Air Transport World

'Normal business caution - squared.' (aviation industry in China)

With visions of profit plums dancing in their heads, suppliers of aviation goods and services have plunged into China. The Chinese government's insistence on modernizing its aviation system as well as the potential--fewer than 2% of 1.2 billion citizens fly, 600-1,200 units needed in the next 15 years--make a compelling business case.

Then comes the hard part. Despite the fact that some 200,000 foreign-funded companies are operating in China, the process of setting up, the costs of doing business and the government's desire to build its own industry make selling no picnic.

Managers are proceeding with extreme care. China's centuries of isolation, its upheavals in the last century, its historically unhappy experiences with foreign businesses and Deng Xiaoping s imminent demise make such precaution necessary. A long-term view, patience and a willingness to take risks are required in spades.

Some well-publicized differences between China and foreign investors outside aviation already have occurred. Arthur Bernstein, head of Amber International, an aircraft financier, notes: "Certain entities are reneging on their debt, so I advise taking a videotape of the dinner ceremony [that usually concludes business deals]. Then, the Minister of Finance can't claim he didn't know anything."

Misunderstandings are occurring in aviation, too. A U.S. government official explains. "There are lots of [airport] suppliers pursuing business who have letters of intent. One company has four, another two. They're signed by the same general for the same projects. They're not worth toilet paper." And, despite the mantra about the importance of "long-term relationships, you can go over there, spend two years and come up with nothing."

A manufacturing representative counsels patience. "The Chinese don't understand why Westerners don't trust them. They mean well but a contract is still a foreign idea." The government official acknowledges the lack of experience with commercial language. He warns: "You need normal business caution--squared."

Not surprisingly, people are wary about discussing their dealings in China. An executive declares: "It's a highly political situation. No one understands it. So you don't know what [comments] could be used against you."

Northwest Airlines illustrates the sensitivity. The carrier is training pilots and flight attendants for several Chinese airlines; has sponsored training for air-traffic controllers; is interested in joint ventures to develop pilot training and operations control centers and is discussing commercial links with Chinese airlines, including possible equity links. Many other airlines are doing the same thing.

Yet, when ATW wanted to discuss these activities, a Northwest lawyer intervened, saying the appropriate managers could talk only if he participated. At the time, the U.S. was trying--and failing--to obtain a Chinese go-ahead for five flights it had awarded Northwest. …

Log in to your account to read this article – and millions more.