* 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 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
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
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
"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
"Some are making progress while others are still looking
around. Like the automakers 20 years ago, no-one wants to be
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
"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
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
"We believe China is offering a lot of opportunities," said
(Reporting by Fang Yan and Matthew Miller; Editing by Kenneth