In a bid to create a talent pool that can manufacture large aircraft, Beijing University of Aeronautics and Astronautics has pledged to cultivate 300 students that could support the project. So far, the university has organized two senior training classes, breathing fresh vigor into research, design, management and manufacturing for the project.

Integration

To pave the way for the project, China Aviation Industry Corp. I and China Aviation Industry Corp. II have kick started their integration, which would produce the main body of the large aircraft group.

Both supervised by the State-owned Assets Supervision and Administration Commission of the State Council, the two corporations are the result of the disintegration of the original China Aviation Industry Corp. With registered capital worth 153.5 billion yuan ($21.32 billion), China Aviation Industry Corp. I specializes in production and sales of military aircraft, civil aircraft, airplane engines, airborne equipment and fire-control systems for arms. It raked in an annual revenue of 81.5 billion yuan ($11.32 billion) and posted a net profit of 3.58 billion yuan ($497.22 million) in 2006. It has been able to independently develop third-generation attack aircraft, third-generation large-thrust turbo fan engines and fourth-generation air-to-air missiles, which are comparable to the in-service backbone combat aircraft of developed countries. All these testify to its capability in the research and development of large aircraft.

China Aviation Industry Corp. II is relatively small compared to its counterpart, with total assets approaching 100 billion yuan ($13.89 billion). Apart from civil aircraft, engines and airborne equipment, its business has been expanded to production and sales of autos, motorcycles and motor engines. As a result, the two enterprises have overlapped in business of transport aircrafts.

Detailed integration programs have not been hammered out. But sources say some departments of the two will be incorporated into the new corporation and others will be folded into a new China Aviation Industry Group. No matter how the integration pans out, it will count as a significant restructuring in the development of China's aviation industry.

Commercial model

As disclosed by Zhang on many occasions, investment in the large aircraft group will be pooled by the State Council, local governments and the two China aviation industry corporations.

Involvement of the Shanghai Municipal Government in the project has been ascertained and will be represented by the newly established Shanghai Guosheng Assets Corp., a result of merger of Shanghai Dragon Investment Corp. and Shanghai Dasheng Holdings Co. Ltd.

Other state-holding enterprises can also contribute investments to the project.

On the other hand, private and foreign capital may stand a dim chance to take part, as the group is pampered by the state as its source of capital. However, some other channels are still available for private and foreign capital, such as parts supply.

According to insiders, the operation model of the large aircraft manufacturing group may resemble that of Airbus. It may focus on market exploration, marketing, final assembly and delivery, support for accessories and customer service, and will rely on other aviation industry enterprises to produce the parts.

Pivotal link

At present, only the United States, the EU and Russia have the capability of manufacturing large passenger aircraft. Commercial successes and industrialization of large airliners have only ever happened in the United States and Europe.

Instead of technology or capital, successful commercial operations will become the lifeblood for the survival of China's large aircraft group, as success in technologies does not necessarily lead to success of commercial operation.

China's history of civil aircraft research dates back to 1960s. In December 1970, China witnessed the successful debut flight of its first regional aircraft---the Y-7 and the Y-10, and independently developed large passenger jets soared as early as in September 1980. The Boeing 707 launched its debut flight in December 1957 and Airbus A300, in October 1972. However, 20 years later, China's absence of commercially successful advanced civil aircraft still needs filling.

China Aviation Industry Corp. I had rolled out some regional aircraft, but failed in the market due to absence of commercial viability.

The development of large aircraft in China will not only be for the domestic market. Shrouded by the dominance of Boeing and Airbus, it will be a thorny path for any company of any country to break into the civil aircraft manufacturing industry. It's unavoidable that China's start-up corporation will have to ponder how to cope with the overseas commercial veterans.

"It will be a test on the management, conception and mechanism, not just technologies, capital and marketing capability," commented Business Weekly, co-published by China Commerce and Trade Press and the U.S. McGraw-Hill Companies.