AVIC Aviation Engine Corporation Plc. (600893.SH), Sichuan Chengfa Aero Science ＆ Technology Co., Ltd. (600391.SH) and AVIC Aero-Engine Controls Co., Ltd. (000738.SZ) under Aviation Industry Corporation of China (AVIC) all suspended trading before the holiday break and announced that they would continue to carry out trading suspension from Oct. 8 as their actual controller the AVIC needs to study relevant plans on assets re-construction related to aero-engine.
Analysts indicate that this means the long-hearsay “separation of aircraft and aero-engine businesses” is ready to be implemented. Independent companies may be established after the aero-engine assets consolidation of the AVIC. This marks the implementation of aero-engine project, which was prepared from 2012, will be realized soon.
“Separation of aircraft and aero-engine businesses” ready to come true
As major body of the R&D and manufacturing of China’s aero-engine, AVIC Aviation Engine Corporation, AVIC Aero-Engine Controls and Chengfa Aero Science ＆ Technology are three listed companies under the AVIC and specialized in engine businesses. Honored as “three brothers in engine industry”, they are positioned as complete machine platform, control platform and components and parts platform of aero-engine assets respectively.
The AVIC Aviation Engine Corporation is a leader in China’s aero-engine complete machine business and is very likely to be an engine consolidation platform of the AVIC. It ever took part in the R&D and manufacturing of various Chinese new aero-engines, such as Qinling engine and Taihang engine. The company conducted major assets restructuring in June 2014, adding three companies with engine complete machine business including AVIC Shenyang Liming Aero-Engine Group Corporation Ltd., Southern China Aviation Industry Aviation Industry (Group) Co., Ltd. and AVIC Guizhou Liyang Aero-engine (Group) Co., Ltd. Hence, the AVIC Aviation Engine Corporation possesses almost all of the host computer service of China’s aero-power plant.
AVIC Aero-Engine Controls is the only aero-engine control system supplier in China. Its business revenue from aero-engine control system accounts for more than 60 percent of the company’s total revenue. The company has also established partnership with foreign aviation giants, including General Motors Company (NYSE:GM), ROLLS-ROYCE HLDGS, SAFRAN, Honeywell International Inc. (NYSE:HON) and Hamilton Sundstrand, and conducted in-depth cooperation in the research of fuel pump, lubricating oil pump and auxiliary power unit for aero-engine to constantly improve its international core competitiveness.
Chengfa Aero Science & Technology mainly produces aero-engine components, including derivative products for military and non-military aero-engines.
As the three listed companies announced trading suspension, declaring that their actual controller the AVIC needs to study relevant plans on assets consolidation and reconstruction related to aero-engine, the aero-engine business will soon separate from the company’ aircraft business. Zhongtai Securities Co., Ltd. noted that this means that the aero-engine has been raised to the same level as the aircraft and attracted attention from the national level, which is a powerful guarantee for its development. Industrial insiders indicate that to separate aero-engine from complete aircraft is an international practice, and aero-engine can have high flexibility to maximize their efficiency in research and development.
Major aero-engine projects to land soon
As AVIC starts to restructure its aero-engine assets, the major aero-engine project which has fermented since 2012 will land soon. It is estimated that the project will attract 100 billion yuan investment to support the dependent research, development and manufacturing of domestic aero-engine.
Aero-engine was first included in the 2015 government work report. The report proposes to implement significant projects including aero-engine and gas turbine and strengthen national defense scientific research and hi-tech weaponry construction.
Peng Jianwu, chairman of Southern China Aviation Industry Aviation Industry (Group) Co., Ltd., believes that to implement major projects for aero-engine from the national strategy level is consistent with the law of aero-engine development, and it is an advantageous time to fully revitalize the aero-engine industry.
Zhongtai Securities points out that similar to the relation between the aircraft project and Commercial Aircraft Corporation of China Ltd. (COMAC), AVIC’s integration of aero-engine business is closely related to its aero-engine project. The major aero-engine project is estimated to reach a scale of 100 billion yuan which may last for 20 years or even longer, and its investment cycle may shorten to less than 10 years, even to five years. In the next 20 years, China will invest as much as 300 billion yuan in the aero-engine field, which will push forward China’s aero-engine industry.
(Translated by Coral Zhong & Vanessa Chen)
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