A Look Into Chinas Aviation Market:Outlook and Forecasts for Civil Aircraft, Engines, and Opportunities                   ...
DisclaimerAvia-Tek Ltd. hereafter referred to as “CONSULTANT”will provide advice based on our business experience,knowledg...
Presentation Agenda•    Commentary on the Corporate Strategy of AVIC Group•    Outlook       Civil Aircraft       Civil ...
Presentation Agenda•    Commentary on the Corporate Strategy of AVIC Group•    Outlook       Civil Aircraft       Civil ...
Group revenues grew 23.1% to USD 31 billion for 2011Approximately  400,000                  AVIC Industry Corporation of C...
Can you express your long-term group strategy in 8 words?两融                 Two Integrations三新                 Three Objec...
The AVIC group is embracing globalization,but continuing to invest in strengthening local clusters两融                 •    ...
Three new objectives are defined to replace the old两融                 •                   •                       Create B...
Empower the group and break down communication walls                   BEFORE                                         AFTE...
How has the strategy shift been implemented internallyand responded to externally?                                        ...
Western and Chinese OEMs are localizing and globalizing their supplychains, respectively… e.g. a changing role for CATIC/A...
Five changes are needed to achieve long-term goals两融                 •                   •                       Market-or...
AVIC is creating aerospace centers of excellence (COEs)and restructuring to achieve system-level capabilities•    Helicopt...
Can AVIC reach a revenue target of CNY 1 trillion by 2020?两融                 •                   •                       R...
Presentation Agenda•    Commentary on the Corporate Strategy of AVIC Group•    Outlook       Civil Aircraft       Civil ...
Civil Aircraft Outlook – Focus on the C919  •       Announcement soon for delay of the          program is very possible  ...
Presentation Agenda•    Commentary on the Corporate Strategy of AVIC Group•    Outlook       Civil Aircraft       Civil ...
Civil Aircraft Engine Outlook – Focus on the CJ1000A•    FAL for the LEAP-X1C still in question•    JV with a Western OEM ...
Presentation Agenda•    Commentary on the Corporate Strategy of AVIC Group•    Outlook       Civil Aircraft       Civil ...
GA in emerging economies is driven by increasing  affluence of the population and removal of gov’t restrictionsGeneral Avi...
Demand for GA services is driving the market• Forestry• Agriculture• Territory surveillance• Offshore• Rescue and relief• ...
A market potential driven by the opening of the airspace  and the improvement of GA regulationsGeneral Aviation Fleet Fore...
A positive trend for China domestic manufacturing despite strong competition from foreign OEMsDomestic General Aviation Pr...
Presentation Agenda•    Commentary on the Corporate Strategy of AVIC Group•    Outlook, Forecast, and M&A Activities      ...
There are many opportunities in the market,but planning and execution is a major challenge•    Weaknesses in certain manuf...
Many foreign firms entering China seem to make the samemistakes over and over again…•    Aerospace is even more challengin...
Our Strategic Approach to China Market Entrywww.avia-tek.com       Aerospace Consulting – Em erging Markets   27
Thank You for Your Attention!                                Avia-Tek partners with our clients to help them navigate     ...
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Speed News Conference (March 6, 2012)

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Avia-Tek (www.avia-tek.com) Partner and Co-Founder, Todd Siena, explains at the Beverly Hills SpeedNews Conference the group strategy of China's AVIC. The presentation also includes an update and outlook of the C919, CJ1000A, general aviation, and a Q&A session.

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Speed News Conference (March 6, 2012)

  1. 1. A Look Into Chinas Aviation Market:Outlook and Forecasts for Civil Aircraft, Engines, and Opportunities Aerospace Consulting – Emerging Markets Hong Kong • Shanghai • Palm Beach SpeedNews 26th Annual Commercial Aviation Industry Suppliers Conference Beverly Hills, California, USA – March 6, 2012 1
  2. 2. DisclaimerAvia-Tek Ltd. hereafter referred to as “CONSULTANT”will provide advice based on our business experience,knowledge, and best efforts in achieving the goalswithin the scope of this agreement. CONSULTANT isnot responsible for any changes in market conditions,changes in Chinese laws, and/or any changes bypotential targets that may adversely affect the clientand/or the outcome of its business and/or investments.CONSULTANT is not a qualified or certified law oraccounting firm; nor are we licensed to practice law orprovide legal advice; nor licensed to provide accountingservices. Any legal recommendations and/or financialprojections that we provide are based solely on ourbusiness experience. The client is strongly advised toget appropriate legal and accounting advice prior tomaking any financial investments based onCONSULTANT’s recommendations.www.avia-tek.com Aerospace Consulting – Em erging Markets 2
  3. 3. Presentation Agenda• Commentary on the Corporate Strategy of AVIC Group• Outlook  Civil Aircraft  Civil Aircraft Engines  General & Business Aviation• Conclusions  Risks  Opportunitieswww.avia-tek.com Aerospace Consulting – Em erging Markets 3
  4. 4. Presentation Agenda• Commentary on the Corporate Strategy of AVIC Group• Outlook  Civil Aircraft  Civil Aircraft Engines  General & Business Aviation• Conclusions  Risks  Opportunitieswww.avia-tek.com Aerospace Consulting – Em erging Markets 4
  5. 5. Group revenues grew 23.1% to USD 31 billion for 2011Approximately 400,000 AVIC Industry Corporation of China 482 Billion RMB Credit Line Employees Since 2009 AVIC General Aviation (CAIGA) AVIC Technics (former Defense) CAC SAC Hongdu XAIC SACC CCAC AVIC Aircraft Shanfei FAI LAMC CATIC Defense Hafei AVIC Helicopter (Avicopter) Changfei AVIC Flight Test Center XAE Liming Liyang AVIC Engine FAST BALP AECC AVIC Capital AVIC Avionics Systems AVIC Construction Engineering AVIC Electromechanical Systems AVIC Automobile AVIC International AVIC Tech Foundation Establishment AVIC Commercial Aero Engine (ACAE) Joy Air Source: AVIC www.avia-tek.com Aerospace Consulting – Em erging Markets 5
  6. 6. Can you express your long-term group strategy in 8 words?两融 Two Integrations三新 Three Objectives五化 Five Changes万亿 One Trillion CNY Source: AVICwww.avia-tek.com Aerospace Consulting – Em erging Markets 6
  7. 7. The AVIC group is embracing globalization,but continuing to invest in strengthening local clusters两融 • • Integrate with the global supply chain Integrate AVIC with local economies to establish三新 aerospace clusters五化万亿 Source: Avia-Tek analysiswww.avia-tek.com Aerospace Consulting – Em erging Markets 7
  8. 8. Three new objectives are defined to replace the old两融 • • Create Brand Value Commercialize Operations三新 • Empower the Group五化万亿 Source: Avia-Tek analysiswww.avia-tek.com Aerospace Consulting – Em erging Markets 8
  9. 9. Empower the group and break down communication walls BEFORE AFTER两融三新五化万亿 Source: Avia-Tek analysiswww.avia-tek.com Aerospace Consulting – Em erging Markets 9
  10. 10. How has the strategy shift been implemented internallyand responded to externally? Source: Avia-Tek analysis,www.avia-tek.com Aerospace Consulting – Em erging Markets interviews 10
  11. 11. Western and Chinese OEMs are localizing and globalizing their supplychains, respectively… e.g. a changing role for CATIC/AVIC International Source: Avia-Tek analysis,www.avia-tek.com Aerospace Consulting – Em erging Markets interviews 11
  12. 12. Five changes are needed to achieve long-term goals两融 • • Market-oriented reforms Specialization三新 • Corporate governance五化 • Internationalization • Industrialization万亿 Source: Avia-Tek analysiswww.avia-tek.com Aerospace Consulting – Em erging Markets 12
  13. 13. AVIC is creating aerospace centers of excellence (COEs)and restructuring to achieve system-level capabilities• Helicopters  Tianjin• UAVs  Guizhou• GA Aircraft  Zhuhai• Transport Aircraft  Shaanxi• Engines  Shanghai• Avionics, Landing Gear, Composite Blades…etc. Source: Avia-Tek analysiswww.avia-tek.com Aerospace Consulting – Em erging Markets 13
  14. 14. Can AVIC reach a revenue target of CNY 1 trillion by 2020?两融 • • Requires consistent 25% CAGR over 8 years If we assume appreciation of the Renminbi between三新 • 2 to 3% per year against the dollar In 2020 dollars, that could be USD 195.5 billion五化 • Organic growth from domestic programs万亿 • External growth from outbound M&A Source: Avia-Tek analysiswww.avia-tek.com Aerospace Consulting – Em erging Markets 14
  15. 15. Presentation Agenda• Commentary on the Corporate Strategy of AVIC Group• Outlook  Civil Aircraft  Civil Aircraft Engines  General & Business Aviation• Conclusions  Risks  Opportunitieswww.avia-tek.com Aerospace Consulting – Em erging Markets 15
  16. 16. Civil Aircraft Outlook – Focus on the C919 • Announcement soon for delay of the program is very possible • Problems to ramp up the JVs is a key issue 235 +20 • Word on the street in Shanghai – delays Launch Customer Orders from one to three years for JVs  Implications? 2010 2011 2012 2013 2014 2015 2016 Type End Joint Preliminary Certificate Conceptual Design First 90%Design Phase Review Cut Drawings Roll Out Launch 25% Critical Detailed First Flight First Customers Drawings Design Design Delivery Review Review Source: Avia-Tek analysis, www.avia-tek.com Aerospace Consulting – Em erging Markets COMAC, interviews 16
  17. 17. Presentation Agenda• Commentary on the Corporate Strategy of AVIC Group• Outlook  Civil Aircraft  Civil Aircraft Engines  General & Business Aviation• Conclusions  Risks  Opportunitieswww.avia-tek.com Aerospace Consulting – Em erging Markets 17
  18. 18. Civil Aircraft Engine Outlook – Focus on the CJ1000A• FAL for the LEAP-X1C still in question• JV with a Western OEM is possible for CJ1000A Present - 2016 2016 - 2020 2021 - Phase 1 Phase 2 Phase 3 Develop a demo First demo test Serial production engine based on currently available Core test EIS technologies TC Certificate Joint projects with external suppliers PC Certificate Source: Avia-Tek analysis, ACAEwww.avia-tek.com Aerospace Consulting – Em erging Markets 18
  19. 19. Presentation Agenda• Commentary on the Corporate Strategy of AVIC Group• Outlook  Civil Aircraft  Civil Aircraft Engines  General & Business Aviation• Conclusions  Risks  Opportunitieswww.avia-tek.com Aerospace Consulting – Em erging Markets 19
  20. 20. GA in emerging economies is driven by increasing affluence of the population and removal of gov’t restrictionsGeneral Aviation Penetration Rate WorldwideGA Fleet/1K Capita vs. GDP per Capita in 2005 USD (log scale) 10.0000 1st driving force: GDP growth Canada New Zealand US 1.0000 Brazil South Africa Switzerland 0.1000 Germany Russia 0.0100 India 2nd driving force: 0.0010 removal of China barriers 0.0001 1,000 10,000 100,000 Source: Avia-Tek analysis, www.avia-tek.com Aerospace Consulting – Em erging Markets World Bank, GAMA 20
  21. 21. Demand for GA services is driving the market• Forestry• Agriculture• Territory surveillance• Offshore• Rescue and relief• Private usage and taxi services Source: Avia-Tek analysis, CAAC www.avia-tek.com Aerospace Consulting – Em erging Markets 21
  22. 22. A market potential driven by the opening of the airspace and the improvement of GA regulationsGeneral Aviation Fleet Forecast 2012-2022Units (log scale)100000 Pessimistic scenario Most probable scenario Optimistic scenario10000 1000 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Source: Avia-Tek analysis, www.avia-tek.com Aerospace Consulting – Em erging Markets Avia-Tek China GA Market Forecast 2012 22
  23. 23. A positive trend for China domestic manufacturing despite strong competition from foreign OEMsDomestic General Aviation Production Value 2012-2022Million of CNY 7000 Rotor Wings 6000 Fixed Wings 5000 4000 3000 2000 1000 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Source: Avia-Tek analysis, www.avia-tek.com Aerospace Consulting – Em erging Markets Avia-Tek China GA Market Report 23
  24. 24. Presentation Agenda• Commentary on the Corporate Strategy of AVIC Group• Outlook, Forecast, and M&A Activities  Civil Aircraft  Civil Engines  General & Business Aviation• Conclusions  Opportunities  Riskswww.avia-tek.com Aerospace Consulting – Em erging Markets 24
  25. 25. There are many opportunities in the market,but planning and execution is a major challenge• Weaknesses in certain manufacturing capabilities  Identify those weaknesses  Identify the relevant product lines • E.g. Hard metal casting for gas turbine application • E.g. Composite “friendly” fastening systems• The General Aviation Ecosystem  Infrastructure  Services  Know-how• Evaluate your strategic options Source: Avia-Tek analysis, Avia-Tek China Aircraft Enginewww.avia-tek.com Aerospace Consulting – Em erging Markets 25 Industry Assessment Report 2012
  26. 26. Many foreign firms entering China seem to make the samemistakes over and over again…• Aerospace is even more challenging  Regulatory environment  Highly political  Highly strategic industry  secretive culture• Letting the Chinese party seek you out first…• Advice from your companies friend who is “the China expert”  Magnifies all the other normal risks • IP theft • JV problems down the road • Legal issues • Environmental issues • Political issues Source: Avia-Tek analysiswww.avia-tek.com Aerospace Consulting – Em erging Markets 26
  27. 27. Our Strategic Approach to China Market Entrywww.avia-tek.com Aerospace Consulting – Em erging Markets 27
  28. 28. Thank You for Your Attention! Avia-Tek partners with our clients to help them navigate the Chinese aviation and aerospace industry  Industry Market Assessment  Market Entry Strategy  Executive Trips and Briefings  Competitive Intelligence  Aerospace Sourcing  Technical Consulting  Transaction Support Learn more at www.avia-tek.com or feel free to contact us directly. North America Asia and Rest of World J. Todd Siena John Siena, Partner Avia-Tek Head Office Partner & Co-Founder jcsiena@avia-tek.com info@avia-tek.com +1-561-797-8818 +86-21-5157-2179 Fluent in English Fluent in Chinese (会说中文) Europe David Cook, Europe Representative + 86 189 1707 4921 cook@avia-tek.com siena@avia-tek.com +33-6-1135-4330www.avia-tek.com Aerospace Consulting – Em erging Markets 28

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