China Nicks Another GA Property
I can recall almost to the day when I first became aware of the great breaking Chinese general aviation wave—or takeover, if you prefer. It was mid-June 2005 and I was riding with Michael Feinig, then Diamond Aircraft’s managing director, at breakneck speed down the autobahn to the company’s factory at Wiener Neustadt, Austria.
Diamond was involved in China much earlier than most of us realized and when I asked Feinig why, the answer was ominous: “We don’t think we have a choice.” I took that to have dual meaning. First, China would represent the next big market and second, the Chinese would become dominant in world GA no matter what happened. Better to have a friendly relationship than a hostile takeover. The first prediction hasn’t materialized, but with the sale of Diamond Aircraft to China’s Wenfeng Aviation Industry Co. Ltd, the second surely has.
At the risk of depressing you, I’ll run the major buys here, in no particular order. The country’s leading light aircraft manufacturer, Cirrus, is owned by China Aviation Industry General Aircraft (CAIGA); Continental Motors is owned by China’s AVIC International, which also snapped up the assets of the then-bankrupt Thielert Aircraft Engines; Mooney is owned by the Meijing Group, which made its fortune in China’s real-estate market; Superior Air Parts was acquired by Weifang Tianxiang Technology Group, a Beijing-based holding company; Engine Components International was bought by Continental under the AVIC flag; Glasair Aviation is owned by the Jilin Hanxing Group, a private investment company; Brantly International Limited, a light helicopter manufacturer, is owned by Qingdao Haili Helicopters; Enstrom Helicopter is owned by Chongqing Helicopter Investment Company; Icon’s largest investor is Shanghai Harbor City Development Co. There are a few others, but this gives you the lay of the land.
If, at this point, you feel the urge to twist your pearls and swoon in a global case of the vapors, I know the feeling. But bring yourself around because in the end, it’s just bidness. Western commerce has unloaded these properties on the Chinese for a multitude of reasons all boiled down to one: None of them make much money or at least the kind of money western investors hunger for, which is ROI in the teens and robust quarterlies, year after year. Run your cursor down the list and ask yourself of how many of those companies have actually been bankrupt or approached the precipice and peered over the edge. The answer is most.
So if you set aside your angst and romanticism and you’re painfully honest with yourself, you’ll soon realize that investment capital had to come from the Chinese ATM, because it sure as hell wasn’t coming from western investors. People who complain about the Chinese taking over may wish to consider investing themselves, but most of us prefer the dividends from balanced international funds and, once upon a time, securitized mortgages.
So what does it all mean? Shortly after Continental was bought, I had a brief interview opportunity with the chairman of AVIC. Through a translator, I asked if Chinese investment in U.S. general aviation was part of larger plan or was it just opportunity buys. The translator’s eyes swelled to the size golf balls, which seemed to telegraph I’d asked a horribly prying question. She asked me to repeat it. I did. This was in Oshkosh, by the way, so I had no compunctions whatsoever about asking any questions related to aviation. If you come to OSH, bring your A game or stay home.
When the chairman heard the question, he seemed equally startled. The answer was a dissembling vagueness that led me to believe AVIC was simply marching along with the 12th Five Year Plan, which called for investment in aviation, and the Chinese were finding opportunity buys in the U.S. This made perfect sense to me.
Some have worried that China is picking up sensitive defense technology, which is a concern if you think cast-iron cylinders and half-century-old fuel injection systems are all that stand between the fall of the Republic and the continuance of the American Way. It’s true that Diamond has some pretty sophisticated autonomous aircraft technology so perhaps the Europeans may balk a little. (But I doubt it.)
Recently, the august think tankers at Rand Corp. took a run at analyzing the impact of China’s GA investments. You can read it here. One of the conclusions was: “China’s accelerating investments in the U.S. aviation industry notwithstanding, the significance of these activities is questionable. These deals were almost all small scale, each worth less than $500 million.” There were three exceptions, but those deals either fell through or didn’t represent meaningful impacts.
The larger worry is that Chinese industry will challenge the West in the large commercial aircraft field. I’m not even mildly worried about that. For one thing, the Chinese are far short of building commercially competitive airliners and, anyway, Boeing has enough lawyers to bury them in paper for at least the next century.
On the other hand, the net positive is easy to see. Continental is building a new factory in Mobile, Cirrus got its jet done and it’s selling well and Diamond will have money to fund what has been one of the most creative runs of new aircraft in GA history.
You know what? I’ll take it.