higher high value and technical components,” Szepan said. The first Cargo Facts LATAM takes place May 15-17 in Panama City. Register today.

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