Taiwan and China's Commercial Aviation Program

AP and Forbes reported today that Taiwan’s Aerospace Industrial Development Corporation (AIDC) is seeking a deal with the China Commercial Aviation Corporation (COMAC):

Taiwanese defense company seeks China deal

Associated Press, 06.22.09, 05:34 AM EDT

TAIPEI, Taiwan -- Taiwan's state-owned defense company said Monday it is discussing cooperation on building commercial aircraft with a Chinese company.
Aerospace Industrial Development Corporation spokesman Li Shih-chang said his company met with China's state-owned Commercial Aircraft Corporation during a Shanghai air show in May, but the sides have yet to reach a deal. News of the talks comes amid steadily improving ties between Taiwan and the mainland. AIDC made Taiwan's Indigenous Defense Fighter jets, and is now responsible for IDF maintenance.

Defense News’ Wendell Minnick first reported on AIDC’s interest in serving as a COMAC supplier last summer.

This latest reporting should be put into the proper context. State-owned or not, AIDC has to be profitable in order to survive. With the fixation on defense procurement through Foreign Military Sales (FMS) channels, AIDC probably isn’t seeing a lot of growth on its radar scope. It’s not clear yet what Boeing has worked out to satisfy its offset requirement for the APACHE program. If and when the Congressional notification for UH-60 BLACKHAWK utility helicopters goes through, Sikorsky likely will also have a significant offset obligation as well. However, history has shown that most companies incurring offset obligations in Taiwan satisfy them via indirect means. In other words, it's unclear at this point if AIDC would see much offset business from the APACHE and BLACKHAWK FMS programs. In addition, recent reporting regarding AIDC's role in a joint Taiwan-Russian very short take off and landing (VSTOL) fighter development program is interesting but open to question.

Like dozens of companies around the world, AIDC has an interest in playing a role in China’s long term, multi-billion dollar program to field a jumbo jet (click here for background, as well as here). Goal is to start flight tests in 2014 and have the first aircraft enter China’s commercial aviation fleet by 2016. With COMAC in the lead, China’s goal is to field a internationally certified commercial airliner. The U.S. Federal Aviation Administration (FAA) opened up an office in Shanghai a couple years ago to assist COMAC and other aviation authorities in the certification process. Over the next 20 years, Chinese airlines are expected to spend U.S. $340 billion on 3,400 new airplanes, of which 1400 are large-sized “jumbo jet” aircraft.

Major U.S. defense companies, such as Boeing, Sikorsky, Lockheed, and Raytheon, have done business in China, with the latter two mostly involved in air traffic control. Other major U.S. defense contractors, such as Rockwell Collins, Honeywell, and General Electric (GE), have been involved in China’s commercial aviation programs. COMAC is said to be in the process of awarding 17-19 supplier contracts. Like AIDC, American and European firms that are involved in both commercial and defense business are competing to play a role in what is probably the fastest growing aviation market in the world.