AVIC seeking growth beyond aerospace sector

Wu Guangquan, president of AVIC International Holding Corp, and Teledyne Technologies Inc executive vice-president John Kuelbs exchange mementos during a ceremony to seal the Chinese company's 2011 acquisition of Teledyne subsidiary Continental Motors Inc, an aircraft-engine maker based in Alabama. Provided to China Daily

China's State-owned aerospace giant appears to have more confidence in the US economy than many economists do. Aviation Industry Corp of China, or AVIC, having spent $1 billion last year to acquire three engine and aircraft makers in the United States, now plans to buy an upscale resort in Southern California.

Beside aviation, "our business covers new energy, real estate, hotels, high-end retail, international trade, logistics, electronics and more," said Zhang Xuming, president of AVIC's US division, located near Los Angeles.

AVIC International credits improving US-China relations for its recent acquisitions and earlier partnerships with Boeing Co, General Electric Co, Honeywell International Inc and United Technologies Corp's Pratt & Whitney engine unit.

The company was among several Chinese State-owned enterprises to establish a US presence in 1987, less than a decade after China began opening up.

In 1989, AVIC subsidiary China National Aero-Technology Import and Export Corp, or Catic, tried to acquire Seattle-based Mamco Manufacturing Inc, which supplied Boeing with metal parts and assemblies for aircraft. But the Committee on Foreign Investment in the United States, a panel of government agencies that reviews foreign takeovers of US assets for national-security reasons, rejected the deal.

President George HW Bush in February 1990 ordered Catic to divest itself of Mamco, making it the first deal to be canceled since enactment of a 1988 law to relax rules for foreign investment in the US.

"The Catic case occurred at a very different time," said Clayton Dube, executive director of the University of Southern California US-China Institute, pointing to various setbacks in US-China relations in the late '80s.

"We didn't expand our business for years under that political atmosphere," said Zhang, who arrived in 2002 to head AVIC's US operation. He admits he and his small group of employees had little to do until 2008, when they moved into new offices in Pomona, California, and the US economic slowdown presented opportunities.

In the years since, AVIC's acquisitions have included Continental Motors Inc, an aircraft-engine maker in Alabama, from Teledyne Technologies Inc.

The transaction was finalized in January 2011 during Chinese President Hu Jintao's visit to the US. AVIC has said it plans to invest $80 million in Continental over four to five years; it has begun making local hires for a research and development group at the unit.

The Chinese company last year also acquired Minnesota-based Cirrus Industries Inc, one of the world's biggest makers of propeller aircraft, for $210 million.

The Cirrus deal, like all others involving AVIC, was reviewed by CFIUS. The panel approved the purchase, amid concerns from some US officials. Representative Chip Cravaack, a Republican from Minnesota whose congressional district includes Cirrus' home base of Duluth, had urged CFIUS to use "extreme caution" in examining the deal, saying the company's technology could be used by China's military. Cirrus co-founder Dale Klapmeier responded by calling the congressman's concerns "unfounded".

"Chinese participation in the aviation industry isn't necessarily a bad thing, and the folks in Duluth and Grand Forks could have suffered a worse fate," said Russ Niles, editor in chief of aviation-industry news website AVweb. (Grand Forks, North Dakota, is home to Cirrus' aircraft-design operations.)

Many in Duluth and surrounding communities welcomed the deal once it became clear that it wouldn't lead to offshoring of production.

Due to the US economic slowdown, Zhang said, Cirrus' production shrank from more than 700 aircraft a year to fewer than 300. That forced the company to lay off some workers. Better news came in May, however, when Cirrus announced that it will bring to market the Vision SF50, the first single-engine jet aircraft for civilian use.

Zhang described the recent acquisitions as "win-win". Pointing to the unprecedented boom in China's auto industry, he said similar growth in aviation is expected "one day" and that its US assets make AVIC better-equipped for when that comes.

AVIC also plays a leading role in providing services to other aviation companies. "To stay strong in our profession and our focused areas is the key," Zhang said, adding that the company emphasizes "people, technology, marketing and creativity".

It also has facilities in over 40 countries, serving both mature and emerging markets. In developing countries, Zhang said, AVIC provides local businesses access to advanced technologies and products. In developed countries, the focus is "technical cooperation" and "technical importing".

"That happens more often in Europe" than in the US, "where there's less of a barrier to forming direct partnerships," the executive said.

Beyond that, AVIC is increasingly working in "non-sensitive areas and technologies that are meaningful for all human beings," Zhang said.

He cited Lin Zuoming, chairman of Beijing-based AVIC: "In the aviation industry, there are no competitors, only partners."

wangjun@chinadailyusa.com