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Changes In China

Market maturation will bring aftermarket cost-efficiency to China.

It's no secret that the Chinese air transport market is emerging. It's also changing—particularly on the aftermarket side.

China's civil aftermarket has long been OEM-friendly. The dominance of state-owned carriers made common practices elsewhere, such as streamlining inventory or capitalizing on cost-saving alternatives such as used and PMA parts, rare—if not nonexistent. 

But the realities of a blossoming market—aging fleets, the need to dispose of retired equipment, and the unavoidable costs of scaling up—will lead to new ways of doing business. China's in-service fleet is projected to grow at an average annual rate of 5.2% through 2027, Aviation Week's Commercial Fleet & MRO forecast shows. It will start 2028 with about 5,600 commercial aircraft—13% of the global total.

"As the market matures, many airlines here starting to explore cost savings measures, which implies to us the longer-term growth here will moderate," Canccord Genunity analyst Ken Herbert wrote from China, where he was attending an aftermarket-focused conference.

Canaccord puts the Chinese air transport parts market at $5 billion/year, and sees it growing by 5-9% in 2018. While Herbert says expects major carriers to keep their OEM-friendly ways, he's detecting more interest in cost-mitigating efforts such as pooling, especially as more of the new-technology aircraft, led by the Boeing 787 and Airbus A350, enter the market.

At the conference, China Eastern presented a case study on its 777-300ER parts pooling, "and the airline indicated it was very happy with the program and the results," Herbert wrote.

The carrier's 194-aircraft backlog includes 20 A350s and 54 737-8s—two platforms that have many options for component-pooling.

"Each of the major airlines are looking more at pooling arrangements," Herbert noted. "The expectations are that as fleets adopt the newer aircraft, they will see more cost savings through pooling or other service arrangements."

Much like the mature markets that China will—eventually—resemble.

TAGS: Asia Pacific
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