China business aviation hits turbulent times

Yves Le Marquand
By Yves Le Marquand February 11, 2020 16:04

China business aviation hits turbulent times

Market confidence is low, the trade war with the US is affecting sentiment, the newly named Covid-19 continues, and the Chinese economy’s growth rate has been gradually slowing since 2013. Not the ingredients needed for an attractive market recipe. But China remains the world’s second largest economy and an attractive proposition for business aviation, leading industry insiders told Corporate Jet Investor at our London 2020 conference last week.

Jeffrey Lowe, Asian Sky Group MD, outlined the various factors at play in the Chinese business aviation market: “The tariffs [imposed by the US on China] have had no direct effect [on business aircraft sales]. But they have affected confidence and market sentiment”. Lowe also told Corporate Jet Investor that while the trade embargo didn’t directly impact transactions, it has been “a reason to pause”.

“It’s not just the tariffs you have to be aware of, as far as economic performance China is not doing as well. The trade war is not helping, [but] there are underlying business issues a number of sectors in China need to address,” said Lowe.

Coronavirus: Covid-19

Containment of Covid-19 could also have implications for the Chinese, according to the Asian Sky Group’s MD. Depending on the success of containment protocol, the impact of the virus outbreak could have a major effect on the growth of the Chinese economy or a more modest impact. “SARS [Severe Acute Respiratory Syndrome] took at least 20% out of flight activity. It’s hard to call at this point in time. Most people are away for [Chinese] New Year[ if they were able to travel]; I really don’t know until end of February if we have a runaway virus. The mainland is trying to isolate its spread. The impact yet to be decided.”

Demand in the charter market has increased following the Covid-19 outbreak, according to Paul Jebely Pillsbury Winthrop Shaw Pittman LLP (HK) managing partner. Charter demand has definitely increased [in south east Asia] over the past couple of weeks since the outbreak of the coronavirus.” A similar increase emerged in business aviation flights following the emergence last year of civil unrest in Hong Kong. Asian Sky Group’s 2019 bulletin reported a year-on-year growth of 4.6% but a 40% spike in activity in April of last year. This coincides with the acceleration of protests within Hong Kong.

Logistical Headache 

Jebely also notes the economic staying power of the players in the Chinese business aviation market. This could well be tested in the near future. WingX data shows a 37.2% drop in domestic business-aviation flights to 5,849 in China last year. It also records drops in flight activity to Hong Kong and the US too – down 3.3% and 12.2% respectively. Activity to Asia including Japan, Singapore, Thailand and Vietnam has increased but is proportionally low in comparison. Japan reported a 4% growth to 527 flights and Vietnam, the largest percentage growth, with an increase of 23.1% to 104.

Lowe forecasts a logistical headache for aircraft sales which will ripple into the wider market. “Corona is presenting logistical challenges; an aircraft transaction has to be face-to-face at some point. It’s got harder because we can’t send aircraft to China now. I can’t move crew because borders are closed . No one wants to be quarantined. It is a logistical headache.”

Meanwhile, Steve Varsano, The Jet Business MD, told the conference that the likely economic impact of the virus had been grossly underestimated. “I don’t think we can understate the effect of coronavirus, it could have major repercussions.” Aside from the health risks, Varsano worried that any big disruption to the Chinese economy would have a far greater impact than SARS in 2002 and 2003. “When SARS struck, the Chinese economy was $1.7trn but now it’s eight times bigger at $14trn a year,” said Varsano.

 

 

 

 

 

 

 

Yves Le Marquand
By Yves Le Marquand February 11, 2020 16:04

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