COMAC, A Chinese Competitor to Boeing and Airbus

On Monday, November 2, 2015, the first Chinese larger-airliner aircraft rolled out - the C919. This aircraft was built by COMAC (Commercial Aircraft Corporation of China) and will compete with the A320 and the B737, seating about 168 passengers. Although the hope is for western certification, the C919 has yet to be FAA-certified, currently limiting the countries where the aircraft can operate. Given this information, please answer the following questions:

1) Do you believe that the C919 will ever receive FAA certification? Why or why not?

Yes, I do believe the C919 will receive FAA certification, specifically 5-10 years from now, but no later than 2030. I believe the C919 will receive FAA certification because the Commercial Aircraft Corporation of China (COMAC) has put forth a tremendous amount of effort in creating this aircraft in accordance with the manufacturing and certification stipulations required by the FAA. The Chinese aviation authority is also viewed as being more stringent than the FAA.  therefore, by abiding by the heightened requirements established by the Civil Aviation Administration of China (CAAC), the C919 should exceed FAA expectations with relative ease. This however, has not been the case.

I also believe the C919 will eventually receive FAA certification because the CAAC has a Bilateral Air Safety Agreement with the FAA that allows the FAA to coach, supervise, and guide the CAAC during their manufacturing and certification processes of the C919 (and ARJ21) (Perrett 2013). Since this agreement allows the FAA to provide extensive guidance throughout the entire certification process, the CAAC has all the tools and resources (both monetary and technical) at their disposal to comply with the FAA certification requirements. With this agreement in place, the CAAC essentially has ‘24/7 technical support’ in the form of the FAA since the FAA is partaking in an ‘oversight’ role during this certification process of the C919. Due to the fact the FAA is merely ‘overseeing’ the process, this means the CAAC is engaged in the ‘implementation’ role, or implementing the necessary corrective actions in accordance with FAA requirements to attain their certification. If an error, mistake, or other mishap occurs during the certification process, the CAAC has the freedom to contact the FAA rather quickly because of the Bilateral Air Safety Agreement, rather than having to wait for a response and further delay production. Therefore, with the FAA ‘overseeing’ and coaching the CAAC through their creation and certification of the C919, there is no reason why the aircraft should not become certified by the FAA.

China based C919 customers have also expressed an extreme desire for the aircraft to receive an FAA endorsement despite the fact the certification is not required for operation in China (Perrett 2013). This yearn for the FAA certification by Chinese based customers only strengthens my belief that the C919 will eventually receive certification. The strong support demonstrated from the various clientele and other lobby-groups based in China aids in their application for FAA certification because it shows faith in their country, air transport industry, and the CAAC. This strong sense of moral support can also transpire into financial support if additional monetary resources are required to attain said certification in the event of additional paperwork, component upgrades/tweaks, testing or inspections, etc. Furthermore, I believe the desire shown by C919 customers to attain this FAA certification stems from the belief that having it (and not needing it) will denote the aircraft (and airline) are extremely safe and reliable because of they hold the FAA’s ‘seal of approval’. Subsequently, the public perception in China and worldwide will shift towards the positive side as consumers will be more inclined to travel on an aircraft certified by more than one aviation authority, especially if it is the FAA. Therefore, I believe the C919 will eventually be certified due to the extensive support and rallying for it to happen because China realizes and understand the long-term benefit of doing so will have.

Recently, the C919 progressed towards attaining its FAA certification as its CFM Leap-1C engine received type certificates from both the European Aviation Safety Agency (EASA) and the FAA. In fact, the simultaneous certification awarded by both the EASA and the FAA to CFM for their engines was the first-time (simultaneous) dual certification to an engine company has occurred (Polek 2016). Typically, one type certification is awarded by one aviation agency/authority and the other agency/authority validates (or confirms) the initial type certificate (Polek 2016). Thus, this break in regulatory certification tradition is an indefinite (positive) accomplishment for CFM, CAAC, and the C919 as the increased reputation will assist with the remainder of the certification process. Even if the C919 is certified piece-by-piece, which would take much longer, the aircraft and the CAAC are making progress towards complete certification. Therefore, the fact the C919 (CFM) engines were simultaneously awarded type certificates from two notable aviation authorities, namely the EASA and FAA, is yet another (undeniable) reason why I believe the C919 will receive certification entirely.

2) For sake of argument, if the C919 receives FAA certification, what challenges do you see for US carriers? Look at various aspects - for example, what would in mean in terms of aircraft purchases? What would it mean in terms of public perception?

If the C919 receives FAA certification, the challenges I expect U.S. carrier to encounter are orientated around the relatively immediate competition the aircraft will create in terms of aircraft pricing and purchasing as well as operating costs. According to the SCMP Staff (2017), the average estimated cost of a C919 is $36 million, which is $9 million less than that of the cost of an Airbus 320 (or an akin B737) valued at $45 million. The C919 provides a cheaper alternative with relatively similar amenities such as passenger seating (approx. 168) to the aviation industry. This coupled with the fact that CAAC has a currency advantage over the United States, meaning that if the Yuan remains lower than the U.S. dollar, then the C919 (because it is manufactured in China) will have a significant cost-advantage over rival aircraft manufacturers, namely Airbus and Boeing (Mushaike 2015). Therefore, if major U.S. airlines can purchase an aircraft that offers a similar passenger carrying capacity, fly the same routes, and operate for relatively the same cost, but at a cheaper price ($36 million compared to $45 million), and still receive a ‘discount’ due to China’s currency advantage, there is no contest. Big businesses will always do what is most optimal for their bottom line, and if purchasing the C919 rather than an Airbus or Boeing aircraft will save them money, then U.S. carriers will inherit a dynamic challenge from the CAAC in terms of competition, viability, and manufacturing longevity. Consequently, U.S. carrier such as Airbus and Boeing will experience a decline in aircraft purchases because of the less expensive C919 alternative, and the only method to counter that is by ‘price matching’ the C919, which may prove to be extremely cost-ineffective for U.S. carriers.

Additionally, the birth and certification of the C919 will create another problem for U.S. carriers, primarily in the form of the hindrance of aviation growth potential in China. Since the C919 will have the ‘home-field advantage’ in China, U.S. carriers will already be at a disadvantage since Chinse carriers will innately want to buy and operate their own aircraft rather than a U.S. based one (Mushaike 2015). Furthermore, (if/when) the C919 receives its FAA certification, Chinese airlines will see no reason to buy from U.S. carriers because the C919 has received the FAA ‘seal of approval’ and will be viewed as just as good, if not better than its U.S. counterparts. Thus, as the C919 becomes widely accepted by the Chinese aviation industry and is utilized by other aviation organizations worldwide, its reputation will increase, further diminishing the growth potential in China (and potentially other countries) for U.S. carrier such as Boeing, resulting in a decline in their aircraft sales/purchases.

The concept of safety and the public’s perception of it will always be a challenge for air carriers, and if the C919 receives FAA certification and is adopted by U.S. carriers, said carriers may be placed at a disadvantage because of this (safety) challenge. Albeit the C919 was manufactured in China, most its core components were manufactured in 16 foreign companies (SCMP Staff 2017). Most U.S. citizens that travel via air frequently and/or have some knowledge regarding aviation or the FAA are innately skeptical of any aircraft not made in the U.S., or has not been in service for a long period of time. The fact the C919 has encountered numerous delays (translating into several years) to become certified, will create negative public perception regarding the integrity of the CAAC/COMAC and its ‘airworthiness’. Additionally, since the C919 contains core (or essential) components that were manufactured by 16 different companies, only heightens public skepticism and subsequent negative public perception of the aircraft. This sense of ‘skepticism’ is not unwarranted though because the manufacturing practices and policies can differ significantly across 16 companies, and if one company conforms to a lower manufacturing process than the others, the entire aircraft can be unsafe and fail. Despite the C919 receiving FAA certification, if the C919 is operated by U.S. carriers in the future, the traveling public will always maintain a negative perception of the aircraft’s integrity and airworthiness because it was not made in the U.S. and is composed of foreign components.

3) Discuss COMAC a little and its relationship with the Chinese airlines and the Chinese government. Are there other aircraft in the works? If so, what are the specifics?

The Commercial Aircraft Corporation of China, or COMAC, is stated-owed aerospace manufacturer that was established on May 11, 2008, and based out of Shanghai, China. The Chinese government consolidated its manufacturing efforts in 2008, with the establishment of COMAC (RAND Corporation 2014). The purpose of COMAC was two-fold: One, its creation was the Chinese government’s way to compete with Western aircraft manufacturers such as Airbus and Boeing in efforts to diversify the (commercial) market. The second being to not only prove that China’s aviation/aerospace programs and technology could more than compete with those of Western carriers and manufacturers, but to also build two aircraft that would domestically service China, namely the ARJ-21 and the more recent C919.

COMAC is a specific sector (i.e. commercial) of Chinese aviation. It is housed and regulated by the Civil Aviation Administration of China (CAAC), who is subsequently governed by the Chinese government. The Chinese government currently oversees/governs/regulates the air transport industry and China’s three major airlines, namely Air China, China Southern Airlines Co., and Chine Eastern Airlines Corp (Kung & Kim 2016). COMAC has been applying to the FAA to receive certification because the FAA does not recognize the CAAC as an ‘aviation certifying organization’ because of their difference in manufacturing policies, safety protocol, and other aircraft related certification requirements. However, since the C919 does not require any special type certificates to fly/service domestically (i.e. in China), COMAC would only need to appeal/apply to the CAAC for aircraft certification, of which the CAAC could either issue or refuse (in this case issue) the proper certifications allowing the C919 to be used in Chinese air operations. To serve as a direct comparison, COMAC is akin to any U.S. commercial carrier (e.g. Delta Air Lines) operating under Part 121 regulations. COMAC being a commercial aviation entity is regulated or governed by the Civil Aviation Administration of China (CAAC). In the U.S., said commercial (Part 121) carriers are regulated by an aviation authority known as the FAA. Thereby, airlines operating within COMAC must seek certification from the CAAC, just as Delta Air Lines and other (Part 121) operators must seek certification from the FAA. Lastly, the Chinese government oversees and regulates the entire aviation industry, which is akin to how the Department of Transportation (DOT) is responsible for governing the FAA and U.S. aviation industry.

The other Chinese aircraft I discovered to be in the works (since it has yet to be certified by the FAA) is the ARJ21-700. Prior to the manufacturer and release of the C919, COMAC’s very first aircraft was a regional jet known as the ARJ21-700. The ARJ21-700 was China’s first modern commercial jet and was built primarily to empower China as key player in the commercial aircraft market (to compete with companies such as Airbus and Boeing). The aircraft conducted its maiden flight in June 2016, carrying 70 passengers on a two-hour flight (Mutzabaugh 2016).

According to Mutzabaugh (2016), the name ‘ARJ21’ is short for Asian Regional Jet for the 21^st Century. The ARJ21 can seat up to 90 passengers and travel a range of approximately 1,300 miles, which is common amongst other reputable regional jet aircraft. The body design of this particular aircraft was based off the McDonnell Douglas MD-90, which can be seen by the shape of the fuselage and twin, rear-mounted engines. Furthermore, the ARJ21 is primarily composed of foreign technology/avionics and other system components, which includes companies like Rockwell Collins, engines from General Electric, and wings (design) from Ukraine’s Antonov State Co (Mutzabaugh 2016).

4) If this aircraft were to receive FAA certification, do you feel that other companies would enter the market as competitors to Boeing and Airbus?

If this aircraft were to receive FAA certification, I feel that other companies would be extremely reluctant to enter the marker as competitors to Boeing and Airbus. The C919 (and ARJ21) and COMAC have struggled to receive type certifications from the FAA and EASA, which has caused numerous production setbacks and delays in the aircraft’s debut. In addition, the CAAC is not recognized by the FAA, which has only made attaining type certification more difficult and caused further delays. Within the past year, the C919 CFM engine received simultaneous type certificates from both the FAA and EASA, which until now, was an unheard feat for an engine company. However, the engines becoming type certified is only one piece of the puzzle as COMAC is still struggling to abide by the FAA requirements and get their aircraft certified by the Western aviation authority. With that said, I feel as if other companies that would potentially consider entering the market have become severely discouraged after witnessing the numerous the struggles and setbacks encountered by COMAC and CAAC regarding their C919. After witnessing delay after delay, I think any company that would want to enter the market will decide to either wait until the C919 is fully certified (to learn from its mistakes during the certification process) or ‘cut their losses’ early as they deem it not worth the hassle or (monetary) resources. Thus, I strongly believe that other companies wanting to enter the market will wait five to fifteen years to learn from COMAC’s struggles, see if/how the regulations or requirements change (for better or for worse), and only enter when the industry is optimal for their viability.

5) Finally, has Boeing or Airbus responded to this rollout in any way?

Both Boeing and Airbus have responded to the rollout of the C919 in an economically competitive manner, specifically by deciding to re-engine their respective aircraft. Both companies considered the idea to re-engine their aircraft around 2010, but decided not to, however due to the rollout of the C919, Airbus and Boeing changed their mind to remain competitive and demonstrate ‘air superiority’.

With respects to re-engine, Boeing is planning to place a larger engine on their 737, which will increase its range and capacity (Minkoff 2016). The re-engine of the 737 (to the 737 MAX) will be done to compete not only with the C919, but also with Airbus’s A321neo, which is currently outselling the 737 by a ratio of 4:1 (Minkoff 2016). To re-engine the 737, Boeing plans to swap the current CFM56 engines out for the LEAP-1A engine. Boeing however, has not committed to perform the re-engine process because doing so would require potential reconfiguration and re-certification of some of the 737’s components and a at a cost of approximately $1 billion - $2 billion (Minkoff 2016). Specifically, to fit the new LEAP-1A engines, Boeing would have to re-position the landing gear and conduct re-certification of the affected parts, which would cost them a significant amount of money (in terms of parts/labor and loss of revenues), time, and other resources.

Airbus has also opted to re-engine their family of aircraft, denoted by the name NEO, or New Engine Option. The new and improved A319, A320, and A321 will be equipped with either the Pratt & Whitney PurePower PW1100G-JM or the CFM International LEAP-1A, sharklet wingtip components, and contain additional cabin space (Airbus 2017). The type of engine (either a PW or CFM) will vary depending upon the purchasing air carrier. Additionally, the new engine options (NEO) equipped on the Airbus aircraft will cause air carrier’s utilizing the aircraft to save approximately 20% in fuel costs per seat by year 2020, in comparison to the current engines equipped on the Airbus aircraft (Airbus 2017). The NEO will also significantly increase Airbus aircraft performance, specifically in regards to their payload capacity, range, and engine noise and fume emissions. With the NEO equipped, the A319s, A320s, and A321s will increase their overall payloads by 2 tons, extend their range up to 500 nautical miles (NM), and reduce the amount of engine noise and emission(s), and lower operating costs (in terms of fuel and maintenance) for air carriers (Airbus 2017).

Therefore, unlike Boeing, Airbus has chosen to respond to the C919 rollout and Boeing’s re-engine process in a more holistic fashion, specifically through re-engine, enhanced wing tips and performance, increased cabin space and payload capacity, extended range, and reduced engine noise and fume emission at a lower cost to the carrier (and subsequent passengers). Airbus’s actions and design decisions will indefinitely increase their advantage over Boeing and the C919, allowing them to remain more than competitive in the aviation industry, and not to mention, was an excellent way to respond to the rollout.

References

Airbus. (2017). A320NEO. Airbus Commercial Aircraft. Retrieved from http://www.airbus.com/presscentre/hot-topics/a320neo/

Kung, M. C., & Kim, K. (2016). Three biggest China airlines face $1.3 billion currency hit. Bloomberg Markets. Retrieved from https://www.bloomberg.com/news/articles/2016-08-28/china-s-three-biggest-airlines-face-1-3-billion-currency-losses

Minkoff, Y. (2016). Boeing weighs new engine for biggest 737 max. Seeking Alpha. Retrieved from http://seekingalpha.com/news/3186189-boeing-weighs-new-engine-biggest-737-max

Mushaike, N. (2015). Why Boeing investors should worry over the COMAC C919?. Amigobulls. Retrieved from http://amigobulls.com/articles/why-boeing-investors-should-worry-over-the-comac-c919

Mutzabaugh, B. (2016). Now flying: China’s first modern passenger jet enters service. USA Today. Retrieved from http://www.usatoday.com/story/travel/flights/todayinthesky/2016/06/30/now-flying-chinas-first-modern-passenger-jet-enters-service/86549178/

Perrett, B. (2013). C919 may be largely limited to Chinese market. AviationWeek & Space Technology. Retrieved from http://aviationweek.com/awin/c919-may-be-largely-limited-chinese-market

Polek, G. (2016). CFM leak-1C wins certification as C919 approaches first flight. AINonline. Retrieved from http://www.ainonline.com/aviation-news/air-transport/2016-12-21/cfm-leap-1c-wins-certification-c919-approaches-first-flight

RAND Corporation. (2014). China faces several obstacles to building successful domestic commercial aircraft industry. RAND. Retrieved from http://www.rand.org/news/press/2014/04/04.html

SCMP Staff. (2017). In pictures: C919, China’s answer to Airbus A320 and Boeing B737, set to make debut flight. South China Morning Post. Retrieved from http://www.scmp.com/news/china/policies-politics/article/2068527/pictures-c919-chinas-answer-airbus-a320-and-boeing-b737