{"id":23758,"date":"2017-11-15T15:30:56","date_gmt":"2017-11-15T20:30:56","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/selling-chinese-aircraft-in-a-protectionist-us-climate\/"},"modified":"2017-11-15T15:30:56","modified_gmt":"2017-11-15T20:30:56","slug":"selling-chinese-aircraft-in-a-protectionist-us-climate","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/selling-chinese-aircraft-in-a-protectionist-us-climate\/","title":{"rendered":"Selling Chinese Aircraft in a Protectionist US Climate"},"content":{"rendered":"

When it comes to displays of industrial might, few industries can compare to the prominence of the aviation industry. While this industry has been dominated for several decades by the duopoly of Boeing and Airbus, Commercial Aircraft Corporation of China (COMAC) was founded in 2008 to create a Chinese competitor to these market leaders. As part of the state-owned Company\u2019s mission to push Chinese-made aircraft into the global aviation market, COMAC is highly motivated to enter the US market1<\/sup>. Yet recent protectionist political movements in the US impact the viability of this move.<\/p>\n

Aviation is a global industry, and one where friendly international governments are likely to act in unison with one another on regulatory manners given the cross-border nature of travel and aircraft supply chains. As such, if COMAC is going to develop a reputation as a major global player in the aviation industry, they should target the US as a key market. This comes by way of gaining permission to fly in US airspace, as well as permission to sell aircraft into the US market. The appeal of the US market is due to the practical fact that the US is the largest aviation market as well as the emotional fact that this will enhance COMAC\u2019s global brand and image2<\/sup>. Yet as we have seen in the past couple years, there has been a rise of protectionist rhetoric in the US that challenges this endeavor. COMAC\u2019s management team should be concerned with how US-China relations impact their goals.<\/p>\n

To this end, the Civil Aviation Administration of China (CAAC) has been negotiating with the US Federal Aviation Administration (FAA) to reach an agreement regarding the sale of Chinese aviation products into the US. Specifically, in October 2017, the two agencies signed the Implementation Procedures for Airworthiness (IPA) agreement which \u201callows each authority to leverage approvals completed by the other with respect to design, production, and airworthiness3<\/sup>.\u201d While not an all-encompassing approval for aviation products, this agreement does significantly aid the process of gaining US regulatory approval for Chinese aviation products (and vis versa). In the short-term, COMAC is continuing to work with the CAAC and FAA to gain US regulatory approval for its ARJ21 and C919 aircraft, as well as pursuing similar approval agreements with the European Aviation Safety Agency4<\/sup>. Yet securing regulatory approval is only half of the battle, as COMAC also wants the US and other Western markets to commercially accept its aircraft. Today, the C919 (the larger and newer of the two aircraft) is decades behind comparable Boeing and Airbus aircraft as it relates to efficiency and reliability. To this end, over the medium-term, COMAC is continuing to work with respected international suppliers to push forward the development of its aircraft and make them more attractive to Western airlines5<\/sup>.<\/p>\n

Given the significant length of the aircraft development cycle, most of the other steps that COMAC should be taking in the short- and medium-term relate to sales and regulatory pursuits. Even though selling into the US market would represent an enormous victory for COMAC, the Company needs to be realistic about these sales prospects. Therefore, in the short-term, COMAC should be placing most of its efforts behind selling into emerging markets where rapidly growing low-cost carriers may be more receptive to a less expensive aircraft alternative (the C919 is rumored to be about 10% less expensive than the competition)6<\/sup>. Gaining traction outside of China is critical to establishing international credibility given the fact that the Chinese state-controlled airline industry may be required to purchase COMAC aircraft, undermining the validity of the hundreds of domestic orders the Company has received thus far5<\/sup>. As it relates to the US, COMAC\u2019s short-term priority should be securing FAA permission to fly in US airspace. Then, after COMAC has gained some traction outside of China, it should turn its sales efforts to the US and other developed nations. Certainly, this will be a far more difficult sale, but by this point, if successful, there will be sufficient COMAC aircraft landings and takeoffs in the US to substantiate the Company\u2019s credibility. Yet ultimately, even if COMAC is never able to secure a sale to a US carrier, the fact that Chinese-made aircraft are flying into and out of the US on a regular basis would represent a significant win for COMAC in the global aviation market.<\/p>\n

As it relates to the future strategy of COMAC and how the Company should deal with the risk of US protectionism, I have two main unanswered questions:<\/p>\n

    \n
  1. What should COMAC\u2019s strategy be if the US decides to pull back from the IPA agreement or is reluctant to cooperate on regulatory approvals?<\/li>\n
  2. Should COMAC focus any attention at all on selling into the US market or is this a lost cause altogether?<\/li>\n<\/ol>\n

    Word count: 796<\/p>\n

    Endnotes<\/strong><\/p>\n

      \n
    1. COMAC – About Us. (n.d.). Retrieved November 14, 2017, from http:\/\/english.comac.cc\/aboutus\/introduction\/<\/li>\n
    2. IATA Forecasts Passenger Demand to Double Over 20 Years. (2016, October 18). Retrieved November 14, 2017, from http:\/\/www.iata.org\/pressroom\/pr\/Pages\/2016-10-18-02.aspx<\/li>\n
    3. FAA Enhances China Aviation Safety Partnership. (2017, October 27). Retrieved November 14, 2017, from https:\/\/www.faa.gov\/news\/updates\/?newsId=89010&omniRss=news_updatesAoc&cid=101_N_U<\/li>\n
    4. Moss, T. (2017, November 7). China Aircraft Exports Cleared for Takeoff Under FAA Deal. The Wall Street Journal<\/em>. Retrieved November 14, 2017, from https:\/\/www.wsj.com\/articles\/china-aircraft-exports-cleared-for-takeoff-under-faa-deal-1509947425<\/li>\n
    5. Bradsher, K. (2017, May 5). China\u2019s New Jetliner, the Comac C919, Takes Flight for First Time. The New York Times<\/em>. Retrieved November 14, 2017, from https:\/\/www.nytimes.com\/2017\/05\/05\/business\/china-airplane-boeing-airbus.html<\/li>\n
    6. Minter, A. (2017, September 24). China Could Seize a Bit of the Skies. Bloomberg View<\/em>. Retrieved November 14, 2017, from https:\/\/www.bloomberg.com\/view\/articles\/2017-09-24\/china-may-seize-a-bit-of-the-skies-for-itself<\/li>\n<\/ol>\n","protected":false},"excerpt":{"rendered":"

      How should a brand new Chinese aircraft manufacturer go about entering the US market?<\/p>\n","protected":false},"author":9922,"featured_media":23759,"comment_status":"open","ping_status":"closed","template":"","categories":[889,154,3240,1633],"class_list":["post-23758","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-aviation","category-china","category-protectionism","category-united-states","hck-taxonomy-organization-commercial-aircraft-corporation-of-china","hck-taxonomy-industry-air-transportation","hck-taxonomy-country-china"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"\nSelling Chinese Aircraft in a Protectionist US Climate - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/selling-chinese-aircraft-in-a-protectionist-us-climate\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Selling Chinese Aircraft in a Protectionist US Climate - 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