January 3, 2008 -- China Aviation Industry Corporation I (Avic I), which in 2007 elevated China into the world's fourth country to develop its own advanced fighter aircraft - the "Jian 10" - is considering consolidation with another domestic large jet maker.

The discussion between Beijing-based Avic I and China Aviation Industry Corporation II (Avic II) might lead to the re-merging of the two state-owned enterprises spun off in 1999 from the former Aviation Industries of China.

But discussion on merger was only "exploratory". A detailed consolidation plan was expected to be unveiled later this year, the Shanghai Securities News reported on Wednesday, quoting "unidentified well-informed sources" with Avic I.

"To enhance the manufacturing capability of the aviation industry, Avic I and Avic II will probably undertake consolidation and cooperation," a vice president of Avic I was quoted as saying, being the first head-on response to the rumours of merger concerning the two aviation producers.

The industrial maneuver was intended to concentrate preponderant resources of both companies and prepare the industry for the production of large jets, said the newspaper run by the Xinhua News Agency.

The State Council, China's Cabinet, approved in principle last February the start of research and development of large aircraft, an air-freighter with a take-off weight of more than 100 tonnes or an airliner with more than 150 seats, as well as the establishment of a jumbo passenger aircraft shareholding company.

Just before the New Year holiday, Chinese Premier Wen Jiabao paid a special visit to the Avic I Xi'an Aircraft Industry (Group) Company to give a pep-talk on the manufacturing of large aircraft.

During his talks with technicians, Wen emphasized a China-made large aircraft was a "significant strategy" for the country, which would lift China's competence in the global market as a slew of technical breakthroughs especially in engine, materials and electronic equipment to be made.

Currently, only the United States, Russia, France, Germany, Britain and Spain have the ability to build large aircraft, with Boeing and Airbus taking the lion's share of the international market.

There is no official timetable for the set-up of the new large passenger aircraft company, but Shanghai-based China Business News revealed on Tuesday that March would be the earliest possible date.

Both Avic I and Avic II, together with domestic airlines and government-controlled investment companies, would likely be the shareholders of the large passenger aircraft company, it said.

The new start-up would only be responsible for the design and assembly of large aircraft while production of components and parts would still be left to other aviation enterprises, the Shanghai Security News reported, quoting a former expert with the Ministry of Science and Technology.

Being the leading aviation makers, both Avic I and Avic II have expressly shown their interests in large jets.

"There are no rivals but only partners when it comes to jumbo jet manufacturing," general manager of Avic I Lin Zongming has said.

Given that the Avic I has taken over the larger and better slice of assets from the former Aviation industries of China, industry analysts say Avic II might give up its civil aviation outfits such as airborne equipment production to Avic I so as to beef up the manufacturing capacity of the latter.

Another market guess is to take out the civil aviation business from both companies which also engage in military product manufacturing to establish a third company solely dealing with aircraft for civilian use.

With 240,000 employees and aggregate assets of more than 100 billion yuan (US$13.75 billion), Avic I is the parent of 47 industrial enterprises, 31 research and development institutes, provides 90 per cent of the aviation weaponry systems of the People's Liberation Army and has produced over 15,000 aircraft in 20 projects, 50,000 aero-engines and more than 10,000 missiles, according to company statistics.

The maiden flight of ARJII1, China's first 90-seat regional jet with Avic I holding the intellectual property right, widely viewed as a step closer to large aircraft, is scheduled for this year.

The smaller Avic II boasts a total asset of 31.5 billion yuan, with its aero production covering a wide rang of military and civilian vehicles including helicopters, trainers, general aircraft, unmanned aerial vehicles, engines and airborne equipment.

Source: Asia Pulse