After stealth fighters and jumbo jets, China's 'secret weapon': aero engines

November 4, 2016 5:54 AM EDT

Jade Dragon Engine from Aeroengine Corporation of China (AECC) is seen during an air show, the China International Aviation and Aerospace Exhibition, in Zhuhai, Guangdong Province, China, October 31, 2016. REUTERS/Brenda Goh


News and research before you hear about it on CNBC and others. Claim your 2-week free trial to StreetInsider Premium here.

By Brenda Goh

ZHUHAI, China (Reuters) - Beyond the roar of its new stealth jets and the buzz of plans to build commercial jumbos, China in the past week offered a quiet first peek at a key test of its drive to become a global aviation powerhouse - a giant state-owned aero engine maker.

In an unassuming pavilion the size of a large gym, tucked behind the main exhibition halls of the Airshow China expo that closes on Sunday, Aero Engine Corp of China (AECC) was on public display for the first time. Beijing launched the firm in August in a multi-billion dollar mission to develop home-grown, high-tech products fit for export.

For all the grand vision, no new technology was on display at the 1,200 square meter pavilion. That was no surprise to Western industry experts: while China has so far grown more in scale and speed its in aviation drive than some expected, the proprietary commercial engines that are the pinnacle of aero development will take at least a decade to develop, they say.

"Designing an entire engine and designing the entire infrastructure around it so that you can develop it and maintain it, that is the big issue," said Jorg Schluter, a senior engineering lecturer at Australia's Deakin University.

The AECC's presence at the show in Zhuhai, China's biggest air expo, was far from discreet, with banners on the highway to the event site emblazoned with its blue and white logo. Still, an AECC official at the site told Reuters that the firm was not giving interviews nor holding events at AirShow China.

Engine mock-ups, gas turbines whose design dates back to 2002 and an interactive science exhibition offered little more than a rough sketch of a company with a nearly 100,000-strong workforce. Drawn together in a union of more than 20 engine companies, repair sites and institutes scattered around the country, AECC's origins date back to the Mao era.

What the company has to its advantage, analysts concede, is cash and a fast-growing domestic airline market. The new firm was seeded with registered capital of 50 billion yuan ($7.40 billion) from the State Council, the Beijing government, as well as state-owned planemakers.

ZERO PRESENCE, BIG RIVALS

Beijing's efforts to transform state-owned businesses have reached into sectors such as steel and shipping. But it has no major presence in the commercial engine sector, dominated by General Electric (NYSE: GE), United Technologies' (NYSE: UTX) Pratt & Whitney and Rolls-Royce (NYSE: RR).

"If you want to break into the world it's a very difficult thing to do and the incumbents aren't going to make it easy," said Mark Daly, editor of IHS Jane's Aero-Engines. China's first home-built passenger jets, the ARJ-21 and C919, currently use foreign-made engines.

To date, China's experience is largely limited to warplane engines, mostly in cooperation with or on license from Russia, but analysts say it is struggling to develop ones that will match Western fighters in combat.

While the country has made great strides in high-speed rail and nuclear technology by acquiring the know-how from overseas partners or reverse engineering products, it has found it more difficult to break into the secretive engine sector, whose technology is heavily guarded by governments and original equipment manufacturers (OEM).

These OEMs have found ways over the past decade to restrict reverse engineering of their engines, through means such as tighter control of their spare parts supply chain, said Steffen Kunth, chief financial officer of MTU Maintenance, a Zhuhai-based aero-engine repair facility jointly owned by Germany's MTU Aero Engines AG and carrier China Southern Airlines <600029.SS>.

"I think in about 10 years we'll see the first Chinese (commercial) engine," he said.

"There's a lot of money involved there...you see how they're supported by the Chinese universities, how many engineers every year enter into this industry, so it's a matter of time that they will have this technology and will have an engine flying."

($1 = 6.7570 Chinese yuan renminbi)

(Reporting by Brenda Goh; Additional reporting by Tim Hepher; Editing by Kenneth Maxwell)



Serious News for Serious Traders! Try StreetInsider.com Premium Free!

You May Also Be Interested In






Related Categories

Reuters

Add Your Comment