"Offset" contracts provide the technology transfer vehicle China needs to build its future in aircraft manufacturing.

As early as the 1990s, Asia was slated to replace the U.S. as the world's largest aircraft market by 2012, in large part due to China's growing presence in the global economy. According to the U.S. Commercial Service, a branch of the U.S. Department of Commerce, China's airline passenger volume over the next 20 years will grow annually by 11 percent. That will make the Chinese mainland the world’s second-largest aviation market and, according to China's own figures, 1,790 additional commercial passenger aircraft must be built to handle the increase in passenger volume.

A Boeing Next Generation 737 jetliner takes off for Xiamen Airlines, the first privately held passenger carrier in China.
China plans to meet at least part of this need by manufacturing its own large commercial aircraft are well documented, particularly those with take-off weights of 100 metric tonnes (220,500 lb) and seating capacities of 150 or more. China's official government news source, the Xinhua News Agency, went so far as to announce on March 12 of this year its intention to give commercial aircraft giants The Boeing Co. (Seattle, Wash.) and Airbus Industrie (Toulouse, France) a challenge in the global large commercial aircraft market by 2020. To the casual observer, China's ambitions might seem far-fetched, especially in an aircraft market that will almost certainly demand fuel-saving airframes lightweighted with advanced composites. But China is far from a newcomer in aerospace manufacture and, as the following demonstrates, its aerospace industry is acquiring wide experience in the manufacture of aircraft components from composites, with ample assistance from its future competitors.

Revolution or evolution?

Although China's emerging economy has been big news in the West since the turn of the 21st Century, the roots of China's budding commercial aviation industry actually can be traced back well into the 20th Century.

Indeed, Boeing has worked with China's aviation industry for more than 33 years. Today 3,500 to 4,300 of its airplanes — 33 to 35 percent of its global fleet — fly with Chinese-produced parts and assemblies. At the beginning of 2004, 446 of China's 686 jetliners (excluding Hong Kong and Macau) were Boeing aircraft, giving it an overall market share of 65 percent and a 70 percent share of seats, due to its lead position in single-aisle aircraft, which still predominate in China. That kind of data prompted an Aviation Week article in the same year to predict that no new program at Boeing or Airbus would be considered without factoring in the needs of Chinese airlines, and it further claimed that programs for commercial passenger planes with 200 or more seats wouldn’t exist without the Asian market they will serve.

Boeing believes that China's growth will be in medium-sized, long-range aircraft like the 787. Little wonder, then, that Boeing selected the "8" in 787, which represents luck and prosperity in Asian culture. Whether the gesture made a difference in 787 sales is moot, but today, Chinese airlines account for 85 firm 787 orders out of the 710 total.

In the last two years, Boeing's distributed manufacturing system, developed in part to encourage sales of its Boeing 787 Dreamliner to international customers, has increased Boeing's dealings with several of China’s domestic aerospace manufacturers. In 2005, Boeing announced agreements worth an estimated $600 million (USD) with four Chinese companies to produce components for the 787 and its Next Generation 737 aircraft. Shenyang Aircraft Corp. (SAC, Shenyang), agreed to build the leading edge assembly for the 787 vertical fin. The other three are affiliates or subsidiaries of the state-owned aerospace consortium China Aviation Industry Corp. (AVIC), which was split in 1999 into two parts: AVIC I (Shanghai) for large aircraft and Beijing-based AVIC II for small planes and helicopters. BHA Aero Composite Parts Co. Ltd. (Tianjin, China) — a joint venture between Boeing, U.S.-based composite materials supplier Hexcel (Dublin, Calif.) and AVIC I — produces secondary composite structures and interior parts for both the OEM and replacement markets, including interior panels for the 777 control cabin; composite panels for the 787 vertical fin; wing-to-body fairings and tail cone for Boeing's Next Generation 737; and the D-Nose for the Boeing 737, using Hexcel's HexPly F161 carbon fiber/heat resistant 350-cure epoxy prepreg.

AVIC I affiliate Chengdu Aircraft Industrial (Group) Co. Ltd. (CAC, Sichuan Province) will produce the 787 composite rudder, the 737 forward entry door and the 737 automatic over-wing exit door. Meanwhile Hafei Aviation Industry Co. Ltd. (HAI, Harbin, China), a subsidiary of AVIC II’s Harbin Aircraft Industry Group (HAIG), will manufacture upper and lower panels for the 787 wing-to-body fairings. Boeing subsequently announced that it will substantially increase 737 component production rates at Shanghai Aviation Industrial Corp. (Shanghai, China), Xi’an Aircraft Co. (XAC, Xi'an, China) and SAC for the manufacture of the 737 empennage, including the vertical fin and horizontal stabilizer.

SAC has had a long relationship with Boeing on the 737, which it now plans to expand via the new contract for 787 components. "Building for the future, SAC has constructed a new commercial machine shop and has nearly completed a new composite manufacturing center," says Li Fangyong, chairman and president of SAC. "It is our goal to support all future Boeing programs." While AVIC I and its facilities have 30 years of working together with Boeing, AVIC I vice president Yang Yuzhong notes that the 787 and 737 contracts represent a significant step change. "This is the first time for AVIC I to participate in an airline program from the beginning," he maintains. Xu Zhanbin, vice president of AVIC II, however, says this is the first time one of its affiliates has worked with Boeing.

Carolyn Corvi, VP and general manager of airplane production for Boeing, says the 787 contracts simply reflect China's growing role in Boeing's strategy of global manufacturing and production outsourcing: "China's aviation industry is providing outstanding technological capabilities and resources that help us meet quality, cost and delivery imperatives in our programs, particularly on the new 787 project."

Total $1.6 billion (USD), making Boeing China's largest commercial aviation partner — a role Boeing intends to expand. As early as October 2006, Boeing's Wade Cornelius, vice president in charge of global strategy for commercial aircraft, revealed that discussions were in progress with Chinese manufacturers to transfer to them some of the design engineering responsibility for the parts they would manufacture. "That will allow them to take a greater level of control over their work statement and provide a better contribution to Boeing."

CAC, for example, is launching a Composites Manufacturing Research Center in partnership with Dassault Systèmes (Paris, France) that will be dedicated to investigating alternative manufacturing technologies. CAC is already using Dassault Systèmes' CATIA CAD software to develop aircraft parts. "CATIA Composites Design software has enabled us to shorten our manufacturing design cycle time by 50 percent, which is key for us to meet the tight deadlines of our OEM partners and focus more resources on innovation," says Youyi Wen, CAC's director of composites.

From parts to complete planes

Airbus Industrie has an equally long history of industrial cooperation with China but is moving forward with a decidedly different philosophy about future aircraft production. The Airbus "China connection" was forged in 1985 when it subcontracted with Xi'an Aircraft Co. to produce and assemble A300/A310 access doors. Beijing-based Airbus China's president Laurence Barron says its single-aisle A320 aircraft program has seen China progress quickly from producing some wing parts to manufacturing both leading and trailing edges, and most recently, a contract for the A320 wingbox. Barron notes that China is the only country working on the A320 wings outside of the U.K. Soon, the whole A320 aircraft will be built in China.

Construction began in May 2007 on an A320 final assembly line (FAL) in the Tianjin Economic Development Area (TEDA, Tianjin, China), with operations expected to commence in 2008 and production to ramp up to four aircraft per month by 2011. The Tianjin FAL reportedly will be identical to the state-of-the-art Airbus FAL in Hamburg, Germany, and will assemble and deliver in China to the same standards. The operation already has drawn suppliers: Composite materials supplier GURIT (Wattwil, Switzerland), for example, has built a 10,000m2 (107,640 ft2) prepreg plant in the TEDA zone. The plant produces FST (flame/smoke/toxicity) materials for aircraft interiors and is evaluating a move into the supply of complete composite components.

By the end of March 2007, ten operators on the Chinese mainland were flying more than 270 aircraft from the A320 family (the A318, A319, A320 and A321), with more than 370 still on order. Although Airbus' latest forecast says mainland China will need more than 1,900 single-aisle aircraft over the next 20 years, Airbus says that expanded trade between China and the rest of the world will sharply increase international air traffic to and from Chinese cities, prompting a greater need for larger aircraft that can carry more passengers on fewer flights. Hence, Airbus has pursued its A380 and A350 XWB.

Airbus now has contracts with five Chinese companies to produce parts for its current family of aircraft, including Chengdu Aircraft Corp., Shenyang Aircraft Corp., Xi'an Aircraft Co., Hong Yuan Aviation Forging & Casting and HAFEI Aviation Industry Co. Ltd. A recently signed memorandum of understanding (MOU) commits Airbus to increasing annual procurement from China to $60 million in 2007 and doubling to $120 million by 2010. Airbus also opened the Airbus (Beijing) Engineering Centre in July 2006, with an initial staff of 54 engineers and a target of 200 engineers by 2008. Like Boeing, Airbus is prepared to shift some responsibility for part design to its Chinese partners. The Centre has already been assigned design work for up to 5 percent of the forthcoming A350 XWB airframe.

Big boom for small jets

In the 30- to 50-seat regional/business jet market, China is the epicenter of an impending boom. In 2005, there were a total of 20 business jets in all of China. According to China's state-run news service, the country is projected to have 600 by 2015. To meet this big need, aircraft manufacturers erected factories on Chinese soil. Embraer (São José dos Campos, São Paulo, Brazil) has invested $25 million to build a manufacturing plant as part of the joint venture it formed with AVIC II's Harbin Aircraft Industry Co. Ltd. and Hafei Aviation Industry Co. Ltd. in 2003. Embraer has a majority stake in the company, Harbin Embraer Aircraft Industry Co. Ltd., which builds Embraer's ERJ-145 regional jets for the Chinese market in the city of Harbin, Heilongjiang Province, in northeast China. Since 2001, Hexcel has supplied Embraer with HexPly prepreg, HexWeb honeycomb and Fibrelam sandwich panels for the ERJ-145 program. Embraer's own forecast says China will need 635 regional jets by 2023.

Meanwhile, Embraer's major competitor in the regional jet market, Bombardier (Montreal, Quebec, Canada), also moved production to China, announcing in July 2006 that it would shift manufacturing of the 70-seat Dash 8 Q400 fuselage, doors and empennage to AVIC I's Shenyang Aircraft, which will deliver forward and aft Q400 fuselages starting in 2008.

Further, Mark Paolucci, a sales VP at Cessna Aircraft Co. (Wichita, Kan.), has commented recently, "We are prepared to manufacture in China if it makes good business sense to do so."

Meanwhile, helicopter manufacturers also have begun cooperating with Chinese companies. One example is a joint venture between Eurocopter, Harbin Aircraft and Singapore Aerospace to build the lightweight EC 120 helicopter. Begun in 1993, the single-engine, five-seat EC-120 Colibri completed its maiden flight in 1997, and it is produced from two assembly lines in Harbin. Over 400 orders have been filled worldwide, including 150 to China's Army Aviation Unit (AAU). Harbin, with a 24 percent stake in the venture, manages production of fully equipped fuselages at its plant in Harbin, and it also manufactures the vertical trailing edge section, using Hexcel's HexPly M18/1 carbon fiber prepreg.

Concurrently, Changhe Aircraft Industry has been building a version of the Sikorsky S-92 medium transport helicopter in collaboration with French partners. And as the number of Chinese millionaires increases, Beijing has begun ramping up R&D funding at the two main manufacturers, Harbin Aircraft Industry Co. and Changhe Aircraft Industry Co., which are both state-owned, to meet future demand with locally manufactured rotorcraft.

Additionally, in 2000, the Chinese government relaxed regulations, permitting more local private firms as well as foreign companies to cooperate in designing and making China's civil helicopters.

Foundation for the future

A driving force behind China's participation in foreign aircraft programs — and the means by which China will acquire sufficient knowledge to begin its own — are industrial offset agreements or compensatory trades. In offset agreements, an OEM subcontracts manufacturing to companies in a country in exchange for guaranteed sales of the finished product to buyers within that country. Although demanding an offset agreement is prohibited by the World Trade Organization (WTO), U.S. law and NAFTA, amicable arrangements have a long tradition in commercial jet manufacturing, notably those between Boeing and Japan. According to Thomas Pickering, Boeing's senior VP for international relations, Japanese manufacturers built less than 10 percent of Boeing's 767 and 20 percent of the 777. But offsets have given Japanese companies a 35 percent share of the 787 airframe. Most important, Mitsubishi Heavy Industries (Tokyo, Japan) is building the 787 center wingbox, the final piece of technology that Japan needs to master to produce its own commercial passenger craft. Junichi Maezawa, the company's executive director, says the 787 program "is a cornerstone for Japan to become a standalone aircraft manufacturer in producing a 30- to 50-seat aircraft in a few years."

China's state-controlled aircraft industry hopes for a similar windfall. Liu Gaozhuo, president of AVIC I, recently stated, "AVIC I is keen to further its long-standing partnership with Boeing. As well as strengthening our own aircraft building capability we also hope to grow into a global supplier for the international aircraft manufacturing industry." Chinese media revealed in January 2006 that the Chinese government expects the manufacture of a commercial 150-plus-seat aircraft to be a priority in the country's next five-year plan, which starts in 2010. Already in progress is the ARJ 21, a 90-seat regional jet program, slated for first deliveries in late 2009. AVIC I subsidiaries are gaining manufacturing experience with the ARJ 21-700: Xi’an Aircraft is building its wings and central fuselage, Chengdu Aircraft the nose, Shenyang Aircraft the tail and Shanghai Aircraft is managing final assembly. Even though AVIC I decided not to use composites on this first domestic-built commercial jetliner, experts believe that both AVIC I and AVIC II will have gained the necessary composites technology and expertise through their Boeing and Airbus contracts to make composites feasible on the next Chinese-produced commercial jet. AVIC I projects sales of 500 ARJ 21 aircraft over 20 years, 150 of which will be exported out of China, with the 78- to 85-seat ARJ-21-700 model flying first, followed by the 98- to 105-seat ARJ-21-900 model.

Further, The 50-seat turboprop MA60 is already in production at Xi'an Aircraft. Boeing appears not to be worried, however. Cornelius commented, "I think it is a definite possibility and it should be no surprise to anyone that China has the capability" to build a 150-seat commercial jet aircraft.

China also is building its knowledge base through hard manufacturing experience. CAC, for example, manufactures the Jian-10, a single-seat, single-engine multirole military jet, codeveloped with Chengdu Aircraft Design Institute (CADI), which entered service to huge fanfare in December 2006. Reportedly, a two-engine stealthy variant could enter service in 2015. Designers of the stealth aircraft hope to surpass the performance of the Eurofighter Typhoon and the Dassault Rafale. According to Rick Fisher, an expert on the Chinese military and VP of the International Strategy and Assessment Center (Alexandria, Va.), "A generation of engineers was put through their major production experience on that aircraft. It has enabled China to create a cadre of experts that will be building ever more advanced aircraft over the next 50 years."

Fiber production in China

As China's aerospace composites manufacturers flex their developing muscles, they will have at least three possible domestic sources for carbon fiber. Dalian Xingke Carbon Fiber Co. (Dalian City, China) announced at the recent China Composites Show (Sept. 14-16 in Bejing) that a 90 million yuan ($12 million) investment in its ISO 2000-certified 13,280 m2 (143,000 ft2) production facility has increased annual production capacity from 360 metric tonnes to as high as 800 metric tonnes (793,660 lb to 1.76 million lb). Raw product includes 1K, 3K, 6K and 12K tow and heavy tow up to 360K. In collaboration with Dalian Science and Technology, several universities and a group of independent experts, the company also has founded a research center for carbon fiber, including a lab outfitted with state-of-the-art equipment. Also based in Dalian, Sinosteel Jilin Shenzhou Carbon Fiber Co. Ltd. claims to be the largest "comprehensive carbon enterprise" in China. ISO 9000-certified in 1999 and ISO 9001:2000-certified in 2002, the company reportedly participated in development of China's space launch program and produces trademarked TX-3 1K, 3K, 6K and 12K fiber (tensile strength of 2.8 to 3.5 GPa and tensile modulus of 200 to 220 GPa, 92 percent carbon content) and TSX-123 1K and 3K carbon fabrics. Meanwhile, the China Daily reports that Yingyou (Group) Corp., in the port city of Lianyungang has started up a carbon fiber plant that currently has a 220-metric-ton (485,000-lb) capacity, but claims that by 2010, will produce as much as 10,000 metric tones (22 million lb) per year. That figure, if reached, could make this carbon fiber plant the world’s largest.