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MarketScreener Homepage  >  Equities  >  London Stock Exchange  >  GKN    GKN   GB0030646508

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GKN Mulls Growth in China's Aviation Market

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04/01/2013 | 05:55am EST

SHANGHAI--GKN PLC (>> GKN plc) is evaluating the prospect of manufacturing aircraft components in China, and it is targeting steady growth in its Chinese vehicle-part supply operations, according to the United Kingdom-based company's China country chief.

GKN Aerospace, which supplies body and engine parts to both Airbus and Boeing Co. (>> The Boeing Company), is studying the Chinese market as it works on a " market-entry strategy," GKN China Holding Co. President Stefan Magirius said.

"There is very good potential" in China's aviation sector, Mr. Magirius told The Wall Street Journal.

The sector is growing rapidly in the country. Boeing last September projected that China's commercial aircraft fleet would grow to 5,980 by the end of 2031 compared with 1,910 by the end of 2011. By comparison, Boeing sees the North American fleet growing to 8,830 from 6,650 over the same period.

Meanwhile, "low-altitude air space, which is not open yet in China, will open at some point in time, and that will provide lots of business opportunities for small aircraft and helicopters," Mr. Magirius said in Shanghai.

The Civil Aviation Administration of China announced in 2010 that was planning to liberalize the country's low-altitude airspace over the subsequent five years. Last year, Civil CAAC Director Li Jiaxiang said a pilot program to ease airspace restrictions in Guangdong and Hunan provinces would be extended to the entire country by 2015, according to a report in the Shanghai Daily.

While GKN Aerospace doesn't have its own production facilities in China, it has outsourced aircraft components to Chinese manufacturers. In 2008, Hafei Aviation Industry Co. (>> Hafei Aviation Industry Co., Ltd) agreed to make engine parts for GKN that it in turn supplied to Honeywell International Inc., which makes systems for business aircraft and helicopters.

Mr. Magirius said GKN hopes to expand its partnership with Hafei. The U.K. company has also been discussing with a Chinese commercial aircraft maker a potential partnership to supply components for a planned narrow-body jetliner that is aimed at rivaling Airbus's A320 and Boeing's 737.

He declined to reveal details about the talks with Commercial Aircraft Corp. of China Ltd., known as Comac, stressing that "there is no contract or agreement in place yet."

Comac expects that the aircraft, the C919, to make its maiden flight by next year, with deliveries to start in 2016.

GKN was among the first Western automotive suppliers to invest in China when it entered the market in 1988.

Shanghai GKN Drive Shaft Co. is the U.K. company's first Chinese joint venture. It was established initially to manufacture and assemble constant-velocity joints and drive shafts for Shanghai Volkswagen's Santana passenger car.

The joint venture, in which GKN owns a 50% stake, has more than 40% of China's driveshaft market, Mr. Magirius said. In 2012, its parent reported a 19% rise in pretax profit, thanks in part to Chinese demand for its components, which are installed in premium cars from makers such as Audi AG (INSU.XE) and BMW AG.

"We supply almost everybody in the [car] market, with a stronger tie with international brands," Mr. Magirius said.

"Obviously, in the higher-end market, with higher quality and performance standards, customers are prepared to pay a fair value for advanced technology products from GKN," he said, noting that Chinese manufacturers are gradually improving their quality standards, though they aren't ready to supply the premium segment yet.

This means continued growth for Shanghai GKN given an increasing market for cars in China.

Mr. Magirius forecast 9% growth for China's passenger-car and light-vehicle market this year.

"High single-digit growth is good enough for me and for GKN," he said. "Given our market share, it basically means that we have to invest every other year into a new plant if that growth continues.

Shanghai GKN produced 12 million drive shafts last year. The joint venture is expanding capacity in the cities of Changchun, Chongqing and Wuhan. The company said in January that it planned to double the size of its business in China over the next five years.

Write to Rose Yu at rose.yu@dowjones.com

Stocks mentioned in the article : GKN plc, Hafei Aviation Industry Co., Ltd, The Boeing Company
Stocks mentioned in the article
ChangeLast1st jan.
AVICOPTER PLC -0.04% 46.66 End-of-day quote.24.89%
BAYERISCHE MOTOREN WERKE AKTIENGESELLSCHAFT 2.32% 57.35 Delayed Quote.-7.65%
BOEING COMPANY (THE) 2.43% 354.09 Delayed Quote.9.80%
ONE STOP SYSTEMS, INC. -1.12% 1.76 Delayed Quote.-9.28%
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