The Chinese Take Continental

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If there was anything surprising about the announcement of Teledyne Continental Motors being sold to a Chinese conglomerate this week, I guess it would be that it didn't happen sooner. It's not that Continental is an unattractive business prospect, but that it no longer fits with the Teledyne parent. Compared to Lycoming's Textron parent, Teledyne is smaller, but with a lot more pieces—55 companies, most of them in the technology, instrumentation and marine development segments. A maker of piston airplane engines stands out like a polka-dot dinner jacket, so off it goes to the Chinese. At a revenue multiple of about 1.3 (estimated) on sales of about $140 million, the Bejing-based AVIC International got themselves a fair deal on a fully functioning, modernizing aircraft engine plant.

Now what? They pledge to keep the business in Mobile, which prides itself on luring lots of foreign business to the city. Given the nameplate, they'll keep Continental in the name, although obviously, Teledyne will be dropped. Maybe Technify Continental? Or AVIC Continental? We shall see. We're told all of the jobs will remain in Mobile and investment capital, which Continental definitely needs, will be on the inflow. We expect to see some expansion at Brookley, which is a good thing.

But is the sale overall a good thing or just more hollowing out of the U.S. manufacturing base by the Chinese? These days, it's fashionable to decry American companies for selling out to China, but the fact is, China is investing 40 percent of its GDP a year in new industry and that's almost $2 trillion. It's inevitable that some of that cash will land in the U.S. It's the way the global economy works and every company needs an international strategy. Might as well get used to it. Besides, I doubt if Teledyne would have got its $187 million price from a U.S. buyer, given the current market decline. On the other hand, an aircraft engine maker appears to fit into the Chinese master economic plan.

Worth noting here is how difficult it is to be in the aircraft engine business. Both Lycoming and Continental operate on razor thin volumes and both have seen their OEM sales plunge, TCM's by as much as 60 percent. The low-volume/high-mix manufacturing they do doesn't lend itself to meaningful economies. Sales have risen some in 2010, but TCM has still struggled to stay black. You can't blame Teledyne for not wanting to pour a lot of capital into the Mobile plant to develop the diesel technology Continental bought earlier this year from SMA.

To make a go of that engine, they need to fix its cold weather problems, chew down the unit price, develop a high-horsepower six-cylinder version and, oh, figure out to sell it, which SMA never did. Although the future of aerodiesels seems assured, it's not going to happen very fast and I'd guess the investment required has to be in the $5 million range, if not a little more. If you're small potatoes in a bigger mothership and you have to finance projects like that internally, you can see why Chinese money looks attractive. I continue to believe Continental made the right decision with the diesel, but it's the long play you don't see much of in American business.

The aerospace business seems to be positively woozy over the notion that 1.3 billion Chinese represent a bottomless pit of aircraft demand. One popular way of showing the potential is this: In the U.S., with 200,000 airplanes, there's one airplane for every 1500 people. Apply the same ratio to China, and it's north of 800,000 airplanes. But let's get a grip here. Despite torrid growth, the Chinese may have a long way to go to have enough disposable wealth to drive those kinds of numbers. (By the way, for more reading on this topic, I'd suggest The China Price by Alexandra Harney and Poorly Made in China, by Paul Midler.)

But even at a tenth of it over 10 years and that's a nice little business. Many of those airplanes will certainly be powered by diesel engines. With a Chinese parent, Continental could have a natural entre, which is why Teledyne says the AVIC deal positions the engine maker favorably.

It's natural to wonder if Lycoming might be next. Not impossible, I suppose. But Textron has a very different business mix than Teledyne does and Cessna accounts for nearly a third of its revenues. While the big ticket jets deliver the profit, Cessna's schtick has always been a full line, from basic pistons, to high-performance singles to jets. It's hard to imagine them spinning off the piston line into a separate business, packaged up with Lycoming for a nice tidy bundle. On the other hand, when $2 trillion is bouncing around the global economy like a rubber check in a tile bathroom, anything can happen. For all I know, Cessna may have considered that very thing.

Comments (61)

Paul I'm glad you've chosen to bring this to the forefront, because we'll be living with multiple long reaching effects. I also see a 300 HP diesel as the most viable long term solution for many GA aircraft, mine included and really hope the diesel is one of the positive results of the Chinese takeover. With Chinese industrialization and a billion and half farm workers looking for jobs, how long do you really think production/manufacturing will remain in Mobile? In my mind, not very long, so at some point we'll be dealing with parts, and then engines manufactured in China. I doubt there will be much, if any, FAA oversight of overall quality or conformance to production standards. You mentioned Lycoming, but I wouldn't be surprised if the the Chinese then make a move on Raytheon/Beechcraft for the Bonanza and Baron lines for similar reasons. Reminds me of the alleged Chinese curse "May you live in interesting times". I've been told it's not true, but it sure fits here.

Posted by: Burns Moore | December 16, 2010 8:25 AM    Report this comment

If US manufacturers have any hope whatsoever of selling aircraft in China they'll have to figure out pricing. You can sell enough new, four-seat light pistons at half-a-million per copy here in the land of plenty to make a living, but I doubt prices like that'll fly with people that've learned to make do on a shoestring budget.

Posted by: Mark Sletten | December 16, 2010 8:25 AM    Report this comment

Burns, guessing at Chinese intent is above my pay grade. But the two books I mentioned will help anyone form an informed opinion of how China does business and what motivates it. It faces a ticking social time bomb and the leadership there knows it. The China Price illuminates this from the other side of the Pacific. No easy or clear cut answers, I'm afraid.

Posted by: Paul Bertorelli | December 16, 2010 8:44 AM    Report this comment

Shame on you for advocating the dismantling of the American dream!

What is being sold to foreigners isn't just a business, it's part of the American ideal that made this country what it is: the best country on earth.

I am gravely concerned for the future of this country. My children will not have the opportunities that I had, because the economy is being dismantled a piece at a time. And that is what we are really selling to the Chinese, my friend: our children's future.

Posted by: Glenn Juber | December 16, 2010 9:03 AM    Report this comment

Just one more step toward us becoming a 3rd World Nation and China becoming the dominant Super Power Nation in the World........enjoy our world, as we know it, while you can. Don Wilfong

Posted by: Don Wilfong | December 16, 2010 9:05 AM    Report this comment

Dear Glenn, I'm not sure after rereading the posts who is "advocating dismantling of the American Dream". But ignoring or pretending it isn't happening isn't a solution. Personally I have undertaken a very determined effort of avoid anything Chinese. I wanted an outdoor kitchen, and finally had to purchase a Canadian gas grill system of avoid the Chinese. Most American brands all had "Made in China" in very small print in very difficult to find locations. That includes baby toys and clothes (for our grandchildren) and pet food. I'm fighting the process, not advocating. Just a note, you'll pay much more to avoid the Chinese. Hope more join me.

Posted by: Burns Moore | December 16, 2010 10:15 AM    Report this comment

Glenn said it well. We are finished as a super power if we don't make a concerted effort, through tax incentives and other inducements, to rebuild our manufacturing base. Yes, we'll pay more for US made products, but it can be thought of as an investment in our nation and our future. I also wonder what effect this will have on the value of TCM powered aircraft in a few years? All said, a pretty sickening event and I don't see any positives for US GA.

Posted by: Craig Dow | December 16, 2010 2:49 PM    Report this comment

It's natural to wring your hands and decry the end of the American dream and then to bitterly blame something...the government, the Chinese...something. But it may be more productive to understand why these things are happening.

China has a unique mash-up a centrally planned economy and something resembling western capitalism. It is a system hell bent on growth and fueled by a large, low-cost labor pool. But it also faces daunting problems related to working conditions, pay, medical care and a host of other things.

At least some of the central plan related to national infrastructure and...airports and airplanes. Don't be too surprised to see Cirrus get snapped up.

The U.S. has no similar focussed industrial policy because...surprise, we favor individual, unfettered private enterprise. But China has changed the game with a new model and we haven't figured out how to respond.

Posted by: Paul Bertorelli | December 16, 2010 3:23 PM    Report this comment

Craig - With all due respect we don't need tax incentives and other inducements to get our manufacturing base rebuilt. What we need is economy wide tax reduction and de-regulation. Keep only the barest minimum of regulations necessary (and we can argue over where to draw that line for decades, but bottom like is it needs to be drawn at a level far lower than it is right now). If we do that a lot of manufacturing will naturally spring up and return from overseas as the cost of doing business and complying with regulations comes down. Businesses aren't fleeing the USA over labor costs nearly to the extent that they are fleeing over tax and regulatory burders that China, et al don't impose (yet). That labor is also cheaper there is just a bonus that helps offset the lower quality of the product. Do all that and most likely prices won't even go up that much for American made vs Chinese made.

Only problem with doing that is that it would also require a major reduction in all government services, including SS, Medicare, ad naseum. Which is pretty much political suicide to attempt.

Posted by: Andrew Upson | December 16, 2010 3:33 PM    Report this comment

Paul - We don't need to change to a centrally planned economy to compete with the Chinese. It our movement in that direction that's caused our inability to compete with them. Individuals operating in unfettered private enterprise will find that solution far more effectively than some group of Nuevo Whiz Kids (regardless of R or D) in DC could ever hope to.

E.g. A friend of mine and I have an idea for a kit-plane company. It's probably 10 years away (and will stay perpetually 10 years away until we get really serious about it). But if it weren't so hideously expensive to get FAA certification for factory built planes we'd probably be leaning in that direction rather than experimental kits. The FAA's quasi-central planning of the aviation industry keeps all kinds of great ideas out of mainstream GA for a safety benefit that is dubious at best.

Posted by: Andrew Upson | December 16, 2010 3:41 PM    Report this comment

If you think government tax policy in the U.S. causes this, the world doesn't exactly agree. In the World Bank's survey of world economies, the U.S. ranks fifth in ease of doing business, fifth in protecting investors and investments and ninth in ease of starting a business.

China ranks ranks 79th in ease of doing business, 93rd in protecting investors and 151st in ease of starting a business. These are measures of regulation, permitting and capital availability which show that the U.S. is quite competitive and explains why Mobile has a number of foreign-based companies who are expanding.

I read the other day that there's something like $1.4 trillion in sidelined capital in the U.S. I don't know why it's not being invested, but I suspect part of the reason is that some companies are calibrated to returns of the last decade that we aren't likely to return to.

And by the way, if you own a Continental engine, I'd submit that you don't need to worry much about support. The legacy fleet still represents millions of dollars worth of business. No sane company would walk away from that and if it did, the vacuum would represent an opportunity for another company.

Posted by: Paul Bertorelli | December 16, 2010 3:42 PM    Report this comment

Andrew, in general, the cost of regulation in the U.S. is a factor, but the China price is not so simple as that. Take Wal-Mart. It's manufacturing in China because the raw goods are a fraction of the cost of U.S. manufacture on labor component alone.

The Chinese don't have the workplace regulations that we do. The working conditions and injuries in the workplace are such a problem that Wal-Mart has started to impose western standards on its factories, mainly because they realize the PR hit they'll take if they don't.

The economics are staggering. A running shoe that retails for $48 in the U.S. costs $2 to produce. Add the workplace safety and regulation and it doubles. I think we would both agree that there's sufficient margin there to absorb that, which is exactly what's happening in China, according to Harney's book.

I think Cessna encountered similar economics when it decided to do the Skycatcher in China. Not much FAA oversight component there, so I doubt if regulation is a factor. Labor sure is. China tends to have deep layers of bureaucracy and corruption that are costly and delaying, but without much benefit. But according to Harney, they are slowly improving.

Posted by: Paul Bertorelli | December 16, 2010 4:01 PM    Report this comment

Certainly tax and regulatory reform, coupled with the innate strength and resilience of our private enterprise model, would have a great impact on restoring our manufacturing capabilities and helping US made goods compete globally.

I'm not so much worried about Continental support. I'm sure we'll be able to get what we need to keep 'em running in the near term. But, "support" is not much help when Chinese quality (or lack thereof) results in an in flight engine failure. Of course, American parts fail too, but I'd still feel better behind a Lycoming once the Chinese influence comes to bear on Continental in a few years. Time will tell..

You mentioned running shoes, check out New Balance for a success story of a US manufacturer competing against the Chinese.

Posted by: Craig Dow | December 16, 2010 4:50 PM    Report this comment

The Chinese will learn how to build engines and one day they will be made in China with only a warehouse left in the US. All of the US suppliers to TCM will be out in the cold. We are giving the Chinese the farm and they are eating our lunch. Memo to self don't buy a TCM powered aircraft.

Posted by: Leo LeBoeuf | December 16, 2010 5:51 PM    Report this comment

New Balance, yes, I heard about that one. I'll look up the details. There are a number of such success stories.

As for us "giving the Chinese the farm," I don't hear any proposals there. Would you have the U.S. government intervene and stop the sale?

As for Teledyne, it's looking for the best price for its company and the stockholders would expect nothing less. I think they got a decent price when you consider the company is barely breaking even.

Not sure how strategic the buy was to meet a specific China wish list, so to speak, but it does fit the stated desire to expand aviation. Also not sure how the sale was initiated.

Posted by: Paul Bertorelli | December 16, 2010 7:08 PM    Report this comment

Good luck trying to sell me a Continental engine now. Maybe its a good time to buy Lycoming stock.

Posted by: Steve M | December 16, 2010 9:36 PM    Report this comment

Pardon my french but I believe teledyne is a whore. I'm loosing faith on the american pride and will. Maybe it's like Mr. Bertoelli says, close your eyes and you might just well enjoy it.

Posted by: Ralph Wishart | December 17, 2010 1:56 AM    Report this comment

Well, it's just a matter of time that due to hyper-inflated costs and under-motivated citizens, that America will stop producing pilots as well.

... and physicians ... and engineers ... and _____ (fill-in the blank).

America is solidly into the complacency cycle. Dependence is next, to be followed by tyranny. The Chinese, by most reasonable accounts, appear to be the ones that will first encroach then overwhelm the US, and are the ones most likely complete the cycle for us.

Posted by: Phil Derosier | December 17, 2010 2:58 AM    Report this comment

I'm still a little surprised that a Chinese entity didn't buy the Eclipse assets.

Posted by: John Mininger | December 17, 2010 9:06 AM    Report this comment

The Strategic Studies Institute (National War College) published a very insightful analysis of the Chinese government, economic model including money manipulation regarding the change from an agrarian to industrial workforce and the challenges confronting them. There final analysis was that the Chinese in fact need us more than we need them. They are completely dependent on our consumer consumption to keep a billion and half farmers employed in their new factory jobs. The Chinese have a horrific revolution on their hands if we quit trading with them. With that in mind, the solution is MUCH better negotiating in a diplomatic and economic capacity and force them into major concessions. Donald Trump (I'm not a fan of his, BTW) stated that rather than diplomats negotiating with the Chinese we need American businesses. There is no value in wailing and wringing of hands, but we need to force the administration into taking a pro US stance rather than the Chinese influence peddlers/lobyists.

Posted by: Burns Moore | December 17, 2010 10:07 AM    Report this comment

If one really looks closely at manufacturing job losses in the U.S., one has to conclude that we’re simply getting better and better, at producing more stuff with fewer people. Because when measured by dollars, the manufacturing output of the U.S. keeps going up and up all the time.

Posted by: John Mininger | December 17, 2010 10:28 AM    Report this comment

That actually applies to the world at large, too. Here's some data on manufacturing output per GDP/per capita.

http://www.ourfuture.org/blog-entry/2009104319/g20-manufacturing-output-capita

Note that for the U.S., manufacturing accounts for 17 percent of GDP, but in China it's 25 percent, if you subtract mining.

http://www.economistblog.com/2009/02/22/made-in-usa-is-alive-and-well-manufacturing-goes-high-end-and-the-usa-is-still-the-global-leader/

The second link shows the productivity gains John referred to in dramatic fashion. One problem with this, of course, is that as real wages go down--and they are--you're not building the market buying power to fuel additional expansion. But free markets are supposed to be good at adjusting such things, so we should see some kind of shift going on eventually.

I saw a similar chart somewhere for the aviation sector. China's barely registers, it's so minimal.

Posted by: Paul Bertorelli | December 17, 2010 11:12 AM    Report this comment

An interesting article written about the time China bought IBM's PC business. The statistics are dated, but the principles still seem to hold true today.

http://www.jimpinto.com/writings/chinachallenge.html

I'm not sure I'd oppose the government stopping the sale. With only two major engine makers for our entire piston fleet, it would seem that the transfer of one to foreign ownership might have some real consequences with regard to trade and competition in the US. Engines are not exactly fungible commodities like PCs and consumer goods at Wal-Mart. Maybe something the honchos at AOPA could look into to earn their keep:)

Posted by: Craig Dow | December 17, 2010 6:08 PM    Report this comment

People seem to miss the point- America is becoming a third world country, one enterprise at a time.

If World War II happened today instead of in 1944, we would NOT meet the challenge. We no longer have the manufacturing capability for such an undertaking, and we are rapidly losing the knowledge base to do so.

Case in point- the US nuclear energy revival is stalled by one major problem: we no longer have the capability to manufacture the large forged steel reactor housings. We have to buy them from the French or the Japanese. These large forgings are used in everything from large construction machinery to reactor vessels, and we have to import them. The Chinese are working on producing them next. Do you really want a Chinese nuclear reactor containment vessel in your neighborhood?

Posted by: Glenn Juber | December 17, 2010 10:42 PM    Report this comment

... and get a load of this: Brazilian company JBS has just acquired Sara Lee ... shucks ... we Americans won't even make apple pie any more!

Profit (personal gain) is what drives humanity, and it's accomplished by productivity (inventiveness and self reliance), passivity (getting someone else to do the work for you: i.e., "welfare"), or plunder (conquering someone elses property).

Any guesses as to where the U.S. is headed?

Posted by: Phil Derosier | December 18, 2010 1:46 AM    Report this comment

It's one thing to bitterly complain about the trend, quite another to meet the challenge. What would your solution be?

Posted by: Paul Bertorelli | December 18, 2010 5:45 AM    Report this comment

Paul to answer your question, investment from China is not all bad. Remember back in the '80's Japan invested billions in the USA. We didn't fall apart. If I was Technify, I would invest in a small, light weight, fuel efficient engine to compete with Rotax and I would use Continental to design and build it. I bet the engineers love a project like that. I believe that very light aircraft will be the aircraft of the future. If you consider the increasing cost of commodities (such as aluminum), fuel and such, people who want to fly will do so in very light aircraft. We have some pretty good aircraft to choose from but we still need more engine chooses. Don't start with a 1940's design, start from scratch.

Posted by: Dana Nickerson | December 18, 2010 9:51 AM    Report this comment

Allright. At the end of the day it's all about us. We are the most important market today. Maybe china will pass us on the next decade but don't forget this. Don't keep blaming the companies moving their manufacturing facilities to china or even seling what we have here to them. It's only happening because when it's time to buy, we don't give a crap about the fact that the price that we pay is so low that american companies can't compete. We made our beds we must lay on them.

Posted by: Ralph Wishart | December 18, 2010 11:03 AM    Report this comment

I am not sure, Paul if your question, "What would your solution be", is in response to one specific writer, or a general question to all the readers, but let me take a stab at it . My solution would be some sort of reciprocal trade agreement where tariffs on any country, would take into consideration the laws that we have to comply with here as opposed to there. So if our cost for labor is say $12 dollars an hour and theirs is $2 the tariff should reflect that. If we have to comply with safety and environmental laws ,they should have to also or the tariff should reflect that, to level the playing field, this should especially apply to countries (like China) that artificially devalue their currencies. A tariff to compensate for lowering the value of their currency is the single most important thing we can do. I personally would not have as much of a problem with the Chinese (or anyone else) if they played fair. Steve Maresca

Posted by: Steve M | December 18, 2010 11:37 AM    Report this comment

>>trade agreements and tariffs...etc.>>

Those aren't easy to do, of course, but from the reading I've done, they take things in the right direction which is toward China depreciating its currency. As others have noted, the challenge from China is not just labor costs, although that's a part of it. The lopsided currency values--quite intentional by China--prevents the U.S. from being as competitive in China's markets as it could be. It's simple protectionism.

We've been here before. In 1985, a similar imbalance of trade occurred with Japan. At the time, it looked even worse than China does now. The response? The Reagan treasury department arranged a secret, massive sell-off of U.S. currency to weaken the dollar. The U.K, Germany, France and even Japan went along with it because it was deemed in mutual interest to do so. The Chinese, of course, don't see it that way, but they'll have to eventually.

In the aviation sector, this is why some companies have gotten involved in China only reluctantly. They feel they don't have a choice, regardless of what plays well domestically. I don't know how much or how little Teledyne considered this in its decision to sell Continental.

Posted by: Paul Bertorelli | December 18, 2010 11:48 AM    Report this comment

Here's how the Chinese operate. First, they actually have an industrial policy (something that's anathema to free-market fundamentalists here in the US). They target foreign companies for acquisition based on that industrial policy. They buy the companies, strip out the technology and "distribute" it to any number of Chinese startups who have the right connections with the central government. Soon, where there were a couple of companies dominating a particular market (like TCM and Lycoming) there are half a dozen or more, and they're mainly Chinese. When it comes to awarding contracts in Beijing, who do you think gets the pole position? Soon, cheap labor, materials and total disregard for the sorts of environmental and labor protections we still have in the US allow those PRC "startups" to cut costs (to the "China Price") and dominate the global marketplace. The original US company is shut down, its purpose complete (kind of like a hollowed-out victim of a hungry parasite). Now I don't see how TCM is much of a "strategic asset" for the Chinese, but they obviously do, and so whatever modern technology does reside in Mobile, say goodbye.

Posted by: Robin White | December 18, 2010 4:37 PM    Report this comment

And, let us not forget that China remains a Communist country; they are not our allies, they're not even our friends on the global stage. They tolerate a psuedo-capitalistic economy because it works.

I wonder if Teledyne shopped Continental around to the Indians, South Koreans, Japanese, etc.? Wonder why Textron wasn't interested?

Posted by: Craig Dow | December 18, 2010 5:17 PM    Report this comment

Let me also take a stab at Paul's question: the answer is unfettered capitalism. The U.S. needs to stick with what it knows best, and accept that we cannot beat socialists at their game.

Return America to a land of immigrant thinkers and producers, not a land of parasites, and I think we'll be well on our way to National restoration. When I think of Great Immigrant Americans, I think of men like Nikola Tesla. There are certainly others, but for some reason—to me—he stands out above all.

Before we Americans can move forward, I believe we must first look back and reflect. Learn—not agonize—from our mistakes, and build on—not reject—our successes.

Posted by: Phil Derosier | December 18, 2010 6:15 PM    Report this comment

The answer to all this may have been revealed as far back 1845, when France endured a much larger competitive force than the U.S. now endures with China. http://bastiat.org/en/petition.html

On a somewhat more serious note though, Paul, can you say when Aviation Consumer will be doing a piece on that new aero diesel out of Wisconsin? There was headlines, than nothing; very mysterious.

Posted by: John Mininger | December 19, 2010 7:48 AM    Report this comment

John, which one are you referring to? Not the DeltaHawk, is it?

Posted by: Paul Bertorelli | December 19, 2010 10:15 AM    Report this comment

This kind of thing always rouses patriotic rhetoric, but the truth is: Americans WANT cheap Chinese goods. They love cheap Chinese goods and can't get enough of them. If they didn't, Walmart wouldn't be the huge success that it is. If all Americans felt so strongly about buying American, then cheap Chinese goods would not exist in this country. Given the choice, when it comes right down to it, Joe Average will always buy the cheap, Chinese $10 desktop fan rather than a $30 American version. Exercising choice is - supposedly - the American way, the democratic way and the capitalist way; so why the big outcry? Chinese goods is what the majority, if not everybody, wants.

Posted by: Peter Thomas | December 19, 2010 4:29 PM    Report this comment

Paul, no not the DeltaHawk. Although I'd love to read an update on that. If there's anything new to report. I was referring to the one that AVwebFlash reported on Monday 11/29. http://aerospaceblog.wordpress.com/2010/11/29/engineered-propulsion-systems-inc-officials-accept-investors-funds-nov-15/

Posted by: John Mininger | December 19, 2010 5:39 PM    Report this comment

I think the TCM story is simply a company seeing the writing on the wall, concluding that the manufacture of aeromotors was a mature industry, forecast to decline domestically. This decision was reflected by TCM investors "cashing in the chips" and selling the company outright. 

TCM was engaging in an old investment axiom: "Buy with the good buying ... sell with the good selling".

The profit from the sale of TCM will end up somewhere. Let us hope that TCM investors will avail itself to the uniqueness and manufacturing advantage inherent to a free society, and re-invest in the American Dream.

Posted by: Phil Derosier | December 20, 2010 3:54 AM    Report this comment

G'day Paul,

I think we should be proud of our "engineyouity", but let’s not forget that the US is only 400'ish years old and Australia (where I am) is only 200'ish years old. The Chinese culture has survived for thousands of years and our populations are small by comparison. There are a LOT of very smart people in a population of 1.3 Billion, with many especially eager to expand their ideas and talents as they become more 'exposed' to the Internet and observe the freedoms we all enjoy.

I respectfully suggest that we don't under-estimate our intelligent friends. I see a lot of comments about poor quality Chinese products; but accelerated by Western know-how, Western consultants and modern quality CNC machinery (with a healthy dash of cheap Chinese labour); IMHO Chinese are learning fast and their products have already improved out of sight. Let's not pretend there aren't a lot of Western investors and consultants looking to line their own pockets from capitalising on cheap Chinese labour too. There are plenty of product lines coming from China with higher-than-traditional quality, just like there are great clothes coming from production lines in impoverished communities of 3rd world nations. I have no doubt that the Western influence on aero engines will soon result in acceptable quality from China.

Posted by: Stuart Hutchison | December 20, 2010 4:44 AM    Report this comment

Such a complex problem.... I work for GE, and we constantly see major (think complex, expensive) portions of our products being sourced from China (and also other low-wage BRIC nations). Some stay there when we sell completed products to China, but many are in products sold all over the world. Yes, Americans can make these components, but frequently their costs are too high to compete and occasionally their quality isn't any better (this varies greatly though). Some American suppliers can't find the skilled labor they need as older workers retire or die, so the institutional knowledge leaves with them. In the engineering world, there is great discussion about the a "hollowed-out" engineering workforce trying to do other non-engineering jobs while experienced designers are not retained due to cost, resulting in a lack of tribal knowledge about products and correct design methodology. If we don't make "stuff", pretty soon we can't do it if we wanted to because nobody knows how! This applies to design as well as manufacturing. Globalism won't go away, and we can't deny developing countries their opportunities to lift their citizens out of poverty. But we can invest in Infrastructure, advanced education for future workers, and deflate the financial sector to its proper level to support the real economy. As for the "service economy"... remember we can't all just give each other haircuts.

Posted by: Scott Thomason | December 20, 2010 7:11 AM    Report this comment

I'm not that old, but I remember when "Made in Japan" was junk; Made in Italy was junk; made in Hong Kong was junk; Made in Taiwan was junk. Not the case anymore is it? I've lived in Europe off and on for about 10years. While there, I consistently heard "don't buy US - its junk". I don't really care where stuff is made. For my money I buy the best product and best quality at the least price. May the best company win. That's capitalism, and if its the Chinese that have the best product, hats off to them. Pull up your boot straps and do better or get out of the game. Yeah, I get a pang of US nationalism when I see Made in China too. But then when I pull out my hard earned $1, I have no pangs making sure it goes as far as possible. That's my "personal" capitalism. Besides, open up any product, and you have no idea where the parts came from. And you don't really care as long as it works. Only milk is guaranteed to be Made in America.

Posted by: Mick Anderson | December 20, 2010 8:15 AM    Report this comment

The Chinese also have a proverb: If I owe you 500$ I'm in your debt, If I owe you 5000$ you are in my debt.Guess who holds the majority our national debt???? Excellent comments by submitters.Regards.

Posted by: John NauerthIII | December 20, 2010 8:33 AM    Report this comment

Another reason to give up flying. We don't think jobs should be outsourcid, and hate the idea of china taking over an American comnpany that derived it's success on American support of it's business. So sad..guess we can take up bowling..

Posted by: Ruth Preston | December 20, 2010 9:51 AM    Report this comment

Let's drill down into some of these comments. How many are aircraft owners? How many fly behind Continental engines? How many of those owners demand only Continental-sourced parts if their engines need work vs how many want a perceived equivalent level of quality at a lower price- "Too damn expensive" from the OEM?

The Boeing aircraft that you fly on is made of parts from all over the world. If Boeing wants orders from (usually nationalized) foreign carriers, there is a tit-for-tat tradeoff to have same countries build bits and pieces for those samed aircraft ordered. Thinking that Boeing builds every piece that goes into every aircraft is naive.

Cessna has outsourced much of their wiring harnesses to Mexico. Lycoming outsourced much of their engine part manufacturing years ago and is now simply an "assembler". I'm sure many of those parts are made in countries other than the USA.

We can decry the outsourcing of US manufacturing to overseas, but when I can buy a pair of Levi's now (@ 50+YO)at the same price I paid when I was in High School, I'm afraid that it is just the way it is and will be for the foreseeable future. The American consumer votes with his $ and has made our manufacturing policy the same as our energy policy:

As much as we can get as cheap as we can get as fast as we can get but not in my backyard.

Posted by: Jim Taylor | December 20, 2010 10:55 AM    Report this comment

Excellent comments on this subject. I would like to add my fraction of a dollars worth. Why do we have tax incentives that favor moving manufacturing jobs overseas? This is tantamount to suicide for us. A CEO looking at the bottom line will almost always take the path that produces the quickest short term gain. Manufacturing is what produced the great middle class in the United States. Loss of manufacturing with the related good paying wages is killing the middle class. We need to level the playing field using tariffs as needed and encourage manufacturing jobs to remain in the US and encourage start ups here. It will be a long slow road but we must begin traveling it right now.

Posted by: Ric Lee | December 20, 2010 10:56 AM    Report this comment

We need to level the playing field using tariffs as needed and encourage manufacturing jobs to remain in the US and encourage start ups here. It will be a long slow road but we must begin traveling it right now.<<

I think that's right. Trade wars never seem to benefit anyone, but more pressure to get China to float its currency would be a huge benefit. It will take exceptional politicking in the G20 to make it happen. It's going to have to come to that.

The other major factor in the equation is primary education, where China is eating our lunch. I have spent several hours trying to help a needy family in New Hampshire with a remote control purchase of a car battery. Should be simple, right? Yet the assistant managers communication skills at Walmart were so poor she (a) could figure out exactly what I was trying to do and (b) could only respond by saying, "we can't do that."

This should not have required out-of-the-box thinking so much as it just plain, ordinary problem solving. I realize I shouldn't expect much of such people, but at some point, we've got to start expecting more.

Posted by: Paul Bertorelli | December 21, 2010 8:04 AM    Report this comment

Ooh Paul, that last point is going to raise the ire of the social justice liberals. According to the social progressives, people have the absolute right to be nonproductive and place a heavy drain on society. Teachers have the right to be paid for showing up; children created but not fathered; unions placing unreasonable demands on the corporate structure with no responsibility for the outcome, all the while the productive segment is saddled with the greater debt and the responsibility for supporting the social and economic structure. The common thread? An entitlement philosophy with no sense of responsibility to carry our own load. The question is not what are my RIGHTS, but what are duties and responsibilities. I know I'll get flamed for this, but our social welfare hasn't worked. Poverty is worse now than when we started this stupid experiment in 1964. Show me one inner city development that's not worse today than in 1960.

Posted by: Burns Moore | December 21, 2010 8:28 AM    Report this comment

"Let's drill down into some of these comments. How many are aircraft owners? How many fly behind Continental engines? How many of those owners demand only Continental-sourced parts if their engines need work vs how many want a perceived equivalent level of quality at a lower price?" To respond: I am an aircraft owner. I fly behind a Continental IO520B. I don't demand "TCM-only" when it comes to repairs because so much of what TCM produces is, to be brutally honest, junk. I don't want poorer, cheaper parts. I want BETTER parts and I'm willing to pay a fair, but not exortionate, price. I want a reliable, robust and easy-to-operate engine that doesn't need to be re-overhauled straight from the factory to make it run right. I don't want to start swapping cylinders at 200 SMOH. I do want a 21st-century powerplant that leverages automotive technology wherever possible. I really want a powerful, reliable and not-too-heavy Jet A diesel, since avgas as we know it is in a market death spiral that will lead, sooner or later, to extinction. Who knows? maybe the Chinese can accomplish all the things TCM couldn't, or wouldn't. There may be a happy ending here after all. Robin White

Posted by: Robin White | December 21, 2010 10:40 AM    Report this comment

I have a very reliable 1973 IO-540 Lyconosour, but yes, I'll probably buy Chinese-owned Superior Air Parts spares in future. I’m also watching developments like the Mistral rotary and Adept Airmotive. The Chinese are very patient and ‘sustainability aware’ by our standards. Our idea of long term seems to be 30-40 years, when we’ve finally paid off the mortgage and considering retirement. Long term for Chinese and East Indians, for example, is traditionally one or two generations or more in the future. East India's population is expanding by 20 million per annum and they already own much of London, for example. An entire family of perhaps 10 people will buy one house and live together, work to pay it off quickly, and then buy another, and so on. Caucasians, on the other hand, aspire to buying a house for mum, dad and two kids and spend 20-30 years paying the bank man five times over for the same house. In 30 years, who do you think will be considered culturally smarter; Americans and Australians who espouse to live in the greatest countries on Earth, or the comparatively massive populations of Easterners who patiently, lawfully and insidiously acquired everything we’re proud of? As long as we insist on instant gratification and expect others to do the hard yards, Executives will continue to dilute ownership in pursuit of greater margins on shareholder investments.

Posted by: Stuart Hutchison | December 21, 2010 4:59 PM    Report this comment

Robin, I am an aircraft owner and I do fly behind a Continental engine. When it comes to replacement parts I follow the advise of my A&P/IA who has been working on Continental engines for more than 20 years full time. Do you do it differently?

Posted by: Ric Lee | December 21, 2010 5:20 PM    Report this comment

Mr. Hutchison, you mentioned the Mistral rotary. Isn't that company/project bankrupt?

Posted by: John Mininger | December 22, 2010 4:02 AM    Report this comment

G'day John, yes, they're suspended at present, but it looks like a promising design just the same. AVGAS, MOGAS and Ethanol blended ... far fewer parts, shock cooling eliminated, low vibration and compact design. I reckon someone will inject funds. http://www.mistral-engines.com/

Posted by: Stuart Hutchison | December 22, 2010 6:17 AM    Report this comment

Ric: I wish keeping a 520 healthy and happy was as simple as following the advice of a particular A&P, but in my experience (three 520's and a 550), it isn't. When a Continental part is best, I have no problem using it. When it is not the best (and almost everything top end comes to mind here), I do the research and come to my A&P armed with questions, suggestions and definite preferences. So maybe once upon a time, in a shop far, far away, maintaining a Continental was as easy as calling the rep and then ordering parts. Unfortunatley, it's not that easy any more. I've ordered factory engines that arrived with known problems (anyone else have a story about altitude-compensating fuel pumps???) uncorrected. This is why some pilots will ship a brand new engine straight to a top-notch facility like Western Skyways or Lycon (to name just two) to make sure they're getting what they should have paid for at TCM. I wish TCM all the best in salvaging their reputation, really. But it's going to take some real work and I'm not sure there's enough of a market out there to make it worth their while. Selling the store to China is probably a quicker, cheaper solution. Maybe that's why they did it? Robin White

Posted by: Robin White | December 22, 2010 11:35 AM    Report this comment

As I sit here in my New Balance running shoes (which claim to be Amercian made) ...I can't help but think I'd feel better wearing Chinese sneakers and flying American technology. Rome ruled for 1,000 years. Spain 400. Britain 200. After World War Two the U.S. OWNED the world. But we will be nothing more than a 75-year Flash-in-the-Pan unless we overcome the current trend towards helping the rich get richer and the poor get poorer following the "it's all about me" philosophy of current US conservative politics. We didn't get here in two years and we won't get turned around in ten, and it's not the political leaders responsibility to do so...it's our own. We will become the victims of Wall Street whiz-kids selfish drive toward personal greed unless/until we re-acquire the sense of community and drive for excellence and public-service we once possessed.

Posted by: George Horn | December 22, 2010 5:27 PM    Report this comment

Don't shareholders in TCM have a say in the sale?

Posted by: G Stegall | December 23, 2010 9:06 AM    Report this comment

TCM is a wholly owned subsidiary of Teledyne. I have no doubt that Teledyne’s directors will approve the sale TCM is a miniscule subsidiary of Teledyne. And in my view, that is the heart of the problem with practically all GA products. They’re produced in miniscule quantities.

Posted by: John Mininger | December 23, 2010 9:48 AM    Report this comment

Thanks, John. Does anyone know what the U.S. government's view is, or will be, concerning the sale? On what date will this be approved or disapproved by the U.S.?

Posted by: G Stegall | December 23, 2010 10:04 AM    Report this comment

After Pearl Harbour on December 7, 1941 the US reacted vigorously against Japan; In a peacefull manner via the economy and industry this is happening again but now from China; What has changed in the US for it not to react as vigorously as it did in 1941 ? Is it that what is going on today is confirming the say that had we had our today's youth during WWII we would have lost it ?

Dreams are only dreams and remain so for ever...reality and determinant actions are the only things that will yield any real credits and gains.

Posted by: Francois Gagnon | January 2, 2011 7:50 AM    Report this comment

Sitting here in the rust belt, I can say with certainty that our manufacturing base is disappearing. But I welcome any change at all in the aviation industry, including China acquiring American technology. The reason: general aviation needs a serious kick in the butt in all areas. I still rent a 1957-designed 35-year old Cessna 172 with an air-cooled, magneto-driven, carburated engine, traveling a mere 100 knots. Imagine renting a computer from any of those time periods. You'd go nuts.

You wonder why the number of pilots is declining so much; maybe its because our aviation industry/FAA needs a frightening wake-up call. $250k for a new 1957-designed Cessna 172? That's not something I want to protect with absurd tariffs. The LSA immigration (almost 100% of aircraft are from elsewhere) is a breath of fresh air. And they sip gas, unlike the American air-cooled craft you want to protect.

We indeed live in interesting times; and they haven't even gotten interesting yet. The combined population of Western Europe, the U.S.A., Canada, Australia, New Zealand, and Japan (the entire 'western world') doesn't even equal the population of China. And we haven't even talked about India's population. You better believe changes are coming, and you better be ready for it.

Posted by: Pete Kuhns | January 2, 2011 10:49 AM    Report this comment

Pete,

I suggest you read "Poorly Made in China" by Paul Midler before deciding that making Continental engines in China is going to be a good thing. This is an eye opening look at the model Chinese factories are operating on.

When you read about 'quality fade', no quality assurance, no factory oversight, and the ever present urge to cut corners to save a penny I doubt you will want to fly behind a Chinese engine. This is not innovation in my book.

Posted by: Ric Lee | January 2, 2011 2:44 PM    Report this comment

In our part of the Western World we also practiced and likely still do the low quality/low cost approach (throw away and trash type economy) as opposed to the Japanese and Germans who had a different approach towards leaning to higher quality, durability and reliability products which assured them of a high reputation and good positioning in our part of the Western World; Our industrial "dinosaurs" experienced it the hard way over the recent recession ! (mind you, I wonder if they really learned this last time around as they seem to have confortably resettled in the same old bad habits)

My take is that if the Chinese maintain the same low quality approach they will go through the same misfortune sooner or later; Even the strongest countries reach an apex before a downfall, history only confirms that so well.

Posted by: Francois Gagnon | January 2, 2011 3:39 PM    Report this comment

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