May 1 - China’s Government-fueled Commercial Aviation Juggernaut


By Kevin Mitchell


And Deafening US Silence

On September 30, 2019, an airport that eventually could rival the size of Atlanta’s Hartsfield-Jackson International Airport is slated to open. At a cost to the Chinese Government of over $13 billion, the new Beijing Daxing Airport is just the latest in China’s unrelenting state-funded airport building frenzy.

In the next 15 years alone, China plans to build an astounding 200 new airports. Just think about that, 200 state-funded new airports in just the next 15 years. The last new US airport was Denver International Airport built nearly a quarter century ago.

Why did the Chinese Government see a need to invest billions of dollars in the massive new Beijing Daxing Airport that eventually will serve up to 100 million passengers annually? Beijing’s current airport, Beijing Capital International Airport, handled over 100 million passengers last year, second only to Atlanta, and is badly congested.

Beijing Daxing Airport will solve the Beijing Capital Region’s airport capacity needs for the long-term, right? No, the Chinese Government already is eyeing another new airport to be constructed in the Capital Region, serving Beijing, the port city of Tianjin and Hebei Province. Another mammoth new airport is planned in the Pearl River Delta to supplement already massive airport capacity in the Guangdong Province-Hong Kong-Macau greater bay areas. The pattern is obvious. China is planning for the future on a prodigious scale.

Airport infrastructure is but one example of the Chinese commercial aviation juggernaut. Its state-owned and subsidy-fueled airlines are growing rapidly too. China’s largest carrier, China Southern Airlines, has the 6th biggest fleet in the world, already besting carriers like Lufthansa and Air France. China Eastern Airlines operates the world’s 10th largest fleet.

China Aviation Supplies Holding Company (CASHC) is the state-owned company that purchases the bulk of Chinese commercial aircraft that are allocated to its airlines. Chinese President Xi Jinping recently visited Paris. He announced an order for 300 additional Airbus aircraft through CASHC, the state’s purchasing arm. His first meeting with President Trump included an announcement of a massive Boeing order.  

What does all of this mean for Delta Air Lines, American Airlines and United Airlines (Big Three)? Just ask the American Airlines employees that used to crew and support its Chicago hub flights to Beijing and Shanghai. Those daily flights have been terminated. The culprit - Chinese airlines flooding those markets with state-aid distorting capacity sold at cut-throat state-subsidy enabled prices. Vasu Raja, American’s Vice President of Network and Schedule Planning, described its losses on those routes as “colossal.”

Overall, Chinese carriers now control around two-thirds of US-China passenger traffic. But for growth restrictions in the US-China air service agreement, that Chinese market share advantage likely would be even greater.

China’s growing commercial aviation muscle is not just limited to state-funded airports and state-subsidized airlines. The Civil Aviation Administration of China was the first to ground the Boeing 737 MAX. Typically countries wait for the certifying aviation authority, in this case the Federal Aviation Administration, to ground aircraft. China, which is developing commercial aircraft in hopes of competing with Boeing, swiftly did so.

So what are the Big Three doing about this obvious state-orchestrated and government-funded commercial threat? After all, for more than four years they have been crying bloody murder about Emirates Airline, Etihad Airways and Qatar Airways (Gulf Carriers) allegedly receiving market-distorting state aid.

The short answer is nothing. The Big Three have said and done nothing about the Chinese state-funded commercial threat. When American was forced to recently wave the white flag of surrender as it was chased out of the Chicago-Beijing and Chicago-Shanghai markets did Doug Parker, its CEO, brand state-subsidized Chinese airlines an existential threat and demand meaningful action by the Trump Administration? No, not a peep from Mr. Parker.

However, that isn’t surprising. In a January 23, 2015 interview with the South China Morning Post, Mr. Parker feigned ignorance that Chinese carriers are massively subsidized. When asked about the glaring hypocrisy of waging war against Gulf Carriers at the same time the Big Three are silent about Chinese airlines, Mr. Parker unbelievably replied: “I don’t know if they (Chinese carriers) are subsidized or not.” News flash Mr. Parker, China is a state-planned and directed communist country, not a free market democracy.

The fact is the Big Three have so many interlocks with Chinese counterparts, starting with Delta’s $450 million and American’s $200 million investments in China Eastern Airlines and China Southern Airlines respectively, they have a commercial imperative to say nothing. Remember last year, the Big Three bowed to the Government of China’s demand that they drop references on their websites to Taiwan as a separate country. At the same time the Trump Administration was using a firm hand with China, the Big Three cowered in the face of bullying tactics.

The Trump Administration’s silence is more puzzling. Recently, both in Senate testimony and in a news show interview, Secretary of State Pompeo raised concerns about fledgling European carrier, Air Italy, that is 49 percent owned by Qatar Airways. The most powerful diplomat in the world had time to address the “threat” posed by a struggling airline with a little more than a dozen aircraft - fewer than half of which have long-haul capability - that allegedly is relying on Qatar state aid. Yet, he does not voice a word of concern about state-subsidized Chinese airlines that recently chased American out of the Chicago-Beijing and Chicago-Shanghai markets.

Then there is Peter Navarro, President Trump’s most outspoken hawk against Chinese market-distorting behavior and subsidies. Mr. Navarro is personally and substantially involved in the Gulf Carrier matter. Yet, not once has he publicly condemned China’s government-fueled commercial aviation juggernaut as an unfair competitive threat to US jobs. Like Secretary Pompeo, not a word from Mr. Navarro when American was forced to surrender Chicago-China flying to Chinese airlines.

Why the Trump Administration’s fixation on Gulf Carriers and complete silence on state-subsidized airline competition from China, India, Turkey and South Africa, just to name a few? If competition with state-owned carriers is such a concern, why doesn’t the Trump Administration have a comprehensive policy that applies to all state-owned foreign airline competitors rather than just selectively targeting Gulf Carriers?

We know why the Big Three are single-mindedly focused on Gulf Carriers. They regard Emirates, Etihad and Qatar to be significant competitive threats. As illustrated by Delta and American’s substantial investments in heavily subsidized state-owned Chinese carriers - not to mention that most of the Big Three’s alliance partners are state-owned - the Big Three don’t have a principled position against state ownership and support for airlines. Instead, for the Big Three, their condemnation of state-owned carrier competition is nothing more than a competitive sword they selectively and disingenuously wield.

However, the Trump Administration’s selective focus is perplexing. China is a leading case in point. The Trump Administration has time to focus on small Air Italy, which is cutting routes and appears to be suffering a pummeling in the marketplace. Yet, Administration officials give Chinese airlines a complete free pass. Puzzling, to say the least.

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