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First Operators to Base Aircraft in China Discuss How to Succeed

October 23, 2013

In the five years NBAA has featured a session on "Doing Business in China" at its Convention, “so much has changed,” said panel moderator Jay Mesinger, president of Mesinger Corporate Jet Sales.

“Today we’ll talk to operators actually basing airplanes in China, something we only thought about five years ago,” said Mesinger.

Representing some of the first American companies to set up flight departments in China, the panelists spoke to the advantages their companies have found – and the challenges. With airspace only recently opened to business aviation, the regulatory environment is continually evolving, and operators face differing limitations on crew visas, new procedures for pre-clearances and other snarls.

Some of those regulatory challenges may improve over time, as NBAA President and CEO Ed Bolen reported that Chinese officials increasingly see business aviation as tied to the country’s economic aspirations.

“We’ve recently been able to work through the Asia-Pacific Economic Cooperation (APEC) forum to establish, for the first time, principles for business aviation that are accepted throughout Asia, not just China,” said Bolen. “These were proposed and adopted in September in Tokyo.”

Bolen also said NBAA had a “critical strategic partner” for working with the Chinese government in the Asian Business Aviation Association (AsBAA), NBAA’s sister organization in the region.

The Asian Business Aviation Conference & Exhibition (ABACE), held in conjunction with AsBAA, has become a forum for “profound dialogue with the regulators in China and all of Asia,” said Bolen. “This year, that dialogue went to a totally new level, with the President of the ICAO Council Roberto Kobeh Gonz├ílez, U.S. Ambassador to China Gary Locke, Minister of Civil Aviation Administration in China (CAAC) Jiaxiang Li and Deputy Administrator Xia Xinghua all there. The top 25 officials of the CAAC even held their first-ever China Business Aviation Symposium right on the convention floor.”

Strong Growth Despite Lingering Challenges

As the regulatory environment evolves, operators still face some infrastructure limitations. Outside the biggest cities, FBOs are basically non-existent. Only airports in Beijing, Shanghai, Shenzhen and Hong Kong have business aviation terminals. Aircraft support can be limited as well; there are few repair stations in China and some OEMs have a stronger presence than others. With a used aircraft market that is still undeveloped, there are no paint and interior shops on the mainland.

Despite these challenges, the panelists all agreed the business aircraft market – and the infrastructure to support it – will keep growing. The country builds about a dozen new airports a year.

As Western companies begin basing airplanes in China, more and more Chinese companies are establishing their own flight operations. “Chinese companies are reaching out to Europe, Africa and South America for business, and starting to use their airplanes outside of China,” said Mark Burns, president of Gulfstream.

One of the factors that lead American companies to base aircraft in China is that charter is still very expensive, compared to the U.S., and not widely available.

“We’ve had an N-registered aircraft based in Hong Kong since March,” said Mike Wilkinson, chief pilot for on-demand operations at the Limited Brands. “The parking situation there is terrible. Just because you’re based there doesn’t mean you have parking; you’re just like transient.”

Other companies, like Hewlett-Packard, haven’t based an airplane on the mainland, but make very frequent, multi-stop transpacific missions, often on very short notice.

“We’ve been asked to go to China with 24-hour notice, and we just can’t pull it off,” said Rich Walsh, director of aviation for Hewlett-Packard. “To support the China operation, we have to keep every single crewmember up to speed on visas; that’s very expensive. And security’s a huge challenge for us too.”

Even with those challenges, Walsh said HP can make a trip to China with only 72 hours' notice.

Setting Up a New Flight Department in China

There are no truly independent flight departments in China; all business aircraft are operated through management companies. Ann Holmes, senior vice president for business development at Bloomer deVere, presented a case study of how to start a new flight operation in China and choose a management company.

“With 18 regional offices, over 6,000 properties to visit in 30 provinces in China, it was easy to justify the company’s use of business aviation,” said Holmes. “Then we asked how to do it.”

They evaluated whether to register the airplane in the U.S. or China, which aircraft to buy, what ownership structure to set up, whether to finance or lease the airplane and hangar facilities at different airports. Holmes also detailed how to vet management companies and stressed the importance of having Chinese legal and tax advice.