Aircraft parts manufacturer eyes Chinese partnerships

BEIJING - The robust original equipment manufacturing (OEM) sector in China's fast-growing aerospace market is expected to provide a further boost for the US-based industrial manufacturer Eaton Corp, according to the head of the company's aerospace unit.

"China has worked its commercial aircraft through partnership with Airbus and Boeing. But now the country is emerging as a predominant and pre-eminent aircraft manufacturer," said Brad Morton, president of Eaton's Aerospace Group, during a visit to China on Tuesday.

That's because of the country's desire to make its own commercial airplanes, Morton said.

At present, OEM production generates 60 percent of Eaton's global aerospace revenue and aftermarket services account for the rest. Previously, the company had mainly provided aftermarket services for airlines and major international aircraft producers, such as Boeing Co.

With the launch of a joint venture with Shanghai Aircraft Manufacturing Co Ltd on March 7, which will produce components for China's first single-aisle passenger aircraft - the COMAC C919 - Eaton is preparing for a surge in manufacturing businesses.

"The OEM business was not a sizable market here until the arrival of COMAC," Morton said. "This partnership in aircraft manufacturing is just the beginning of our involvement in Chinese aviation. Now, with the design and development being done by a Chinese company, we've seen a real opportunity to begin partnerships with OEMs in China."

The international joint venture, the first among many being formed to support the C919 program, will focus on design and production of fuel and hydraulic conveyance systems, he said.

The Chinese partner owns 51 percent of the venture while Eaton holds the remaining 49 percent. The joint venture is valued at an estimated $1.8 billion, based on an anticipated component production volume for 2,500 aircraft. The C919 is expected to make its maiden flight in 2014 and deliveries will begin in 2016.

While the venture will initially focus on producing components for the C919 program, future plans include supplying conveyance systems for other aircraft and engine manufacturers, said Morton.

Given that last year China decided to open up its low-altitude space for general aviation, Morton believes the growing market will provide a boost for Eaton's aerospace business.

The company had first-quarter sales of $3.8 billion, a 23 percent increase year-on-year. Meanwhile, its aerospace sales reached $389 million, a rise of 3 percent compared with the same period in 2010. However, operating profit fell 8 percent year-on-year to $45 million.

"Our profit margins in aerospace were affected by increased expenses during the quarter, stemming from changes in scope, program delays, and execution of new customer programs," said Alexander Cutler, Eaton's chairman and chief executive officer, in a statement last month. "We anticipate that margins will likely improve by the second half of the year."

Morton said the decline in first-quarter profit was the result of the cyclical nature of the aerospace industry. "When there is an economic downturn, it is one of those businesses that tends to sustain itself through the initial part of the downturn but the effect becomes visible later," he said.

In general, Morton believes the market is improving as global travel - in which the Chinese market accounts for an important and significant portion - continues to grow. He expects the number of aircraft in China to double over the next 15 years.

Since entering the country in 1993, Eaton has established 27 facilities and four research-and-development centers, employing 10,000 staff members.

China Daily

(China Daily 05/12/2011 page16)