China's Ambition/Investments in General Aviation Market Sector

As the market economy and worldwide influence of China grows, so too does the nation's significance to the U.S. economy. Not only the U.S. are one of the biggest consumers of Chinese goods, but China is also one of U.S. biggest creditors.  With that being said, China has made many investments within the past years in its general aviation market sector.   Chinese authorities will always expect explosive growth in sector to always continue in the future.

On February 28th of last year, China Aviation Industry General Aircraft Co. Ltd. (CAIGA) has purchased Cirrus Aircraft Industries. Cirrus CEO, Brent Wouters, has made a statement that the sale to CAIGA is sure to boost Cirrus’ Vision single-engine jet program (Hirschman, 2012).  In Wouters views,  the sale of Cirrus marks a major milestone for the pioneering aircraft manufacturer that introduced airframe parachutes, glass cockpits, and composite materials to general aviation.  CAIGA has the resources that will allow Cirrus to accelerate its aircraft development and the global expansion of Cirrus.

In addition of China's investment in general aviation, in 2012, China has recently purchased Hawker Beechcraft who filed for bankruptcy protection in May to expedite a prearranged restructuring of the company and some of its subsidiaries (Hegeman, 2012). The Chinese firm offered nearly $1.8 billion to purchase the company's business jet and other aviation operations.  However, there maybe an collapse on the deal due to complication nature of the deal, much of which was related to the origin of the buyer.

The reasons varies for rapid growth in Chinese general aviation industry. China has always been a major production country for the U.S. in which us Americans gives China much profit alone.  The Chinese authorities has been developing numerous policies including opening low-altitude airspace specifically for general aviation operations (Koh, 2012). Also, the demand for corporate aviation plays a big role. Corporations and citizens will be in need of additional modes of transportation; aviation.

"Emerging markets, in particular China, have kept aircraft manufacturers airborne through a bout of weak demand from Western carriers. Chinese airlines accounted for 20 percent of global aircraft deliveries in 2010, and China’s civil aviation authorities estimate that by 2012 the country will need 2,100 aircrafts, nearly half of those for general aviation. It is also estimated that, for every dollar spent on an aircraft, $6 is spent on supporting sectors, leading to the burgeoning growth of the overall industry (Koh, 2012)."

With expansion taken place in China, career opportunities will be limited within the United States. The job market in U.S. aviation will quickly decrease. If China persist on investing more companies in the U.S., more jobs will be transferred over to China and other countries.  The U.S. will be left with nothing; particularly in general aviation and that American will have to relocate else where across the globe for their dream job in aviation. 

Thanks for reading

Ryan Pride

 

Sources:

Hegeman, R.  (2012, July 9).  Chinese firm to buy hawker beechcraft for $1.8b deal.  Retrieved from:  http://usatoday30.usatoday.com/money/industries/manufacturing/story/2012-07-09/hawker-beechcraft-china/56120442/1

Hirschman, D. (2011, February 28). Cirrus sold to china. Retrieved from: http://www.aopa.org/aircraft/articles/2011/110228cirrus_sold_to_china.html

Koh, W.  (2012).  Aviation in china: ready for take off.  Retrieved from:  http://www.agcs.allianz.com/assets/PDFs/riskfeatures/2011_02_Aviation_in_China.pdf

Lei, Z.  (2012, Novemebr 13). Civil aviation industry ready to take off .  Retrieved from:  http://www.chinadaily.com.cn/cndy/2012-11/13/content_15920218.htm

 

U.S. Airways/American Airlines merge in process...

I must say that airlines’ merging puts a pressure on air fares for traveling passengers but can also produce airline growth.  Throughout the past years, airline mergers have taken place due to profitability for its combined company; Delta/Northwest, United/Continental and currently in process American/US Airways.  The boards of American Airlines and U.S. Airways voted late Wednesday for an $11 billion deal to merge the two carriers. The result would make the combined airline retaining the name American Airlines, the largest in the world (Loyd, L.).  Consumers will most definitely complain about increase in prices and will try every alternative to seek cheaper prices elsewhere.  That will definitely be impossible due to the fact that American Airlines/U.S. Airways will be considered the largest merging airline, only if that consumer is still interested in that company for whatever reason that may be.  However, the choices on airlines are quite slim due to past and current merging.  Luckily, U.S. Department of Justice has the ability to limited on consumers and raising prices in which is still a working process.

Airlines have a very, very hard time making profits. US Airways endured a couple of round trips to bankruptcy court, and American is still trying to pull out of a bankruptcy filed in 2011 (Geewax, M.).  Merging AA/US Airways could definitely  be beneficial for American Airlines and could be pulled from bankruptcy pretty quickly by more consumers.  Monopolizing market is a main concern and must be prevented. This is why The Justice Department antitrust division is an important part because of that issue may occur.   

As in management, merging can definitely affect those who manage any department for either airline; American Airline/U.S. Airways and that it doesn’t make sense to have double management for each department.  Most likely for pilots-and even managers, there will be requirements that may have to be met depending on airline qualifications; American Airline and U.S. Airways. This is where seniority comes in.  Many pilots, flight attendants, baggage handlers, ticket agents may be laid off due to over staffing.  However, there is no question that the best worker with contributions to the company or great work ethics and experienced pilots with more flying time will be the chosen one by management to remain employed with the company once this proposed merger is approved by U.S.Department of Justice. Lets not forget the controversy of both unions combining together as well.  Both airlines would to analyze what will remain the same and what will change union wise before merge take place.

As far as merge is concern, this can only affect me as management by the amount of workload from both airlines combining and managing safety in which will be quite tough due to the differences between airlines qualifications and set certain standards.  As for a pilots perspective, it would not much effect them in a bad way due to the fact that they will obtain more experience in flying different aircraft's and senority in which they will be on top of the list to be rehired or remain with the new merged airline 'American Airline'.  Nevertheless, as mention before, there could be some lay-off due to over staffing.

Thanks for reading.
Ryan Pride

Sources:

Geewax, M.  (2013, February 14). How the american-us airways merger might affect you.  Retrieved from:  http://www.npr.org/2013/02/08/171506095/how-the-american-us-airways-merger-might-affect-you

Loyd, L.  (2013, February 14).  US airways, American merge in $11 billion deal.  Retrieved from:  http://www.philly.com/philly/business/20130214_US_Airways__American_merge_in__11_billion_deal.html

News Desk.  (2013, February 14).  American airlines-us airways merger by the numbers.  Retrieved from:  http://www.pbs.org/newshour/rundown/2013/02/american-airlines-us-airways-merger-by-the-numbers.htm

The New York Times.  (2010, May 8).  Why merge?.  Retrieved from:  http://www.nytimes.com/2010/05/09/opinion/09sun2.html?_r=0

 

Moderate Focus on Corporate Aviation...its "valuability"

I believe Corporate Aviation is important for those who run businesses that generates a great deal of income and in need for transportation of products and CEO's.  However, in an economy perspective, its not that important; due to the fact that its costly to run business aviation around the globe and may cause some type of debt with the general public (taxpayers). Corporate Aviation fits the transportation needs of corporations or businesses who desire to have their own personal air transportation, and not rely on the airlines to provide their air transportation needs.  Keep in mind that corporate aviation allows company executives or personnel to travel when they need to, and not be reliant on the airline scheduling system.  So, corporate aviation means efficiency.  It’s expensive efficiency, yet when time equates money, corporate aviation allows access to thousands of airports unserved by the airline system.  It puts company personnel very close to the target zone of their customers, or business enterprise.

Obama has made a great point when stating that corporate jet owners should not get a tax break and should proceed paying current or higher taxes.  Its obvious that if owning a jet, you are considered wealthy to not even complain about paying taxes.  President Barack Obama’s broadside against giving corporate jet owners a tax break scored him some populist points while potentially saving taxpayers $3 billion over the next decade (Stone, 2011).  I say that saving taxpayers money is what gave Obama more attention in the U.S. from his fellow Americans within the last few years; not just in corporate aviation.

Accelerated depreciation plays a big role for fixed assets.  Any method of depreciation used for tax purposes that alows greater deductions in earlier years of the life of an asset will be considered an acceleration of depreciation.  For example, President Obama signed a bill–the American Taxpayer Relief Act of 2012 that extends the 50-percent accelerated depreciation for capital goods, notably including business aircraft, through the end of this year. According to NBAA, this means that, in general, new business aircraft purchased this year are eligible to qualify for 50-percent “bonus” depreciation (Trautvetter, 2013). 

"Accelerated depreciation has consistently proved to stimulate sales in difficult economic conditions,” NBAA president and CEO Ed Bolen noted. “Given the current marketing environment, we view the continuation of accelerated depreciation as an effective sales incentive."

With all this being considered, corporate aviation is still beneficial for businesses/companies who utilizes it even if it does require higher tax pay.  Studies have found that businesses which use business aviation as a solution to some of their transportation challenges return more to shareholders than companies in the same industry that do not utilize business aviation (No Plane No Gain, 2013).  As mention before, the vast majority of companies utilizing corporate aviation-85%- are small and mid-size businesses, many of which are based in the dozens of markets across the country where the airlines have reduced or eliminated service.  In all, it definitely serves its purpose.

Sources:

No Plane No Gain.  (2013, February 11).  Why companies utilize business aviation.  Retrieved from:  http://www.noplanenogain.org/Advocacy_Tools.htm?m=47&s=407

Stone, D.  (2011, June 30).  Obamas privaate jet-offensive.  Retrieved from: http://www.thedailybeast.com/articles/2011/06/30/obama-spars-with-corporate-jet-owners-over-tax-breaks.html

Trautvetter, C.  (2013, January 8).  U.S. extends bonus depreciation for business aircraft.  Retrieved from:  http://www.ainonline.com/aviation-news/ainalerts/2013-01-08/us-extends-bonus-depreciation-business-aircraft