The People’s Liberation Bizjet
In China, another revolution is about to begin.
There’s something unsettling about sitting in a $9 million private business jet in the People’s Republic of China, taking in the soft scent of leather and enjoying the plush carpeting and burled wood, while outside on the ramp a young officer of the People’s Liberation Army is staring at the aircraft with a look on his face that seems to alternate between awe and disdain. The jet, a newly minted Cessna Citation Excel, is Chinese owned and registered, one of only two private bizjets in a country where per capita income is $780 a year and general aviation, as we in the West know it, does not exist.
Chinese television reporters are lining up this November afternoon to get a peek inside while the Excel is on display at China Airshow 2000, taking place at the Zhu Hai city airport, on China’s southern coast. (Sukhoi fighters are flying aerobatics over the runway. The reporters will queue up later for them; the private jet is the real news.) A crowd has gathered just outside the cordon surrounding the jet, an all-white beauty painted along the fuselage with festive ribbons of red, blue, and green, above which is written, in both Mandarin and English, “Broad Air Conditioning,” the name of the Chinese company that owns the jet. But Broad Air Conditioning’s jet isn’t on view for long. Less than 24 hours after arriving at the airshow, which will continue for three days, the crew is preparing to leave. The reporters get out as the PLA officer disperses the crowd and the cordon is removed.
That’s Rod Davis, the burly American pilot who ferried the Excel from the Cessna factory in Wichita, Kansas, and who’s back in the cockpit, ready to go. He’s president of Pilot International, Inc., an aircraft delivery service, and he’s got a job to finish—flying the Excel to Changsha, its new home, some 550 miles southwest of Shanghai. Zhang Yue and his brother Jian, CEO and president, respectively, of Broad Air Conditioning, were happy to let their new acquisition make an appearance at the airshow before coming to company headquarters in Changsha, where a young Mao Zedong once worked as a headmaster. Now they’d like to take possession.
A little commotion ensues among the four Broad employees who are on board. Their English isn’t very good, their knowledge of aviation jargon worse. (They’re part of Broad’s marketing division, and the company’s clients are almost exclusively Chinese businessmen.) But they’re extremely attentive and helpful, not to mention dressed in smart blue suits, and one of them not only deduces what chocks are but also finds them, already pulled and stowed in the back of the aircraft.
“That’s all I wanted to know,” Davis says. The door closes; everyone straps into the cabin seats (six seats total, plus a spiffy bench for two behind the forward bulkhead). In moments the Excel is taxiing past big Ilyushin transports, a whale of an Antonov cargo aircraft, various pieces of military hardware, and throngs of people. Takeoff is a smooth affair, Davis switching his focus back and forth from the controls to the Chinese copilot, who’s perusing Cessna manuals. Davis levels off at 20,000 feet—not his desired altitude. “We burn a lot more fuel down here,” he says, “but air traffic control…” He shakes his head. In the cabin, one of the company employees, a woman maybe in her 20s, passes out bags of Rold Gold pretzels and bottles of Evian water.
Broad Air Conditioning opened for business in 1988, when younger brother Jian, an engineer, developed (and later patented) an industrial-use air conditioning system. His timing couldn’t have been much better. It had been 10 years since Mao’s successor, Deng Xiaoping, recognizing that China’s socialist economy had stagnated, had begun steering the country toward a market economy. Deng relaxed laws against accumulating personal wealth, billboards sprang up proclaiming “It is glorious to be rich,” and slowly the communist government adopted new regulations, establishing property rights and corporate codes.
The cultural and economic changes begun 25 years ago accelerated in the last decade, and a new class of entrepreneurs began acquiring and renovating facilities previously owned by the state. In fact, Chinese government figures show that over the last five years the state has trimmed employment rolls by almost 25 percent—typically by selling a state-owned facility to the worker who had been managing it. Most of the buildings needed modernizing; few were air-conditioned. The Zhang brothers were ready to air-condition them.
Broad quickly established itself as the country’s leading supplier of industrial AC. (The company now claims 3,000 clients, or roughly 80 percent of the Chinese market.) But China’s sheer size—at 3.7 million square miles, about the same size as the United States—and the fact that many more potential clients were located in remote locations posed a challenge to the Zhangs’ expansion. Since the bosses themselves—the people who could say yes to buying an air conditioning unit—were too busy running their own businesses, they often sent assistants on the laborious journey to Changsha to scout out the product and report back. Working against the Zhangs were time, distance, and a certain lack of purchasing authority.
“In China there are not very many airline flights to some of the smaller cities,” says Yue. So the brothers wanted an airplane to shrink the country and cut out the middlemen: Fly the bosses up, wow ’em with a sales pitch, fly ’em back. A pretty good idea, except that at the time, around 1996, only the Chinese military, government, and airlines were permitted to own aircraft and fly them in Chinese airspace.
Throngs of people are milling around the roughly 90 aircraft displayed at China Airshow 2000, which spreads across the airport ramp and through three enormous warehouses, in which aerospace and aviation manufacturers from around the world are hawking their goods. China is the world’s fastest growing aviation market, according to Elizabeth Keck, the U.S. Federal Aviation Administration’s senior representative in Beijing. In an article she published recently in The China Business Review, Keck quoted Randolph Baseler, vice president of marketing for Boeing Commercial Airplanes, predicting that over the next 20 years, China will be the largest commercial jet market outside the United States, requiring 1,780 aircraft valued at $137 billion. That’s the demand for airliners. The bizjet market will be much tougher to crack. But at China Airshow 2000 there’s a sense that something is awakening—not least because of the Zhangs’ jet sitting on display—and the bizjet makers too are poised to sell.
Near the center of the middle warehouse, three U.S. manufacturers of private aircraft—Gulfstream, Raytheon, and Boeing Business Jets—have glitzy pavilions close to one another. Of the three, only Raytheon has made a jet sale in China to date—three Hawker 800XPs, operated as a charter service by Hainan Airlines. Cessna is at the far end of the building and has sold nine jets in China so far. Besides the Zhangs, Cessna’s clients have been the Chinese government, which uses Citations for official travel, and the airlines, which offer them for charter.
The bizjet sales reps are talking to a steady stream of Chinese entrepreneurs and government officials and taking potential buyers outside for a little show-and-tell. Raytheon has a Hawker 800XP on display; Gulfstream has a GIV-SP. For the moment, Cessna is using the Zhangs’ Excel.
“So much of what we’re trying to do is basically just get people exposed to the product,” Roger D. Sperry, Gulfstream’s vice president of worldwide sales, said later. People are definitely interested, he said, “but we’ve known all along that you can’t rush this market.” After 12 years of making contacts and developing relationships in China, Sperry reports that Gulfstream is close to making sales here.
One reason it’s taken so long is that identifying potential clients is a struggle: Unlike Western businesses, Chinese companies don’t make public their revenues, expenditures, and activities in formats like quarterly reports that reveal who’s doing the kind of business that would benefit from a private jet and who’s got the money to afford one. Attending the airshows has certainly helped, but this is only the third that China has mounted. Gulfstream and other dealers have sometimes relied on items in the news for indications of likely clients.
Sales are also impeded by legal restrictions that make it difficult to buy and operate private aircraft in China. The country has no equivalent, for example, of U.S. Federal Aviation Regulation (FAR) 91, which provides basic safety standards and flight rules for individuals and corporations operating general aviation aircraft. The General Administration of Civil Aviation of China—the CAAC—requires all aircraft to be placed “under the supervision and management of an organization, such as an airline or a flight training school that has been authorized with air traffic rights,” according to an FAA report on the policy. For such organizations, regulations are already in place.
The air traffic system itself has discouraged private ownership. In the People’s Republic of China, almost all airspace is owned and tightly controlled by the People’s Liberation Army. Civil aircraft may fly only along dedicated routes, typically about 25 miles wide at approved altitudes. But of the 1,122 such routes, which are shared by airliners, a few charter services, foreign-owned business craft, and the military, only 29 are currently controlled by the CAAC. The rest are administered by the PLA.
According to several Westerners representing U.S. aviation interests in China, the CAAC is full of “forward-thinking people,” as one sales rep puts it, who strongly support developing general aviation in China. The CAAC is slowly winning over governmental support, but the PLA is yielding airspace only gradually.
Under these circumstances, there has been little need to create procedures whereby individuals could purchase aircraft. When the Zhang brothers came to Zhu Hai for the first China Airshow, in 1996, the laws stated (as they still do) that only China’s airlines, their affiliates, and the government could buy and import aircraft. But Cessna had a Citation on display, and the Zhangs liked what they saw. The following year Yue visited the Cessna factory in Wichita. He also dropped in on the folks at Gulfstream (comparison shopping knows no borders). The Citation was cheaper, and he felt Cessna’s factory was slightly better managed. He went with the Citation 525.
According to someone familiar with the transaction, the Zhangs, with help from a Hong Kong aviation company but mostly through sheer entrepreneurial will, got China Southern Airlines to act as sponsor of the 525 and essentially secured all necessary approvals after the fact. That’s the kind of clout you can wield in China if, like Broad Air Conditioning, you’re a fully private, debt-free, domestic company employing 1,400 people and bringing in about $240 million a year in sales. “The Zhangs have a great deal of influence,” says the source, who asked for anonymity.
What they and other Chinese citizens don’t have, because of existing regulations, is the right to operate jets as private individuals. So the brothers hired two pilots and an engineer from a domestic aviation “academy,” as it’s called—essentially a group of airline pilots who fly charters and are overseen by the CAAC. The Zhangs’ pilots wear Broad Air Conditioning uniforms, but Broad pays the academy for their services, and the academy in turn pays the pilots. “It’s the politically expedient way,” says Rod Davis, who also delivered the Zhangs’ 525.
The Changsha airport is a modern monstrosity of concrete, glass, and cinder block, but on one of its flanks stands a relatively new, small hangar surrounded by an almost pristine ramp—the parking lot for Broad Air Conditioning’s burgeoning little air force. There’s another Cessna Citation—the 525, Broad’s first jet, bought in 1997 and up for sale now that the Zhangs have traded up to the Excel. Three Cessna 172s are parked next to it. Older brother Yue wants to use the 172s to start a flying club. Zhang Yue, in fact, is crazy about flying. He was trained by CAAC instructors to fly the company’s other aircraft—a Bell 206B helicopter—but Broad has since moved up to a twin-engine Bell 427.
“The efficiency of work has improved as a result of having the jet,” says Yue. He adds that he can’t put an exact figure on how much sales have increased, but the rise in revenues is the principal reason that he and his brother decided to move up to the Excel, which has a longer range than the 525. And he does venture an estimate of how much the Excel will boost sales—by $50 million—suggesting that he and his brother have already targeted some new clients.
Changsha airport and its downtown environs recede quickly from view when you get on one of the highways that lead into the rural areas, where there seems to be an unending strip of dilapidated buildings and dusty, dented cars that don’t look parked so much as abandoned. Families live in these buildings, mostly low-rises resembling storage containers, and children and unleashed dogs run in and out of them. In part but maybe not entirely because of overcast autumn skies, everything has a gray pallor to it, including the grass. Turn in to Broad Town, headquarters of Broad Air Conditioning, and the scenery changes dramatically. The campus—verdant, elegant—stretches out almost like a golf course, and might well be one were it not for the helipad and multiple commercial buildings, constructed of pale brick and reflecting windows. Everything takes place here, from manufacturing the air conditioning units to computer-monitoring them after installation around the world. Employees live on campus in company-provided apartments. There’s a cafeteria-cum-entertainment building (designed with a nautical theme) and a recently built science museum, which the Zhangs designed in the shape of a pyramid. Under construction is Broad’s own management school, which looks a little like a Beaux Arts mansion.
In a lobby on the second floor of the main building sits a large landscape model of Broad Town: The only feature not yet realized is a runway and hangar on one of the campus edges.
A long corridor leads off the lobby and down to Zhang Yue’s office. The office décor is more functional than stylish: a big black desk, two big black metal cabinets behind it, and white walls. Arrayed across the top of the cabinets are models of jets, including a Citation Excel. On a Wednesday evening in November, Zhang is seated at his desk, sipping green tea, smoking a cigarette, and musing about the future of general aviation in his country as young assistants periodically enter with documents for him to sign.
“China’s economy is developing fast and the usage of business aircraft is developing too,” he says with a grin. “But,” he adds, losing the grin, “the usage is not developing as fast as we would like.
“We will be meeting with government officials about getting more airspace,” he says. “But it will take a long time to change their minds.” It has taken the government the better part of 20 years to get to its current point. For example, filing and receiving approval of a flight plan used to involve days. “Procedures,” Yue says with a sigh. “So many of them.” Now it’s maybe one day’s wait, he says, and less in an emergency.
For Chinese-registered general aviation craft, that is. Foreign-registered bizjets must file requests for flight plan approval at least two weeks in advance, and if approval is granted, operators must strictly follow the original request. No deviations are allowed, not on routes, destinations, or even passenger lists. “This is a tremendous obstacle to a lot of potential foreign investors” who have bizjets, says a sales rep. “If they fly into China to visit one of their factories in Beijing, then realize they need to go to another in Shanghai, well, if it wasn’t part of the original flight plan, they can’t do it.”
At a December 1999 meeting of the CAAC, the FAA, and other organizations working to modernize air traffic management in China, CAAC representatives announced a shift in policy. In the past, military missions had taken priority over civil aviation, so scheduled airline flights were at the mercy of the military’s schedule. The new policy for coordinating the demands of military and civil aviation gives priority to civil aviation and includes a commitment to meet “the requirements of other flight activities, such as general aviation and sport flights.” One of the first steps the CAAC took toward that commitment was to make official the procedure invented by the Zhangs for individuals to purchase aircraft.
What the manufacturers of business aircraft would like to know is: How many businessmen like the Zhangs are out there?
China has relatively few rich people. Most of the country’s private wealth is concentrated in the eastern provinces—where the economic reforms have been most extensively implemented. According to a recently released list from the government in Beijing, there are at least two billionaires—that’s in U.S. dollars—and a few dozen millionaires. There is also a small but growing middle class, and Chinese policymakers are trying to encourage that growth. “The Chinese are starting to understand that if you want to develop a big, prosperous middle class, you need lots of small- to mid-size companies,” says Gwen Lyle, who works for the U.S. Department of Commerce office in China. “Those companies are the great engine of America.” That’s an engine China definitely wants to reverse-engineer. Such a system of production would relieve the government of the costs to employ workers and maintain infrastructure in state-run enterprises that have been losing money. What has worked in the United States, however, doesn’t always transfer to China.
“This is the East,” says the FAA’s Elizabeth Keck. “Things are frequently the opposite of what they are in the West.” For one thing, she points out, in the United States individual pilots have flown for pleasure since the airplane was invented, and U.S. regulations from the beginning were concerned with standards for the responsible use of aircraft by individuals. Aviation in China, on the other hand, grew out of a government’s need to improve travel and communication across vast distances. For its entire existence, the CAAC has concentrated on developing China’s airlines; its priority for aviation rules and standards has been to regulate a transportation system used by the masses. That’s why general aviation regulations are only now being drafted.
If bizjet sales truly follow the Zhang model, the purchasers will have not only wealth but at least an interest in flying; presently, in the Chinese population of 1.2 billion, fewer than 50 hold private pilot’s licenses. (In the United States there are almost 620,000 pilots, and a number of organizations who speak to lawmakers on their behalf.) But in spring last year the first flight school for the general public—the Shanghai Eastern Aviation Educational Training Company, Ltd.—opened its doors. The school had one airplane, a Cessna 172. (It now has two 172s and one Beechcraft A-36 Bonanza.) The syllabus consists of 80 hours of ground school and 35 hours of flight training involving dual and solo flight. The price: about $10,000, which members of China’s nascent middle class are willing to pay. For the 50 seats available in the first class, more than 200 people, including 25 women, applied. Another school recently opened in Guangdong, near Zhu Hai. “There is definitely money around here,” says Joe Stewart, a Cessna rep who sells 172s.
Flying clubs for aviation enthusiasts have existed for some time in China, but because the PLA and CAAC have granted only minimal airspace usage, when club members meet, they talk more than fly. In Shanghai, students of the flight school are allowed to fly within a 14-mile radius of the airfield and under 1,000 feet. Nevertheless, the Shanghai and Guangdong flying schools will be graduating licensed private pilots who have every intention of taking to the air, and who, as members of an increasingly important (i.e., prosperous) class, may make their voices heard in Beijing.
But in skies that are truly general-aviation-friendly, there is always some uncontrolled flying going on, and “China’s policy right now is that all flying is under control,” says Keck. “So right away there’s a public policy issue.”
“People in the government need to be convinced that more small aircraft is not necessarily a safety issue in any form,” says Zhang Yue. Ironically, government restrictions may actually be creating a safety issue. Ron Waterman, an FAA Flight Standards Operations Inspector, visited the Shanghai flight school and, while noting the obvious enthusiasm and seriousness of the program, listed in his report “some concerns over the flight training syllabus.” There are no provisions for upper air work, like stall recovery, or for emergency landings. Asked about these gaps, school officials say they just don’t have enough airspace to work in. They say they’ve been talking to the CAAC about getting more—roughly double what they now have—but the request has not yet been decided on.
Gulfstream’s Roger Sperry sees changes ahead: “People here are now beginning to feel okay with the concept of business aviation, meaning they understand that there’s a legitimate role for business aviation in helping the Chinese economy grow.”
China’s western region, for example, accounts for 60 percent of the country and features some of China’s more interesting small cities and areas, which are underserved by the airlines. The potential for tourism, therefore, as well as other business opportunities, remains unexploited. China’s airlines, according to FAA officials in Beijing, would like to help develop the western region mostly through chartered general aviation aircraft. Because of the clearly practical benefits the idea offers, the government has decided to construct some 20 airports throughout the west specifically for general aviation aircraft and helicopters.
But open skies for bizjets? Open doors for buying and importing them? Not yet. The Zhang brothers have certainly shown what’s possible. But the Zhangs are still the exception to the communist rule.