China Aviation in the aviation industry

Aviation Industry Corporation of China (AVIC1) and Aviation Industry Corporation of China (AVIC2) were spun off from the Aviation Industry Corporation of China (AVIC). The Aviation Industry Corporation of China was established in 1993 on the basis of the corporatization of the former Ministry of Aeronautics and Astronautics. At that time, the Ministry of Aeronautics and Astronautics was split into two companies: AVIC, which is responsible for aircraft development, and China Aerospace Industry Corporation, which is responsible for rocket/missile development. The companies owned by AVIC I mainly develop fighter jets, bombers and transport aircraft; the companies owned by AVIC II mainly develop attack aircraft, helicopters and transport aircraft.

China’s aviation industry has made great progress since liberation. China is one of the few companies that can produce a full range of aviation military products. It has independent research and development capabilities and a relatively complete set of related products. China's ARJ21 regional aircraft with independent intellectual property rights has entered the assembly stage and has received an initial order for 70 aircraft. The regional aircraft "MA-60" produced by XAC has entered the international market and has received good market response. The "Fierce Dragon" produced by Chengdu Aircraft has been exported to Pakistan. The performance of the "J-10" third-generation fighter jet exceeds that of the American third-generation fighter jet "F-16B", which has caused great shock to the international aviation community.

Harbin Aircraft's helicopters have made great progress, from participating in subcontracting to overall assembly, and participating in the all-round research and development of new helicopters. Harbin Airlines Group also participated in the joint venture project of Brazilian Airlines to produce regional aircraft ERJ145, and obtained a huge number of domestic purchase orders.

However, we need to realize the shortcomings of China's aviation industry. China's civil aircraft market is almost dominated by foreign aviation giants such as Boeing, Airbus, Bombardier and Embraer. Only some aviation products produced by domestic companies, such as postal transportation and military transport aircraft, are available. China is still unable to complete the development of large passenger aircraft, so it is only heavily involved in international aviation subcontracting business. Even for subcontracting business, there is a big gap between it and Japanese airlines in terms of depth of participation and business volume. The Chinese military's aviation products and equipment are still products from the 1950s and 1960s. It is beginning to equip third-generation (products after the 1980s) aviation products and begins to develop fourth-generation aviation equipment. The United States is the leader in the international aviation industry. The U.S. military is mainly equipped with third-generation aviation products and is beginning to equip fourth-generation products.

Obviously, there is a big gap between China's aviation and military products business and the world's leading countries. As China's fixed-wing aircraft manufacturer, China Aviation Industry Corporation of China is mainly responsible for the development, production and sales of military aircraft, civil aircraft and aero engines, airborne equipment, and weapons and fire control systems. Military aviation products include fighters, fighter-bombers, bombers, aerial refueling aircraft, transport aircraft, training aircraft, reconnaissance aircraft, etc. Fighters include the J-7 and J-8 series that are in mass production; fighter-bombers include the Feibao; bombers include the H-6 series; trainers include the J-7 and H-Jiao 7. Aviation engines have formed the Turbojet 6, Turbojet 7, Turbojet 13, Kunlun, Qinling and other series; air-to-air missiles have formed the Thunderbolt 5, Thunderbolt 8 and other series; aviation airborne equipment basically meets the supporting needs of the entire machine. At the same time, a batch of new-generation, high-level aviation weapons and key equipment, such as the new Xiaolong fighter jet and the Shanying advanced trainer aircraft, have achieved good market results. Civil Aircraft This report is prepared by the Research Institute of Everbright Securities Co., Ltd. and is based on legally obtained information that is as reliable, accurate and complete as possible, but does not guarantee the accuracy and completeness of the information contained.

The Aviation Industry Corporation of China (AVIC1) was established on July 1, 1999. It has 47 large and medium-sized industrial enterprises, 31 scientific research institutes, and directly affiliated professional companies and undertakings. There are 22 units, with a total of 240,000 employees and total assets of more than 100 billion yuan. Civil aircraft include the short- and medium-range transport aircraft Y-7 and its improved version and MA-60, and it has cooperated with foreign countries to produce large-scale mainline aircraft; small general-purpose aircraft include the EV-97 and so on. The internationally advanced ARJ21 new turbofan regional passenger aircraft has entered the final assembly stage and has received orders for 70 aircraft.

Non-aviation products have formed 7 categories including industrial gas turbines, automobiles and motorcycles, machinery, materials, IT, refrigeration and environmental protection equipment, and thousands of products. The group company also operates aircraft leasing, general survey, design and contracting, real estate development and other businesses.

The following is a diagram of the main subsidiaries and main products of Aviation Industry Corporation of China. The organizational chart of AVIC Group also determines the company’s main path for future integration and listing to a large extent. We will analyze the possible integration results in detail below. Aviation Industry Corporation of China II has 78 industrial enterprises, research institutes and other enterprise and institutional member units. It has controlling interests in China Aviation Science and Technology Industry Co., Ltd. listed in Hong Kong and 6 A-share companies listed in China. , and AVIC Group Holding 50 shares respectively in China Aviation Technology Import and Export Corporation and China Aviation Industry Supply and Marketing Corporation.

AVIC II mainly develops military and civilian aircraft such as helicopters, transport aircraft, training aircraft, attack aircraft, general aircraft, and unmanned aerial vehicles, as well as related engines, airborne equipment and other aviation products. It also operates the international subcontracting business of aviation products. Civilian products mainly include automobiles, motorcycles and their engines and spare parts; gas turbines, wind power generation; textiles, pharmaceuticals, medical, environmental protection equipment and other non-aviation products. In addition, the company also operates tertiary industry projects such as aircraft leasing, general aviation services, engineering survey and design, engineering contracting and construction, real estate development, and intermediary services.

In the past 50 years, its affiliated enterprises have produced a total of 6,250 aircraft of various types (including 708 helicopters), 23,800 aero engines, 10,006 tactical missiles, and millions of cars, with an annual output of The number of automobiles has reached one-tenth of the country's total automobile output. It has become an important automobile research and production base in China, and has developed and produced motorcycles and various other civilian products. Since the reform and opening up, AVIC II has also made great progress in international cooperation. China and Pakistan have cooperated to develop the K8 aircraft, China, France and Singapore have cooperated to develop the EC120 helicopter, and China and Brazil have jointly produced ERJ145 turbofan regional airliners. Projects have all been successful. , K8 aircraft, Y8 aircraft, Y12 aircraft, Z9 helicopters and other types of aircraft are exported to many countries in batches.

The following is a diagram of the main subsidiaries and main products of Aviation Industry Corporation of China II. Considering the special status of AVIC, we have broken them down so that we can subsequently conduct a detailed analysis of its integration and listing path. analyze. It mainly includes the Y-8, Y-9, and Y-12 series of small and medium-sized transport aircraft, MA60 regional passenger aircraft, the ARJ21 regional passenger aircraft under development, as well as light helicopter Z-9, medium-sized helicopters Z-8, Z-11, etc. Judging from the market situation, MA60 is mainly sold to developing countries through foreign aid projects, and orders in the domestic market are limited. The Y-8 is mainly purchased through the military, and the civilian market is also very limited.

The Z-9 light helicopter produced in China has reached the international advanced level and achieved good market results. It mainly covers armed helicopters, armed police, border defense, firefighting, rescue, etc.

The strategic change in China's civil aircraft manufacturing industry should be that the Chinese government proposed the development of large passenger aircraft as a special project for future development and approved the development project through the State Council. At the same time, Airbus will build a final assembly line for Airbus aircraft in Tianjin, which shows that the world's aviation giants recognize the development level of China's aviation industry subcontracting business and also provides good opportunities for the further development of China's aviation industry.

Almost all aircraft equipped for China’s civil aviation are imported. Airbus and Boeing mainly monopolize the trunk passenger and freight market. Regional aviation is mainly covered by passenger aircraft of Air Canada and Embraer. In the domestic subcontracting market, more than 95% is occupied by enterprises affiliated to AVIC Group One and Group Two. In 2005, of the total domestic aviation manufacturing subcontracting market of approximately US$200 million, Air China One accounted for US$112.84 million, an increase from 2004. 36.2. Among the companies owned by Air China, Xi'an Aircraft, Chengdu Aircraft, Shenyang Aircraft and Shanghai Aircraft borne 31, 22, 22 and 25 respectively, that is, US$35.14 million, US$24.9 million, US$25.07 million and US$27.73 million respectively.

The main companies involved in the subcontracting business of AVIC II Group include Chengfa Technology, Harbin Aircraft Corporation Limited and Hongdu Airlines. In 2005, the subcontracting scale was US$49 million, US$3 million and US$20 million respectively, with a total subcontracting scale of approximately US$72 million.

On the other hand, although China has gradually gained a higher proportion in the subcontracting quota, in terms of subcontracting business types, the orders obtained by China are still mainly for processing, maintenance and inspection. (MRO) and other relatively labor-intensive businesses, so the added value of products is generally not high. Data shows that Japan’s aviation manufacturing subcontracts from the United States are about 50 times that of China’s subcontracts from the United States and 200 times that of India.

Since most of the current domestic subcontracting business only provides parts services such as processing drawings and samples of parts, and the degree of batching is not high, it needs to share large R&D, design and other expenses. Therefore, this business The average gross profit is about 12. As of 2005, the main force of the Chinese Air Force's fighter force is still fighter jets developed based on Soviet technology in the 1950s, of which the largest number is the J-6. In the early 1980s, China stopped manufacturing J-6, but until Chengdu Aircraft Corporation still manufactured a number of them in service The J-7, second only to the J-6, is based on the Soviet-made MiG-21 design. China is still developing various improved versions of the J-7. The J-7's engine, avionics, fuel capacity and weapon system performance have been greatly improved. For example, the latest model of J-7 is equipped with a WP-13 turbojet engine developed by Guizhou Liyang Engine Company, which has a power increase of 15% compared to the original Soviet-made engine. This new type of J-7 has all-weather combat capabilities, a range that is twice that of the earlier model, and can carry more advanced PL-8/9 combat missiles. However, since the aerodynamic shape has not changed significantly, its air maneuverability and weapons carrying capacity are not as good as those of third-generation fighters such as the F-16, and it is not equipped with precision ground strike munitions or over-the-horizon air-to-air missiles.

Since the Chinese Air Force began its modernization process in the early 1990s, the most important thing is the purchase of Sukhoi Su-30MKK aircraft from Russia. Equipped with the ZHUK M-E radar from the Russian Phazotron Design Bureau, the Su-30MKK aircraft has become the most advanced aircraft in the Chinese Air Force. Su-30MKK has the characteristics of advanced structural design and multi-purpose machine. In addition to air combat, the Su-30MKK also has strong ground attack capabilities and can attack ground radars, command and control centers, surface-to-air missiles, and maritime targets. In addition, it can also complete the task of an early warning command aircraft and can simultaneously guide four aircraft of the same type or Su-27 series aircraft into combat. Shenyang Aircraft Co., Ltd. obtained a production license from Russia to mass-produce this type of aircraft and equip the troops. The localized designation of this aircraft is J-11B. Judging from relevant speculation information, China has equipped hundreds of aircraft of this series.

After 20 years of development and finalization, the new generation fighter J-10, which is the focus of the market, has begun mass production to equip the troops. The aircraft was developed by Chengdu Aircraft and is also a multi-purpose fighter. From a performance perspective, the J-10 aircraft is similar to the F-16 Block 30, the first U.S. aircraft that can carry the AIM-120 active radar missile. China may use vector engines on the J-10 and increase its stealth. Since this is a third-generation fighter jet independently developed by China and equipped with a domestic engine, it is highly recognized by the military and government. We estimate that it will become one of the main forces of the Chinese Air Force in the future.

The Feibao developed and produced by XAC is an independently developed twin-engine, two-seat supersonic all-weather fighter-bomber. The FBC-1 adopts a conventional aerodynamic layout. The wing is a medium-aspect-ratio swept-back upper monoplane with aerodynamic twisting on the outer wing and a fillet at the wing root. It has a fully moving mid-lower flat tail with a tilted fixed axis, a large swept single vertical tail, and a single ventral fin. It has air intakes on both sides, a wasp-waisted fuselage, and is powered by two MK-202 turbofan engines independently developed in China, which can provide a thrust of 10,000 kilograms. The main combat mission of FBC-1 is to perform ground/sea attack missions and has certain fighter and escort capabilities.

The aircraft can be used to attack deep targets in enemy campaigns, as well as to attack battlefield targets such as transportation hubs, important frontier seas, air force bases, beachheads, and troop assembly points. It can also perform long-range attack missions such as intercepting enemy large and medium-sized surface ships. FBC-1 has a more advanced weapons and fire control system. It is reported that the "Flying Leopard" fighter-bomber has a radar search range of 150 kilometers and a fire control radar range of 100 kilometers. Compared with similar domestic aircraft, the aircraft has a large radius of activity. , with strong attack power, excellent penetration performance, large bomb load, long range, and emphasis on combat capabilities at night and under complex weather conditions. The modified model has been equipped with the Navy and has begun to be equipped with the Chinese Air Force.

As the specific quantity of Chinese Air Force weapons and equipment cannot be obtained, we can only conduct qualitative analysis using foreign market analysis data. We obtained Chinese air force equipment data from the US RAND and Asian Defense Yearbooks. (This data is foreign speculation and may be quite different from the actual data.)

Based on these two sets of data, we can draw the following conclusions: First, the main force of fighters equipped by China is still the same as the previous one. Products from the 1950s and 1960s. Although the improved J-8 and improved J-7 are third-generation fighters, their performance indicators in all aspects still lag behind the standard third-generation fighter, the American "F-16". Second, China’s newly developed third-generation fighter aircraft, such as the J-10, J-11 and Flying Leopard, have begun to be equipped in the army, but their proportion is still low. Third, under pressure from the United States and Europe to begin equipping fourth-generation fighters, China will develop fourth-generation fighters. Relevant news said that China has already started relevant preliminary work.

Based on the above points, although we cannot predict China’s future demand for military aircraft, future military demand growth will be quite rapid. This growth mainly includes the need for replacement and the development of prototypes for fourth-generation fighters. Judging from the information obtained by relevant military fans, China is vigorously equipping new generation fighter aircraft, which is basically consistent with our inference. The Chinese government has begun to reform the investment system and military procurement system of national defense and military industrial enterprises, which is undoubtedly a major benefit to the military industrial enterprises that have been in a semi-planned state. We believe that both institutional changes and market development prospects will bring good development opportunities to China's aviation industry.

Relevant information shows that the demand for all aviation products will maintain rapid growth in the future, whether it is the world market or the Chinese market.

We believe that China's aviation industry will have good investment opportunities in the future, but the asset profitability and development prospects of aviation companies are quite different, and the specific situations of aviation companies need to be screened. We will then issue detailed investment reports for specific companies. Above we have briefly described the enterprise situation of the aviation industry, the current status of industry development and future development prospects, and we will make a brief summary.

First of all, China's aviation industry consists of Aviation Group One and Aviation Group Two, which manufacture fixed-wing aircraft and rotor-wing aircraft respectively. Except for armed helicopters and a small number of military transport aircraft, AVIC Group produces all military aircraft. In terms of non-aeronautical business, Air China's automobile business is larger in the market.

Second, we listed in detail the organizational structure and business content of the entire AVIC Group 1 and AVIC Group 2, which plays a very important role in our subsequent integration inferences.

Third, China’s aviation power has developed rapidly and already has considerable influence in the international market. However, compared with the advanced countries in Europe and the United States, our aviation development level is still quite lagging behind.

Fourth, China’s aviation industry faces unprecedented development prospects. Both institutional changes and market development prospects will bring good development opportunities to China's aviation industry.

Fifth, the world aviation market will develop rapidly in the future.

China Aviation Industry Integration Deduction Since mergers, acquisitions and reorganizations of listed companies require a variety of factors, we tried to conduct a sandbox deduction on the integration of the aviation industry from the perspectives of listed company interests and investment bank operations.

The risks that need to be reminded are: this deduction is just what we think is possible. We have not verified it with the relevant companies. In the end, it may be quite different from the actual situation, and the group company may even not carry out any integration behavior.