March 29, 2012

Cessna Uses China To Move Into Large Jet Segment

Picture Credit: The Cessna Corp.
Cessna is teaming with China’s state-owned aerospace conglomerate Avic, a further sign that western aircraft makers wishing to gain greater access to a burgeoning consumer market will be manufacturing in China.

The U.S. aircraft maker has signed two separate agreements with Avic and its related companies. The first is to establish joint ventures “that will pursue various activities pertaining to the development of general aviation businesses in China, including the establishment of an aircraft service network in China,” says Cessna.
The second is an agreement with the Chengdu Municipal Government and Avic’s Aviation Techniques Co. “to enter into negotiations to establish a joint venture to produce mid-size Cessna business jet models, as well as a potential new product for the business jet market”.

The medium-sized business jet that will be made in China is the Cessna Citation Sovereign, followed by the Cessna Citation Latitude, Cessna CEO Scott Ernest tells Aviation Week at the Asian Business Aviation Conference and Exhibition yesterday in Shanghai. The Latitude is a new aircraft in development that is smaller than the Sovereign and is due to receive U.S. FAA certification in 2015.

Cessna is hoping the number of Sovereign aircraft on order from China will be so strong that the Chinese factory will be kept busy fulfilling Chinese customer deliveries, leaving its North American factories to fulfill Sovereign aircraft orders for customers elsewhere in the world, confirms Ernest.

Also the whole airframe for the China-bound Sovereigns at first will be made in North America. “Initially, it will be a case of bringing in the ‘green aircraft’ and then doing the interiors and paint work in China,” says Ernest. Cessna may later consider bringing in the wings and fuselage separately, so that China has the task of attaching the wings, he says. Eventually Cessna may make the main fuselage in China for Sovereigns sold in China, but that will be the extent of it, he adds.

Cessna already has experience in China on final assembly of aircraft. It has Avic’s Shenyang Commercial Aircraft Co. making Cessna 162 Skycatchers for the global market. Skycatcher is a light-sport, single-engine, piston aircraft. Cessna chose to make Skycatchers in China because the low cost base enables it to achieve the cheaper price point consumers demand for such a small entry-level aircraft.
“We’ve been working with Shenyang Aircraft for four years now and it has taught us that you have to be very good at working with people on the ground. That you need to have good technical support people on the ground to explain the different processes and that you have to have a good supply chain and logistics, so that the right products are coming in [to the factory] to ensure that it’s a succinct [manufacturing] process”, says Ernest.
Many of Cessna’s suppliers already are making components and parts in China, says Ernest, adding that he anticipates more will be made in future, especially now that Cessna has disclosed it will be assembling and later developing business jets in China.

Ernest downplays the cost benefits of China by saying that labor accounts for only 15% of the total cost of a business jet. But manufacturing in China does have its tax advantages. Business jets imported into the country are subject to value added tax of 17% and import duty of around 5%. One of Cessna’s challenges will be ensuring parts and components imported for the assembly of aircraft in China avoid these taxes. Ernest says this is one of the issues that will need to be addressed.

The project that is far more significant is Cessna’s deal to jointly develop and build a new, larger jet with help from Avic, which had spent more than a year searching for a partner to share this initiative.
“We were in a competition with several other aircraft manufacturers for the opportunity to work with Avic on this,” says Ernest, adding that “we feel we have a strong brand and the ability to develop business aviation, and general aviation for that matter, throughout China.”

This deal is important to Cessna because it gives it greater access to the China market and helps expand its product line-up. “My experience working at GE Aviation taught me it is always good to get in on the ground floor,” says Ernest, who became CEO of Cessna last May and was previously GE Aviation VP and general manager of global supply chain. He says, “China is a very good market that continues to grow. Having a local partner in that market gives you incredible market access.”

Flight Global

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