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China Express – An example of how China is building its industry from below

Subsidies is a dirty word in the airline industry that resembles a bad habit that everyone does but no one wants to talk about. At the highest industry level the battle about subsidies has played out for years between Airbus and Boeing, backed by governments on both sides. Below that other similar battles have been taking place, such as the one between Embraer and Bombardier. However, in the most important growing market in the world there is not even an attempt to hide the use of subsidies to promote national interests.

This is of course about China and in a recent article by Reuters (link below) is an analysis of the regional airline China Express that sheds some light on how subsidies are used by the Chinese government to grow not only an airline, but its whole aviation industry. This airline flies subsidised routes, with an increasing number of subsidised home-built aircraft and last years received subsidies that made up 87% of its profits of almost 100 million USD – an increase of profits by 22% in a year where where all other airlines in China was in the red

China Express Airlines is nowhere as large as the main airlines if the country and only operates domestic routes, mostly to other cities than those with most people in the country. Many of these routes are subsidised by the government and 90% are monopolies for the airline. In addition, the airline has deals with local governments and airports that pay it regardless of passenger numbers. In total China Express receives more subsidies than the far larger major airlines due to the routes it covers. Such subsidies are not unique for China, but the scale of China’s population makes for many of them and also a bit confusing as to why subsidies are needed. This may be a temporary situation until markets for travel between less important cities have grown to carry themselves commercially.

Where it gets more interesting is when it comes to the fleet of China Express. It currently consists of 54 aircraft. Most of these are western built (11 Airbus A320-200, 3 Airbus A320neo and 38 Bombardier CRJ900) but two are Chinese built regional jets of the type ACAC ARJ 21-700ER. China Express was the first private airline in China to use ARJ21. Acoording to the article by Reuters the airline does however have 100 domestically built aircraft on order, at least 48 ARJs as well as COMAC C919s. This is seen as a way to gradually build up confidence for the locally built aircraft. One expected perk from this is that the Civil Aviation Administration of China (CAAC) will offer favourable airport slots to domestically made airplanes – yet another indirect support that can be seen as a subsidy.

Some of the subsidies that China Express receives could be seen as the type of “regional support” that many sparely populated countries have for som routes. However, the combination with local aircraft orders makes this situation different. It is likely that this would be defended by China as reasonable industrial support to build up its own aviation industry. In the context of other fierce global battles on subsidies to between aircraft manufacturers it does however look like China is simply getting away with a different standard since no one wants to, or sees any gain in, be the one challenging China. It remains to be seen at what point the current practices of subsidies in China will be challenged by other manufacturers and countries, but rest assured that there is such a point – whether those future challenges will be successful or not is another question.

Link to article:
Analysis: China Express bets on subsidised routes, home-grown jets as path to profits

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