Hundreds of people flocked to a recent business and private jet exposition at Shanghai Hongqiao Airport in August – but most of those present were only aspiring owners. There are only about 100 private jets in China out of the 1,000 flying throughout Asia. In the US, the estimated figure is 20,000.
The market is shifting, though. Sales are slowing in the US and private and business jet manufacturers are increasingly setting their sights on emerging markets.
"Over the past several years, Gulfstream has seen its sales shift from 60% North American to 60% international, with much of the shift toward the emerging economies of Brazil, Russia, India and China," said Peter Hoi, Gulfstream’s East Asia regional vice president. "This shift occurred in 2007, before the global economic crisis, and held true throughout the downturn."
Mike Walsh, CEO of Asia Jet, a Hong Kong-based private aviation company, predicts that Asia will have more private jets than the US in 10 years. China sales will increase 30% this year, and could rise as much as 25% per year for the next decade, he said.
But to achieve such promising expectations, China must first find a way to overcome major challenges to its sales growth in the general aviation sector. These include prohibitive legislation, high tariffs and import taxes, and a shortage of qualified pilots and crew members, in addition to a lack of airports.
"China may catch up with the US in terms of jet sales only if the right combination of policies and infrastructure improvements are put in place," said Tammy Qiu, China marketing director for Textron, the parent company of airplane manufacturer Cessna.
Just five years ago, when private jets were first being purchased in China, authorities had to be notified three to four days before takeoff. This undermined private aircraft as convenient business resources. However, that window has now been reduced to 24 hours, and in some circumstances, approval can be given in just a few hours.
Still, industry insiders are pushing for even quicker approval, making it possible for busy fliers to take off at almost a moment’s notice. In Hong Kong, for example, a private flight can be approved 15 minutes before takeoff, which is comparable to the US.
And while general aviation aircraft have historically not been allowed to fly below 30,000 feet – that space is controlled by the military – draft aviation regulations are set to be codified this year into a law that will accommodate commercial, private and military needs.
"The current airspace classification and control mechanism have constrained private jet growth in China. But with growing understanding of the economic and social benefits of private jets, the central government plans to loosen restrictions on airspace to accommodate growth," Textron’s Qiu said.
Beyond restrictive aviation legislation, other hurdles remain. High fees tacked onto the price of already-expensive airplanes may be hampering market growth, according to Jason Liao, vice chairman of the Asia Business Aviation Association (AsBAA) and CEO of China Business Aviation Group.
"Right now, for general aviation [products], you have to add a 17% value-added tax plus a 4-5% import duty. There has been some discussion about lowering that, but so far we have not seen any official announcement," he said.
Nor is the market supported by adequate logistical infrastructure. In the US, currently the world’s largest market for business aircraft, thousands of airports can accommodate private planes, whether they are making short or long haul trips. There are only a few hundred airports in China, which is just as vast as the US in terms of land mass.
"China only has about 200 airports; the US has about 5,000 airports. In the US, you can have a small jet. You can stop and refuel. China is so big, you need longer-range, large-size jets," Liao said.
Some industry estimates claim China’s aviation market needs at least 10,000 more qualified pilots and crew members to maintain a growing fleet of private and commercial aircraft.
Despite such dilemmas, foreign firms are counting on clear skies ahead. Luxury aside, industry insiders list a number of reasons why a costly private jet is a good investment.
One factor is convenience. Personal jets come and go when an owner is ready, saving high-earners and VIPs precious time that would otherwise be wasted lollygagging in airport lounges waiting on scheduled commercial flights.
A private business jet also offers a functional, secure space for work, meetings and even signing deals.
"From the moment passengers step onto a large-cabin Gulfstream aircraft, they can use high-speed internet, e-mail, onboard local area networking, video conferencing, satellite phones, fax and a printer," Gulfstream’s Hoi said. "Basically, everything an operator could do in his office on the ground, he can continue to do in the sky, without risk that his conversation will be overheard."
Unlike more mature markets such as the US, where first-time buyers are comfortable purchasing second-hand jets or are more likely to start off with a smaller plane before upgrading to something larger, Chinese buyers want the biggest and best business aircraft. The market is so new here that only firms and individuals for whom price is not an object are purchasing planes.
"For instance, we say maybe 3,000 to 5,000 companies in China need business aircraft, but only the top 100 are buying them," AsBAA’s Liao said.
Liao compares China to burgeoning markets in Russia and the Middle East, where demand is growing along similar lines. "When the market becomes more mature, I think you will see a trend toward some mid-size jets," he said.
Airbus, which sold a total of 16 private planes in 2009, five of which went to its China customers, aims to sell five large corporate jets in the country every year.
Likewise, Gulfstream is also banking on success. Hoi said that in 2001, the company had 27 aircraft in the Asia Pacific region. At the end of 2009, that number had reached 113.
"Our overall experience in China, including Hong Kong and Macau, has been equally positive. In 2000, there were no Gulfstream aircraft registered in the country. By 2009, that number was close to 47," Hoi said.