M&A Analysis and Research on Aircraft Industry of P.R.C 2007

Abstract:

1. The Status quo of aircraft industry

There exists 100 manufactures at all level for air parts while few of them can make plane completely by their own. All aircraft companies are gathered under the umbrellas of AVICI and AVICII where 100 of industrial sectors, 33 research institutes and 42 affiliated firms and agencies with staffs totalled 450,000 are agglomerated in. The return in 2003 was USD 10 billion. Shenyang Aircraft Corporation, Chengdu Aircraft Corporation, Xian Aircraft Corporation, Guizhou Aircraft Corporation are affiliated to AVICI while Shanxi Aircraft Company, Harbin Aircraft Manufacturing Corporation, Changhe Aircraft Industries Group Ltd. and Hongdu Aviation Industry Group are affiliated to AVICII. AVIC that was built upon what former China Aerospace and Aviation had achieved in company transformation was split into AVICI and AVICII that were up and run in 1999. At the time, AVIC was separated into two parts － AVIC responsible for R&D in aircraft and SpaceChina for R&D in Rockets and missiles. Now a day, AVICI is devoted to fighters, bombers and transport planes while AVICII remains focused on attacker, helicopters and transport planes. However, their major chunk of return was come from sales of non-aircraft products. 75% of revenue of AVICII was flowed in from automobile, 10% from air products. The same decentralized business model is true of in its affiliates which are contrary to Western counterparts. We believed that firm should focus on core competitiveness. Though profit from non-aero business is promising than aero one, the synergy and resources a company needed to improve its aircraft output will be diverted to other areas.

Aircraft industry has been synonymous with high-tech sector crystallizing the whole spectrum of novel ideas. It features high investment, long cycle and concentrated market. Meanwhile, it exerts great influence on growth of national economy. That is why many industrialized nations prioritised aero industry as the top agenda at any price. The industrialized nations have transformed aircraft manufacturing industry into strategic concern without exception for its overriding affect on national security and economy while closely linked with national interests.

In 1990s, China possessed general assembly line over M80 and M90 which contributed a lot for revamping level of R&D and production of large aircraft. The best of the best among aircraft manufacturing industry was put into 70% of assembly and production over plane body. However, the work was halted with integration of Boeing and McDonald-Douglas while nothing was left for China at high price. The same old story lies on the stopped work in AE100 project with Air Bus .

The industrial cooperation between Air Bus and China 's civil aviation industry was backed to 1985. At the time, a production transfer agreement was signed by Air Bus and Xian Aircraft Corporation that is responsible for production and assembly of electronic cabin door in wide-body aircraft of A 300 and A310.

At present, five aircraft manufacturers to AVICI and AVICII have directly participated into cooperation with Air Bus in parts production. They are Chengdu Aircraft Industrial (Group)Co.,Ltd.(CAC), Shenyang aircraft corporation, Xi'an Aircraft Industry(group) Company Limited, Hongyuan Aviation Forging & Casting Industry Company, Hafei Aviation Industry Co., Ltd.. Air Bus pledged to drive its procurement from USD 15 million up to USD 60 million per year. The number will double to USD 0.12 billion by 2010.

Air Bus ( Beijing ) Engineering Technology Centre is expected to be put into work in July this year. So far, there are 54 engineers in the Centre which will be 200 by 2008.

China will participate into A350 project of Air Bus through Centre bearing 5% of workload in body parts production including design and manufacturing. In addition, detailed design will be done within the Centre. The affiliated aircraft manufacturers to AVICI and AVICII take responsibility of parts producing.

The principle of Boeing China as the major rivalry of Air Bus articulated that it will stay focused on localized business. At present, Shanghai Aircraft Manufacturing Factory (SAMF) has been working on horizontal tail for B737, Xian Aircraft Industry (Group) Company Limited (XAC) working on vertical tail and trailing edge for B737 and B747 respectively while mortified floor beam for B747 cargo plane. Shenyang Aircraft Corporation (SAC) has been working on tail parts and Leading-edge of vertical tail for B737 and B787 respectively. Chengdu Aircraft Industrial (Group)Co.,Ltd.(CAC) has been working on front boarding doors and emergency exits on the wing and rudder for B737 and B787 respectively, Chongqing Aircraft Factory working on casting parts for Boeing, Bohai Aircraft Manufacturing Factory on interior and composite structural pieces for B737 and B767 while on wing shrouds and tail cone for B737 along with decorative plates cockpit for B777.

So far, the major parts and components over one third of Boeing aircrafts (numbering 3,400) worldwide were made in China . The production sharing has been growing which will provide experiences for proprietary technology of large plane in trunk route.

Now, the two Groups are moving towards new way of international cooperation. One shining example is the R&D in ARJ21, a brand new dot-line-plane with turbofan engines. AVICI Commercial Aircraft Co., Ltd was born during the project as major contractor possessing proprietary rights and engaging tender bidding to aircraft industry worldwide in accordance with international code. This revolutionary move indicates a new era the international cooperation taken by China 's aero industry tiptoed in.

2. M&A motives behind China 's aircraft manufacturing

The foreign aircraft manufactures have swarmed in to take advantage in vast market, low production cost and industrial system.

With globalization and world economy going, competition has been grow ferocious as product from aircraft industry has been stretching out globally. Under this circumstance, We have identified number of reasons behind M&A in this sector.

A. The resources of domestic aviation industry have been lack of centricity and sector has been mixed in business. So far, AVICI is devoted to fighters, bombers and transport planes while AVICII remains focused on attacker, helicopters and transport planes. However, their major chunk of return was come from sales of non-aircraft products. 75% of revenue of AVICII was flowed in from automobile, 10% from air products. The same decentralized business model is true of in its affiliates which are contrary to Western counterparts. Insiders believed that firm should focus on core competitiveness. Though profit from non-aero business is promising than aero one, the synergy and resources a company needed to improve its aircraft output will be diverted to other areas.

B. T he trend of international cooperation. The strong aircraft manufacturing industry, phenomenal market in the future, open-ended private aviation sector and low production cost have drawn world aero manufacturers coming in. International cooperation will help boost productivity in China 's aircraft industry in the short run, meet the needs of air transportation and bring home the essence of core technique and advanced management know-how.

C. aircraft manufacturing groups will extend the industrial chain and lower operating cost as to get steady stream of orders for aircraft showing its own savvies. Keep the failure of Transport 10 occurred again.

D. The market demand and prospect of domestic light plane and civil aircraft. Market research on civil helicopter shows that there are nearly 23000 civil helicopters worldwide, which means every million of population shares 3.9 helicopters. 40.1 helicopters are shared in every million in America where helicopter is widely used than elsewhere. Russia follows as second with 23.7 for each million. Helicopter has been developed in China 's civil aviation for 36 years. So far, 142 civil helicopters in 18 types were used in China while more than 90% of helicopter was imported from Europe, Russia and America . In addition, China is superior to Indian in per capita GDP and national territory though, helicopter household is inferior to Indian. Moreover, private jet will be prevalent as air traffic control get loosen and national economy expanded.

E. Non-aviation capital eager to step in. Many industrial areas and developmental zones have poised to put money in aviation industry and set aero industry on these regions in that aircraft manufacturing will inject impetus behind local industrial development.

3. M&A trend in China 's aircraft manufacturing industry

The characters of M&A in aircraft manufacturing industry manifested .

•  The effective competition has taken shape in China 's commercial aircraft market by Boeing and AirBus; it will help advanced technology and assembly line take root in China . A Memorandum of Understanding was signed by National Development and Reform Commission in civil aviation industry. It includes technology transfer and major assembly line for single-aisle airliners of airbus in China . It is safe to say that domestic aircraft manufacturing industry will create a platform for big groups such as Boeing and Air Bus through M&A.

•  Vertical M&A has been emerged in industrial down-stream companies evidenced by newly formed aviation companies and extended industrial chain resulted from M&A committed by domestic aircraft manufacturing groups. The stable flow of order for its brand new planes and lowered operation cost among new born air companies will guaranteed. By the end of 2006, having encompassed Small passenger plane, AVICI pledged to create an aviation holding company in this sector by 2007.

C. Intensified vertical M&A in up stream companies. To take over parts manufacturers will keep components supply sooth and pluck up core production within the groups. For instance, AVICI has been forging in M&A unceasingly in spite of missing the opportunity to Luoyang Bearing while it was said that it has been attempting to take over Harbin Bearing Group Co. Ltd.

D. Further cooperation between outside capital and foreign small plane and helicopter manufacturers. The expanding economy stimulates demands for small model aircraft and helicopter. This market has been attractive to many non-aero capital and foreign aircraft manufacturers. At the same time, low production cost will strengthen the determination for them to seek OEM cooperative enterprises. AEC, Sikorsky, Ekashen helicopter and Diamond Aircraft Industries GmbH have partnered with domestic counterparts.

E. There is a trend of reconstruction in domestic large aircraft manufacturers. This move will target optimized resources to core production as to drive up level of technology and skills. Just as to avoid decentralized model of business by setting the minor player to the dominant role, independent management will draw advantages in helping identify characters in different markets, extricate the companies from shackle and marshal the potential to its fullest. The shining example is AVICII which is crossing a proliferating array of companies. They are Hongdu Aviation Industrial Shareholding Co., Ltd, Hongdu Physical Fitness Equipment Co., Ltd, Hongdu Precision Machinery Company, Hongdu Golf Electric Car Co., Ltd, Hongdu Assistant Car Co., Ltd, Changnei Construction Equipment Company, Hongdu Motorcycle Co.Ltd., Hongdu Decoration Company, Hongdu Power Equipment Company, Nanchang Hongdu Power Generator Company, Hongdu Zhongyi Real Estate Co., Ltd, Nanfei Textile Machinery Company, Changzhou Hongdu E-Bicycle Co., Ltd. and Jiangxi Honhdu Zhonglian Machinery Co., Ltd.

F. The aviation industry worldwide tends to centralize evidenced by consolidation of civil aviation among 4 EU members and integration of Boeing and MD in America . On the other hand, less capable aircraft firms have been splitting which prevents resources from located into one area. We found that the reconstruction within the Big Two is foreseeable. General assembly line of A 320 in Tianijn by the end of 2006 is shared by AVICI and AVICII rather than forging the war by their own.

Contents:
The Analysis on Trend of M&A in China’s Aircraft Industry 2006 - 2007
Chapter 1 Profile on study
Section 1 Section 1 Background for study
Section 2 Section 2 Study contents
Section 3 Section 3 Study methodology
Section 4 Study team
Section 5 Study conclusion
Chapter 2 The Status Quo of Aircraft Industry Worldwide between 2006 and 2007
Section 1 the Development of aircraft industry worldwide
Section 2 Development of market scale of civil aviation worldwide
Section 3 Demand and supply of civil aviation worldwide
Section 4 Competition pattern of civil aviation worldwide
Chapter 3 The Status Quo of China’s Civil Aviation Manufacturing Industry between 2006 and 2007
Section 1 the Development of China’s aircraft industry
Section 2 Development of market scale of China’s civil aviation
Section 3 Demand and supply of China’s civil aviation between 2006 and 2007
Section 4 Competition pattern of China’s civil aviation between 2006 and 2007
Section 5 Export and import of China’s civil aviation between 2006 and 2007
1. Export
2. Import
Section 6 the forecast of supply scale in China’s civil aviation between 2006 and 2007
Chapter 4 China’s Civil Aviation Products in Details
1. Large transport aircraft 
1. Profile and character of market
2. Demand and supply in market between 2006 and 2007
3. Demand and supply in market between 2006 and 2010
2. Small passenger plane 
1. Profile and character of market
2. Demand and supply in market between 2006 and 2007
3. Demand and supply in market between 2006 and 2010
3. Executive Jet 
1. Profile and character of market
2. Demand and supply in market between 2006 and 2007
3. Demand and supply in market between 2006 and 2010
4. Helicopter 
1. Profile and character of market
2. Demand and supply in market between 2006 and 2007
3. Demand and supply in market between 2006 and 2010
Chapter 5 Analysis of Industrial Cluster and Competitiveness in China’s Civil Aircraft Industry 
Section 1 AVICI
1. Shenyang Aircraft Corporation
2. Chengdu Aircraft Corporation
3. Xian Aircraft Corporation
4. Guizhou Aircraft Corporation
Section 2 AVICII
1. Shanxi Aircraft Company
2. Harbin Aircraft Manufacturing Corporation
3. Changhe Aircraft Industries Group Ltd.
4. Hongdu Aviation Industry Group
Section 3 Other aircraft manufacturers
Chapter 6 Policy Environment of China’s Civil Aircraft Manufacturers 
Section 1 the Impact of macro-economic policy on civil aviation industry
Section 2 the Impact of national policy and 11th Five Year Plan on civil aviation industry
Chapter 7 Major Factor Exerting Influence on China’s Civil Aircraft Manufacturing
Section 1 Engineering factors affecting China’s civil aircraft industry
1. Whole reliability 
2. Engine technology of civil aircraft manufacturing 
3. Aviation electronics and navigation system 
4. New material and technology
Section 2 the Strains upon China’s civil aircraft manufacturing industry 
Section 3 International politics upon China’s Civil Aviation Industry
Section 4 National policy upon China’s Civil Aviation Industry
Section 5 the Existing problem in China’s Civil Aviation Industry
Chapter 8 Background of M&A in China’s Civil Aviation Industry 
Section 1 The Background of M&A in China’s Civil Aviation Industry
Section 2 M&A character about China’s Civil Aviation Industry
Section 3 The Stumbling block in China’s Civil Aviation Industry
1. Industrial policy 
2. Capital
3. Engineering hurdles
Chapter 9 Case Study in Foreign Civil Aviation Industry 
Section 1 Boeing takes over MD
1. The Background and value of M&A
2. The procedure of M&A and solution
3. Strategic development for post M&A phase
Section 2 Boeing purchasing Rockwell
1. The Background and value of M&A
2. The procedure of M&A and solution
3. Strategic development for post M&A phase
Section 3 Brazil Aircraft Industry Co. Ltd purchasing OGMA
1. The Background and value of M&A
2. The procedure of M&A and solution
3. Strategic development for post M&A phase
Chapter 10 The trend of M&A by Foreign Aircraft Industry over China’s Counterparts
Section 1 the Development of foreign aircraft manufactures in China
1. Investment trend
2. Targeted area for investment
3. Character of investment 
4. Investment products
5. Market performance 
Section 2 Air Bus 
1. Investment of Air Bus in China
2. Core competitiveness
3. M&A trend of Air Bus
Section 3 Boeing 
1. Investment of Boeing in China
2. Core competitiveness
3. M&A trend of Boeing
Section 4 Bombardier Transportation of Canada
1. Investment of Bombardier in China
2. Core competitiveness
3. M&A trend of Bombardier
Section 5 Embraer 	
1. Investment of Embraer in China
2. Core competitiveness
3. M&A trend of Embraer
Section 6 Honeywell
1. Investment of Honeywell in China
2. Core competitiveness
3. M&A trend of Honeywell
Section 7 Sikorsky
1. Investment of Sikorsky in China
2. Core competitiveness
3. M&A trend of Sikorsky 
Section 8 Agusta
1. Investment of Agusta in China
2. Core competitiveness
3. M&A trend of Agusta
Section 9 Lockheed Martin Corporation
1. Investment of Lockheed Martin in China
2. Core competitiveness
3. M&A trend of Lockheed Martin
Section 11 Raytheon Company
4. Investment of Raytheon Company in China
5. Core competitiveness
6. M&A trend of Lockheed Martin
Chapter 11 The Case Study of Domestic Civil Aircraft Industry 
Section 1 Binzhou Dagao General Aviation Co Ltd and Diamond Aircraft Industries 
GmbH co-financed DA40
1. Background and core value of M&A 
2. Procedure and solution of M&A 
3. Strategic development of post M&A phase
Section 2 Caofeidian Industrial Area and 
ОАО“Казанскийвертолетныйзавод co-produce helicopter.
1. Background and core value of M&A
2. Procedure and solution of M&A
3. Strategic development of post M&A phase
Section 3 AVICI and AVICII co-participated in A320 assembly of Tianjin Air Bus
1. Background and core value of M&A
2. Procedure and solution of M&A
3. Strategic development of post M&A phase
Section 4 Hangzhou Zhenyu Industry Co.,Ltd with American Full-Time Airlines Company 
co-produced helicopter
1. Background and core value of M&A
2. Procedure and solution of M&A
3. Strategic development of post M&A phase
Section 5 Changhe Aviation Manufacturing Co., Ltd cooperated with Agusta over helicopter
 production
1. Background and core value of M&A
2. Procedure and solution of M&A
3. Strategic development of post M&A phase
Section 6 ChuYing Technology Co.,Ltd and Sikorsky Aircraft co-produced helicopter
1. Background and core value of M&A
2. Procedure and solution of M&A
3. Strategic development of post M&A phase
Section 2 AVICII and Embraer co-financed in linear airliner production
1. Background and core value of M&A
2. Procedure and solution of M&A
3. Strategic development of post M&A phase
Section 8 Jinjiang Pharmaceutical Co., Ltd co-produced light helicopter with AEC
1. Background and core value of M&A
2. Procedure and solution of M&A
3. Strategic development of post M&A phase
Chapter 12 The Major Player of M&A in China’s Civil Aircraft Manufacturers
Section 1 Hongdu
1. Corporate performance
2. Industrial structure
3. Blockbuster analysis
4. Core Competitiveness
5. R&D capability and technology
6. Strategic development of Corporation
7. M&A and feasibility of M&A
Section 2 Changhe
1. Corporate performance
2. Industrial structure
3. Blockbuster analysis
4. Core Competitiveness
5. R&D capability and technology
6. Strategic development of Corporation
7. M&A and feasibility of M&A
Section 3 Hafei
1. Corporate performance
2. Industrial structure
3. Blockbuster analysis
4. Core Competitiveness
5. R&D capability and technology
6. Strategic development of Corporation
7. M&A and feasibility of M&A
Section Shanxi Aircraft Company
1. Corporate performance
2. Industrial structure
3. Blockbuster analysis
4. Core Competitiveness
5. R&D capability and technology
6. Strategic development of Corporation
7. M&A and feasibility of M&A
Section 5 Shenyang Aircraft Corporation
1. Corporate performance
2. Industrial structure
3. Blockbuster analysis
4. Core Competitiveness
5. R&D capability and technology
6. Strategic development of Corporation
7. M&A and feasibility of M&A
Section 6 Chengdu Aircraft Corporation
1. Corporate performance
2. Industrial structure
3. Blockbuster analysis
4. Core Competitiveness
5. R&D capability and technology
6. Strategic development of Corporation
7. M&A and feasibility of M&A
Section 7 Xian Aircraft Corporation
1. Corporate performance
2. Industrial structure
3. Blockbuster analysis
4. Core Competitiveness
5. R&D capability and technology
6. Strategic development of Corporation
7. M&A and feasibility of M&A
Section 8 Guizhou Aircraft Corporation
1. Corporate performance
2. Industrial structure
3. Blockbuster analysis
4. Core Competitiveness
5. R&D capability and technology
6. Strategic development of Corporation
7. M&A and feasibility of M&A
Section 9 Shanghai Aircraft Company
1. Corporate performance
2. Industrial structure
3. Blockbuster analysis
4. Core Competitiveness
5. R&D capability and technology
6. Strategic development of Corporation
7. M&A and feasibility of M&A
Chapter 13 Industrial Chain and M&A Trend of China’s Civil Aircraft Manufacturers
Section 1 Industrial chain in civil aircraft manufacturing industry 
Section 2 Industrial chain and M&A possibility in civil aircraft manufacturing industry
Chapter 14 M&A Possibility in China’s Civil Aircraft Manufacturing Industry 
Section 1 M&A in big companies 
1. Shenyang Aircraft Corporation
1.1 Corporate strategy 
1.2 Bottleneck of corporate 
1.3 M&A possibility
2. Chengdu Aircraft Corporation
2.1 Corporate strategy 
2.2 Bottleneck of corporate 
2.3 M&A possibility
3. Xi'an Aircraft Corporation
3.1 Corporate strategy 
3.2 Bottleneck of corporate 
3.3 M&A possibility
4. Guizhou Aircraft Corporation
4.1 Corporate strategy 
4.2 Bottleneck of corporate 
4.3 M&A possibility
5. Hongdu 
5.1 Corporate strategy 
5.2 Bottleneck of corporate 
5.3 M&A possibility
6. Harbin Aircraft Manufacturing Corporation
6.1 Corporate strategy 
6.2 Bottleneck of corporate 
6.3 M&A possibility
7. Changhe Aircraft Industries Group Ltd.
7.1 Corporate strategy 
7.2 Bottleneck of corporate 
7.3 M&A possibility
8. Shanxi Aircraft Company
8.1 Corporate strategy 
8.2 Bottleneck of corporate 
8.3 M&A possibility
Section 2 M&A possibility among medium and small companies
1. Shanghai Aircraft Company
1.1 M&A possibility
1.2 M&A value 
2. Hanzhong Civil Aviation Manufacturing (Group) Co., Ltd. 
2.1 M&A possibility
2.2 M&A value
3. Shijiazhuang Aircraft Industry Co., Ltd. 
3.1 M&A possibility
3.2 M&A value
4. Jiangsu Hangyu Aircraft Co., Ltd. 
4.1 M&A possibility
4.2 M&A value
5. Beijing Keyuan Light Aircraft Industry Co., Ltd. 
5.1 M&A possibility
5.2 M&A value
6. Guangdong Peiport Scientific Limited
6.1 M&A possibility
6.2 M&A value
7. Shandong Bin Ao Aircraft Industries Co., Ltd.
7.1 M&A possibility
7.2 M&A value
8. Huzhou Taixiang Civil Aircraft Technology Co., Ltd. 
8.1 M&A possibility
8.2 M&A value
Chapter 15 Industrial Chain and M&A Risk in China’s Civil Aircraft Industry 
Section 1 Industrial chain in China’s civil aircraft industry 
Section 2 M&A possibility within industrial chain of China’s civil aircraft manufacturing
Chapter 16 M&A Risk Analysis in China’s Civil Aircraft Industry
Section 1 Risk in international politics
Section 2 Risk in macro-economy and industry 
Section 3 Air control 
Section 4 Market demand
Section 5 Reform in management 
Section 6 Financial crisis 
Chapter 17 Recommendation for M&A in China’s Civil Aircraft Industry 

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