Comac C919 aircraft to fly next month, three years late
Challenges remain though to establish a Chinese aerospace manufacturing industry
The first Chinese narrowbody aircraft, the Comac C919 looks set to make its first flight next month. This is a significant milestone which will attract the attention of the aerospace industry across the globe and the event will no doubt be lauded by the Chinese government. However, this maiden flight will be nearly three years late. When the programme was launched in 2008 the target for first flight was June 2014, with the first delivery due in 2016.
This protracted development phase is testimony to the enormous challenge China faces to compete with the duopoly of Airbus and Boeing. Building an aircraft is a notoriously tricky business, and almost all new aircraft programmes suffer from some setbacks. However, by comparison Airbus took the A320 aircraft from inception to delivery in four years during the 1980s and the A320neo also entered service in 2014 after four years of development.
There are two main areas where aircraft development programmes tend to come unstuck; integrating systems and managing suppliers. For example, the A380 faltered when Airbus encountered difficulties integrating the complex wiring system needed to operate the aircraft with the metal airframe through which the wiring needed to thread. The engineers discovered the wires were too short, a problems which was later attributed to designers using different versions of Computer Aided Design (CAD) software to create the engineering drawings.
The Boeing 787 entered service three year late after Boeing made the decision to act as a systems integrator rather than the manufacturer. It outsourced production of the 787’s major subsystems and components, but then encountered quality and communication problems with the supply chain, which led to delays and cost over runs.
The reason for this background is contextualise the scale of the challenge facing Comac. Boeing made its first jet aircraft sixty years ago, giving it an almost two decade head start on Airbus who has been producing jet aircraft for just over forty years. Both manufacturers are therefore a long way along the learning curve of how to develop and produce safe and fuel efficient aircraft. Comac is currently playing catch up, but inevitably its competitors are not standing still. Since the C919 was launched, Airbus and Boeing have both launched updated narrowbodies; Airbus’ has entered service and Boeing’s is due to do so next month. Meanwhile Comac is still battling to build an aircraft that was designed nearly a decade ago, so you have to question how relevant its technologies still are. In addition, the first flight heralds the start of the notoriously tricky flight test phase, and with the required second, third and fourth aircraft yet to be assembled, experience suggests Comac could yet encounter further delays.
So whilst next month’s hoped for first flight of the C919 will inevitably generate discussion about the risk to the Airbus / Boeing duopoly, getting a plane to fly is very different to having a successful aerospace manufacturing industry. It took Airbus nearly thirty years to get to its 50% market share of the narrowbody market when it had the benefit of previous aircraft manufacturing experience, whereas Comac is coming from a standing start.
The C919 is likely to be technologically behind Airbus and Boeing aircraft, but the big unknown is what price Comac will try to sell the aircraft into the market. There is of course the possibility that the discount to Airbus and Boeing aircraft is so big, that some airlines will be enticed by the economics of a Chinese plane. The presence of western engines and numerous components on the C919 also suggests the Chinese will receive support in their sales campaigns from established western aerospace manufacturers. However, I think that initially it is unlikely Western airlines will risk purchasing an aircraft without a proven safety record, even if it is offered at a generous discount. Therefore the aircraft will need to prove its worth with Chinese customers before sales take off internationally.
The financial backing of the Chinese government and the guaranteed purchases by Chinese Airlines ensure that the programme will optically be a success, but I am yet to be convinced that next month will mark the start of a fundamental shift in the competitive dynamics of aerospace manufacturing.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.