Slow climb: What is holding back business aviation in Asia?

What is holding back business aviation in Asia? Economies are booming, but their expansion has yet to be matched by growth in private aircraft ownership

When the business aviation community gathers this week in Hong Kong for the region's only dedicated business aircraft event - the Asian Business Aviation Convention and Exhibition (ABACE) - the mood will be upbeat yet cautious. ABACE was established in 2004 by the National Business Aviation Association with the primary purpose of unleashing the huge potential that business aviation appears to have in the fast-growing economies of Asia, but progress has been frustratingly slow.

The region has the potential to be a thriving market for business aviation and, since the Asian economic boom of the early 1990s, manufacturers and operators alike have been posturing for position. The fleet has been rising, albeit slowly, and today totals 384 jets and 410 turboprops, according to Flight's data service Acas. Of these, 189 are in military service for missions such as reconnaissance and surveillance.

For many observers, the rate of fleet growth across the region is disappointing, and the real potential of Asia Pacific has yet to be realised. Aviation analyst Richard Aboulafia, of Teal Group, says the market for business jets, once dominated by North America, is globalising, "yet Europe, Latin America and the Middle East are growing much faster than Asia, which is particularly disappointing given the area's fast economic growth".

Chris Buchholz, chief operating officer of Metrojet, one of Hong Kong's largest charter and management companies, says: "There were more private aircraft in the USA in 1929 than in the whole of Asia today." Buchholz, also treasurer of the Asian Business Aviation Association (AsBAA) - one of the region's increasingly outspoken and influential groupings with a growing membership of over 30 - suggests Asia Pacific is decades behind the rest of the world and its growth is being stifled by a number of impediments that the industry is fighting hard to remove.

A key obstacle is the "astronomical" aircraft handling costs across the region's airports, he says.

"This is an historical issue. For decades this region had no general aviation to speak of and when business aircraft began to buzz around our skies, nobody knew how to price them so they were lumped together with many of the airliner types." He suggests that, while some airports have adopted a more favourable basis for landing charges, the costs are still too high.

"The market is being artificially constrained by such high costs," agrees Ricky Leung, general manager of Hong Kong-based charter and management company BAA Jet Management. He says the same size: same price policy is pushing demand for large- rather than small-cabin aircraft and pricing a huge chunk of potential business aircraft users out of the market. "Many operators are spending more on flight handling than on fuel," he says.

Leung suggests the bias towards large-cabin jets is also driven by a deep-rooted desire within the region for status-driven goods. "Asia is too elitist. The most popular business aircraft in this region currently are super mid-size - Gulfstream G200 for example - upwards," he says. Aboulafia says demand for large-cabin aircraft is also driven by the region's infrastructure. "Most Asian air routes tend to be relatively long-ranged, so the market tends to be restricted to the higher-end equipment. That makes it tough to bring people into the market with entry- and mid-level equipment."

The way ahead

Within Asia's elitist culture owners are less inclined to offer their aircraft for charter, and this is also hampering growth, says Metrojet's Buchholz. Charter, he argues, lowers the cost barrier for entry into business aviation, gets more people flying and opens up the market. "We need a readily available, broad spectrum of [new-generation] aircraft in Asia to stimulate demand," he says.

Despite the slow uptake of aircraft overall, BAA and Metrojet are growing their respective businesses. "Last year we had the best year in the history of our company. In the old days we would have to get on our knees to get business in terms of aircraft deliveries and charters," Leung says. BAA has three G200s, and will take delivery of a GV next month and a G450 at the end of July. Meanwhile, Metrojet's fleet has grown from one aircraft two years ago to five business jets - two owned and three managed - and five helicopters.

Industry is lobbying hard to stimulate the acceptance of business aviation in Asia Pacific, but it has been an uphill struggle in Taiwan where not only are non-emergency medical operators forbidden to fly across the Tawian Straits to China, but the government has also instituted an outright ban on aircraft ownership. AsBAA has been lobbying hard to force a change. Association president Jason Liao is confident that new legislation will be passed later this year by an increasingly sympathetic government to finally allow aircraft ownership and finally release the shackles.

Outside Taiwan the picture is rosier, but most countries throw up a number of challenges for business aviation. A tangible problem is lack of airport access, which is particularly acute in Japan despite years of lobbying by the international business aviation community. "It is a nightmare in Japan," Leung says. "There is only a handful of slots available to us at Tokyo's international airport, Narita, and we can only use the domestic airport Haneda when Narita is closed, from late at night to early morning." Liao says business aviation is not supported in Japan, where operators are also subjected to stringent regulations aimed at airlines. "We have been scratching our heads to find a way to change things. After ABACE we have scheduled a regional forum in Japan, where these issues will be at the top of the agenda."

Increasing mobility

Japan is home to 61 turbine-powered corporate aircraft, and observers believe that many of the obstacles will be removed when the economy generates an increasing need for business aircraft transport, as has steadily become the case in China. Asia's biggest country has become one of the most hotly contested territories for airframers, driven by a huge, increasingly educated and mobile population, a vast land mass and a thriving economy.

"Bearing this in mind, China should have a much bigger business aviation market than it has," says Liao. According to Flight's data service Acas, China's corporate fleet is around 46 aircraft, including six turboprops. While the fleet has only risen slightly in recent years, there have been a number of deliveries into the country as operators and owners alike replaced their older types with new-generation aircraft including the Airbus Corporate Jetliner, Bombardier Global Express and Raytheon Hawker 800XP, four of which are in service with Chinese operator and Hainan Airlines subsidiary Deer Jet.

Although the country appears to be moving in the right direction there are a number of impediments blocking the road to progress. "China's military controlled airspace remains relatively inflexible, with more than 70% of it restricted or difficult to use," Liao says. He admits that progress is being made and the Chinese government has become increasingly receptive to the business aviation community.

Becoming more flexible

Metrojet's Buchholz agrees: "Things have begun to change. Five years ago it would take over a week to receive a permit to fly for an unscheduled flight. Today it takes around 24h, but this is still too long." China is gearing up, albeit slowly, to accommodate an increasingly large installed base of business aircraft and burgeoning demand for charter operations throughout the region.

China's civil aviation authority, for example, has adopted private and charter operating regulations similar to the US Federal Aviation Administration's Part 91 and Part 135 and is working with the government to introduce more flexibility of the airspace ahead of the Beijing Olympic Games next year.

To accommodate the anticipated growth in business aircraft numbers, China is also developing its aviation infrastructure, with around five new airports under development every year. "The airport infrastructure here is frustratingly inefficient," Buchholz says. "A country the size of China has only 100 airports accessible to jets, compared with around 10,000 in the USA."

He argues that, for political and economic reasons, the aviation infrastructure must be developed in China. "It's an economic multiplier. If remote regions such as Tibet and Xingling in the north of the country are developed more business will move there, creating jobs and prosperity," he says.

While progress is being made to improve the lot for business aviation in China, one final obstacle still remains. "China's combined rate for VAT/import duty on business aircraft is 22%, and despite our efforts to lower this we are not seeing any progress," Liao says.

Meanwhile, BAA is pushing forward with its expansion strategy within China and is establishing a joint venture with Chinese carrier Shenzhen Airlines. It plans to offer charter management services with a series of Chinese B-registered aircraft, "which will cut our costs such as landing fees by around one-eighth of that of foreign-registered aircraft". BAA also plans to operate several fixed-base operations throughout the region.

TAG Aviation of Switzerland says it is also having discussions with a Chinese operator to offer aircraft management and charter within the mainland.

China is on the brink of becoming a giant market for business aviation, Liao says. "If you couple typical travel distances with the business-mindedness of the Chinese people, corporate aviation can only grow in this region. If we break down the barriers the market will explode. The only unknown is how long this will take to happen."

Source: Flight International