World Aerospace Market
Will Russia & China impacting the future of the aerospace industry?
The purchase of an aircraft is an exceptional transaction. Not only does the buyer acquire a very expensive capital asset, the contract signing begins a long relationship between the airline and the manufacturer. Prospective customers carefully vet the past history of the seller’s work with previous purchasers.
The first story, a lawsuit between Aeroflot and Sukhoi, will draw the attention of carriers considering the SSJ100 for their fleets. When a buyer sues the seller, particularly when they are both Russians, that is cause for notice. According to the court papers, the Russian national airline is demanding RUB576 million ($10 million) under a contract from the manufacturer. It is alleged that Aeroflot was supposed to receive subsidies from the federal budget to pay lease payments for these planes, and in case the subsidies were not received, the manufacturer was supposed to reimburse them. The carrier had not received said subsidies.
It is not bad enough that there is a dispute, but the fact that Aeroflot demanded a subsidy to buy the SSJ100 is.
United Aircraft Corporation, Sukhoi’s parent, and COMAC, the Chinese state aerospace venture, have announced a $13B investment to build a wide-body jet, kick-starting full-scale development of a program aimed at competing with market leaders Boeing and Airbus. Like the Aeroflot-Sukhoi deal, COMAC’s largest sale of its ARJ21 was to COMAC Chengdu Airlines.
The technology needed to compete with the western aircraft requires massive investments and that process will require years if not decades. One way to catch up would be joint ventures with American and European avionics, controls, powerplant and materials companies, which have the knowledge to assist in this acceleration. However, no owner of state-of-art aviation expertise would ever venture into China—its laws and judiciary have no recognition of foreign intellectual property rights.
Assuming that both governments will subsidize this entry vehicle into global aerospace markets, even a cheaply priced aircraft is no bargain when its reliability is poor. An airplane sitting on the tarmac is a negative liability—pay the lease but no revenue. For example, in 2016 Rosaviatsia, the Russian aviation authorities grounded the SSJ100. The reason for grounding the aircraft type was metal fatigue. This condition is endemic of older airplanes; to detect the cracks in a new structure is a diagnosis which will discourage buyers.
While there is no need to panic, two countries with a combined population of 1.5 billion (and growing) constitute a massive market. If the governments declare their carriers to be a captive market, it will impact the future of all aerospace companies. Mandarin has eight different characters with varying denotations of infinity; so, it is likely that they have patience.