Greg Lindsay's Blog

December 29, 2010  |  permalink

GE & The Future of Aviation (With Chinese Characteristics)

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High-speed rail advocates love to point to China as an example of a country turning to trains instead planes or roads to move a billion people around – without realizing China’s leaders are ordering everything on the menu to keep its factories humming. China has laid as many miles of high-speed railroad track in the last five years as Europe did in the last two decades, sure, but it’s also adding 30,000 miles of highways – creating an interstate systems larger than the United States’—and building or expanding 200 airports… and the cities around them.

But which of these three things is the first among equals? I believe it’s the air, naturally. As ambitious as China is when it comes to exporting its high-speed rail expertise, it doesn’t quite compare to its intention to break the duopoly of Airbus and Boeing when it comes to large airlines. If that doesn’t strike you as that big of a goal, then keep in mind that Boeing is America’s largest exporter. China hopes to make inroads into that market with the Aviation Industry Corp.‘s C919, a Boeing 737/Airbus A320 competitor. AVIC unveiled the first life-sized mockup of the plane last month; it’s scheduled to enter service sometime in the middle of this decade.

The C919 and China’s aviation market is so huge that GE is willing to surrender its autonomy in China for a piece of it—which it believes is the key to unlocking the entire country. The lead story in today’s Wall Street Journal has the details:

General Electric Co. is finalizing plans for a 50-50 joint venture with a Chinese military-jet maker to produce avionics, the electronic brains of aircraft. The deal with Aviation Industry Corp. of China would give GE access to a Chinese government project aimed at challenging Boeing Co. and Airbus in the civilian-aircraft market…

General Motors Co. established a joint venture this year with SAIC Motor Corp., its longtime partner in China, to produce and sell their no-frills Wuling-brand microvans in India, and eventually in Southeast Asia and other emerging markets as well.

The two deals show China Inc.‘s growing international ambitions, as well as its increasing leverage over foreign partners. To make the GE deal happen, GE Chief Executive Jeffrey Immelt made an extraordinary concession, agreeing to fold into the venture all of GE’s existing world-wide business in nonmilitary avionics…

...GE has such high hopes for China that Mr. Immelt has called it “our second home market.” Two years ago, Mr. Immelt said China revenue would double to $10 billion by 2010. But last year it reached just $5.3 billion.

GE saw working with AVIC as a chance to boost its avionics business, which has lagged behind Honeywell International Inc. and Rockwell Collins Inc. The planned venture, to be based in Shanghai, has been chosen to supply China’s planned C919 jet, which has the potential to grab a big slice of the Chinese civilian-aviation market. Boeing estimates that market will be worth more than $400 billion over the next 20 years, second only to the U.S…

GE executives say the AVIC deal is their closest cooperation ever with a Chinese partner. GE has 45 people in China on the project now, and it is hiring or moving several hundred more people there, even before final terms are hammered out.

AVIC, which makes fighter jets and helicopters in addition to civilian products, has ambitions outside of China. “For the aviation industry, there is no regional market, only the global market,” the company said in a statement. “AVIC’s strategy is to actively integrate itself into the industrial chain of the world’s aviation industry, and to become a truly global company.”

This is just the beginning. As I wrote in Aerotropolis: “General Electric’s CEO Jeff Immelt talks openly about using China’s airports as a trea sure map pointing the way to hundreds of billions of dollars in power, water, and rail projects to follow. “The Chinese are beginning to shift growth out of the major metropolitan cities like Shanghai and Beijing and move into tier- two cities,” explained GE’s point man in China, Steve Bertamini. “We figure in the next five- year period, the Chinese government is going to spend two trillion dollars on infrastructure projects. We think there’s probably a good chunk of that, let’s say at least half, that has some GE opportunity.””

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Greg Lindsay is a generalist, urbanist, futurist, and speaker. He is a non-resident senior fellow of the Arizona State University Threatcasting Lab, a non-resident senior fellow of MIT’s Future Urban Collectives Lab, and a non-resident senior fellow of the Atlantic Council’s Scowcroft Strategy Initiative. He was the founding chief communications officer of Climate Alpha and remains a senior advisor. Previously, he was an urban tech fellow at Cornell Tech’s Jacobs Institute, where he explored the implications of AI and augmented reality at urban scale.

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