* AVIC may inject more assets into AviChina Industry &
* AVIC chairman rules out listing of entire group
* AVIC aims to produce its own high-performance jet engine
By Charlie Zhu
BEIJING, Nov 13 Aviation Industry Corporation of
China (AVIC), the country's dominant aerospace and defence
contractor, plans to raise more money in the mainland and Hong
Kong stock markets to bankroll future growth and develop its
first top-of-the-line jet engine.
Beijing is opening up a sector traditionally shielded from
competition and public scrutiny as it taps private-sector funds
to help speed up the development of its aviation and defence
firms to compete with global giants such as Lockheed Martin Corp
China is also looking to build its first high-performance
engine for its commercial aircraft and fighter jets to end the
country's dependence on Russian and Western manufacturers. AVIC
has already set aside about 10 billion yuan ($1.61 billion) of
its own funds for engine research and development over the next
"We hope to partly finance the project with funds raised
from the capital market. About how much we want to raise, I
would say the more the better," AVIC Chairman Lin Zuoming told
the media on the sidelines of the 18th Communist Party Congress
late on Monday, without giving details.
AVIC is also considering injecting its holdings in some
mainland-listed units into AviChina Industry & Technology Co Ltd
as the state-owned giant makes the Hong Kong-listed
subsidiary its key fund-raising platform for its aviation
business, Lin said, without identifying the mainland firms.
"There will be more and more stakes to be injected into
AviChina as an investment vehicle," Lin said.
Shares of AviChina jumped as much as 7.7 percent in Hong
Kong on Tuesday, outperforming a 1 percent fall in the benchmark
Hang Seng Index.
AviChina already holds stakes in China Aviation
Optical-Electrical Technology Co, CN AVIC Avionics
Equipment Co Ltd, Jiangxi Hongdu Aviation Industry
Co and Hafei Aviation Industry Co Ltd.
AVIC - aiming to quadruple its sales to 1 trillion yuan
($157.7 billion) by 2020 from 2011 - plans to inject 80 percent
of its main businesses into some of its listed companies by the
end of next year, industry officials say. The group has already
injected more than 50 percent of its businesses into the firms.
Listed subsidiaries of top Chinese military contractors aim
to buy at least 20 billion yuan of assets from their state-owned
parents in the second half, according to filings with the
Shanghai and Shenzhen stock exchanges.
Lin ruled out the listing of the entire AVIC group, citing
the complexity of its structure. The sprawling Beijing-based
enterprise has more than 400,000 employees and 200 subsidiaries,
including two dozen listed units.
"We are too big and unwieldy with too many kinds of
businesses. A whole listing would be hard to be accepted by the
stock market," Lin said.
Beijing is pressing ahead with an ambitious program to
privatise a big chunk of a defence industry employing more than
a million workers at more than 1,000 state-owned enterprises.
The long-term goal is to transform some of the country's
leading contractors such as China State Shipbuilding Corporation
(CSSC), AVIC and China Aerospace Science and Industry
Corporation into homegrown versions of Northrop Grumman Corp
and BAE Systems Plc.
AVIC, expected to generate profits of more than 10 billion
yuan on sales of over 300 billion yuan this year, is aiming to
build a high-performance jet engine by around 2020. It will draw
on internal resources, funds raised from the capital market and
support from the state, Lin said.
"We have made a good plan," Lin said. "We hope our
manufacturing of a high-performance engine, as well as its
commercial potential, would reach a relatively advanced level in
the world in about 10 years."
The government is evaluating a 100 billion yuan proposal to
galvanize a disjointed and under-funded engine research effort,
aviation industry officials say.
China's ability to develop engines for passenger aircraft
could have considerable potential for technology transfer to the
military, experts say.
AVIC said separately on Tuesday that it forecasts China's
commercial aircraft fleet size will more than triple to 6,309 by
2031, from 1,755 aircraft at the end of 2011.
In its China Market outlook, AVIC added that while economic
growth and urbanisation would benefit the country's aviation
industry, a shortage of pilots and airports as well as congested
airspace would have a negative impact for some time.
AVIC forecast China's aviation market will grow steadily
over the next 20 years, with passenger traffic rising an average
of 8 percent a year and cargo to increase 9.5 percent annually.