In China, small plane makers chase growth in auto industry slipstream
* Success of automaker joint ventures provides blueprint
* Piaggio Aero joins peers in considering China JV
* China business jet sales to top $65 bln over 20 years
* Gulfstream, Dassault Falcon prefer to export from home
By Fang Yan and Matthew Miller
BEIJING, June 10 (Reuters) - With 100 years of aviation heritage, Piaggio Aero Industries SpA has only ever made planes in its native Italy. Now the supplier of private aircraft for the Ferrari motor racing team is looking into a new joint venture far from home - manufacturing in China.
With the Ferrari family still owning a small stake, Piaggio Aero has talked to Chinese state companies and provincial government officials about setting up a joint venture to make planes, according to Giuliano Felten, its chief commercial officer.
If Piaggio Aero finds a partner, it will join a growing string of smaller aircraft makers who have drawn inspiration from the way global automakers teamed up with local partners over 20 years ago, eventually turning China into the world's biggest auto market.
For plane makers from Cessna to Embraer, the business jet market in Greater China offers the prospect of rampant growth. Deliveries could top 2,400 over the next 20 years, worth more than $65 billion and eight times the current fleet, according to Canadian aircraft maker Bombardier - a fraction of the $257 billion expected in sales in North America over the same period, but still a major growth opportunity.
"It will be easier for everybody to play in this country while having an ambassador participating in the country as opposite to importing the products from abroad," Piaggio Aero's Felten told Reuters at a recent industry showcase in Shanghai. "We are considering this very seriously," he said, declining to identify potential partners in China. There is no project on the table for now in what is "a future possibility", he said.
Piaggio Aero shares family roots with Milan-listed scooter maker Piaggio & Cie SpA, home of the Vespa, but is now 98 percent-owned by Abu Dhabi investor Mubadala Development Co. Piero Ferrari, son of auto racing legend Enzo, owns the remainder. The company declined to give details of its sales performance in China.
Drawing aircraft makers to China fits with Beijing's plans to make the country a major manufacturing base for aircraft production, from small aircraft to fully fledged commercial planes that can compete with the likes of Airbus Group and Boeing Co. Yet while China's auto manufacturing base has expanded rapidly, its own automakers still struggle to compete with Western rivals.
In the auto industry, China, unlike Brazil or India, requires foreign automakers who want to manufacture in the country to team up with local partners, who share half the proceeds and use the joint venture production to bolster their own earnings. Foreign aircraft makers are also required to team up with a local partner to make jets in the country.
After a steep learning curve for foreign firms, China became the world's biggest auto market five years ago, with sales for 2013 reaching 22 million vehicles. Foreign automakers, moreover, remain the legitimate owners of their brands and core technologies.
At the higher end of the small aircraft industry, some say the smaller volumes in the business jet industry mean it makes little economic sense to construct new plant in China. Business jets cost millions of dollars to buy, or thousands of dollars to rent by the hour.
General Dynamics' Gulfstream Aerospace Corp, the market leader in Greater China according to consultancy Asian Sky Group, and Dassault Falcon Jet Corp, owned by France's Dassault Aviation SA, have no plans to make jets in China - just like Rolls-Royce and Bentley, their counterparts in the auto industry.
It's a minority point of view, according to many in China's aircraft industry.
"Nearly every global small plane maker, except Dassault Falcon and Gulfstream, has had discussions about a China JV," an executive at state-backed China Aviation Industry General Aircraft Co Ltd (CAIGA) with knowledge of the matter told Reuters.
"Some are making progress while others are still looking around. Like the automakers 20 years ago, no-one wants to be left behind."
Canada's Bombardier, second to Gulfstream in the Greater China business jet market, said it doesn't operate a business aircraft joint venture in China. It didn't disclose its future plans for the market.
For William Schultz, responsible for developing Textron Inc's aviation business in China including the Cessna brand, it was a rational choice to team up with a well-connected partner like CAIGA, China Aviation Industry Co's (AVIC) general aviation company.
"In most airplane transactions today, there is always a local connection even when we are selling to entrepreneurs," Schultz told Reuters at the Shanghai industry event. "It's important for us to have a partner like CAIGA, which has sound relationships and can now introduce our products, our joint ventures to them."
In November 2012, Textron's Cessna agreed to establish two joint ventures with CAIGA to make Caravan utility turboprops and Citation XLS+ business jets. At the Shanghai showcase, Cessna displayed its first China-built Caravan, bought fresh off the assembly line by an AVIC subsidiary.
Brazil's Embraer SA also agreed in 2012 to start assembling its Legacy 650 business jet at Harbin Embraer, another JV with AVIC in northeast China.
Meanwhile Pilatus Aircraft Ltd's jointly owned plant in Chongqing opened for business on Aug. 5 last year - and on the same reported it received an order for 50 PC-12 and PC-6 aircraft. "We believe that a partnership with a local sales partner is the key to success," said Pilatus CEO Markus Bucher.
Dassault Falcon remains unconvinced.
"It's not economically viable," said Jean Michel Jacob, senior vice president in charge of international sales at the Paris-based aircraft maker, best known for its Falcon 7X jet.
"There must be volume of sales to justify the creation of an additional plant. It's very difficult to sell one million jets in China like the auto makers," said Jacob.
Instead, the company, which aims to increase its fleet in greater China to 150-200 jets over the next 10 years from about 30 now, has recently beefed up its China customer service by adding a new regional service facility in Beijing, and tripling its parts inventory level.
Rival Gulfstream also opened a new customer support center in Hong Kong in April to better serve a market where a record 168 billionaires made the Forbes China rich list in 2013, up from merely 24 in 2008.
However, in a country where the super-rich have been snapping up fancy cars, yachts and even premier properties in New York, private ownership of jets remains a rarity - for now.
Only 40 percent of China's super-rich recently polled by Hurun Report Inc - which compiles information on the wealthiest Chinese - said they plan to use private jets, and half of them are interested in time-share.
Still, the lure of the world's second-biggest economy remains beyond question for small plane makers like Piaggio Aero.
Chief commercial officer Felten remains optimistic, expecting considerable growth in the business aviation market. While a joint manufacturing venture remains a future possibility, the company in April appointed a local firm as the first authorized service center in mainland China for its twin-engine turboprop P180 Avanti - a plane in the range used by Ferrari.
"We believe China is offering a lot of opportunities," said Felten. (Reporting by Fang Yan and Matthew Miller; Editing by Kenneth Maxwell)