This white paper will consider three key reasons for a slowing of the growth in Chinese business aviation. Learn more

1. APRIL 2015 | www.cit.com
China has been called the future of business aviation.
With annual growth projections near 20 percent, industry
experts were confident that an emerging market where big
jets ruled was going to lead to industry-wide expansion. But
several barriers are negatively effecting this growth. To what
extent will these obstacles impact private aircraft sales in
China?
Business Aviation in China –
Enormous Potential,
Serious Obstacles
Business Aviation in China –
Enormous Potential,
Serious Obstacles

2. 2 APRIL 2015 | www.cit.com
The business aviation sector in China is very new. Private
ownership of aircraft was not even legal until 2003. But by
the end of 2009, Chinese officials were welcoming foreign
investment in business aviation enterprises while praising
private jet ownership.
As a result, fleets in the country have been growing at
double-digit rates throughout the past five years. This
expansion should continue, though the rate of growth has
slowed. China is forecasted to become the world’s third
largest region new aircraft deliveries over the next 20 years.
According to industry reports, a total of 950 private aircraft
purchases are expected between 2014 and 2023, with 1,275
further deliveries between 2024 and 2033.
An improving economy and a seemingly greater cultural
acceptance of private jet ownership over the past decade has
helped spur this expansion, and numerous predictions seem
to indicate sustained growth for business aviation in China.
However, there has been a noticeable cooling of the market.
Honeywell’s Global Business Aviation Forecast for 2015
cites disappointing growth figures and government austerity
initiatives for a projected decline in sales. As a result, the
total share of global demand over the next five years for
Asia Pacific – with China as its hub - is only about three
percent. This is off two full points from 2013 levels.
What are the reasons for this sudden decline? A cooling
economy – the weakest in over two decades - is certainly a
major factor. However, other elements must be considered,
such as:
• Much of the airspace in China is controlled by the
Air Force. Military leaders have taken a very restrictive
approach to business aircraft and operators struggle to get
flight plans approved. Pressure has been placed on the
government to ease restrictions in this area but reform has
been slow.
• The Chinese government has taken a more adversarial
stance to displays of wealth – including corporate jet
ownership. While executives insist that private jet
ownership is necessary for conducting business, many
Chinese look upon these aircraft as an ostentatious status
symbol.
This white paper will consider three key reasons for a
slowing of the growth in Chinese business aviation.
Introduction
Contents
3
5
6
7
Slowing Economy
Airspace and Infrastructure
Restrictions
Changing Perceptions of
Private Aircraft Ownership
Conclusion

3. Much of the boom in Chinese business aviation was
provided by a rapidly expanding economy.
However, this growth is slowing down. In
2014, China’s economy grew by 7.4
percent, its lowest rate since 1990.
Real estate and heavy industry,
like steel production, have
contributed to a slowing of the
national economy. Housing
prices have been sliding and
while the pace of the slump
has begun to recede, new
construction has also suffered.
China still enjoys an increasing
amount of aircraft deliveries, but
the number of private jets being
put up for sale is also on the rise and
is now into double digits (10.2 percent)
according to a report by Corporate Jet
Investor. This figure also suggests a slowdown in
business aviation according to many brokers.
The cooling of economic growth is likely to be only
a minor setback to the sector. Private jet ownership in
China is expected to increase sevenfold from 2012 to
2032 according to forecasts from Bombardier,
a Canadian aircraft manufacturer. The
forecast also predicts that China will
account for nearly 10 percent of the
worldwide business jet fleet in
2032. This compares to less than
2 percent in 2012.
This prediction conforms to
the most recent Honeywell
forecast – a standard guide for
the business aviation industry.
Most Chinese aircraft owners
cited in the report mention
economic uncertainty and fiscal
austerity as negatively impacting their
buying decisions in 2015.
However, this is a temporary concern. Most
forecasts still call for a strong recovery and continued
economic growth within the country for the next decade.
3 APRIL 2015 | www.cit.com
A Slowing Economy
The People’s Bank of China is accelerating its effort to stimulate the Chinese economy with a series of recent moves.
It decided in late 2014 to lower its one-year deposit rate and reduce the one-year lending rate.
In February 2015, the bank reduced the share of assets that commercial banks must hold as reserves. This is seen as
a huge boon for financing and is particularly beneficial to private jet buyers since these aircraft typically require large
initial investments.
“The People’s Bank of China will continue to implement a prudent monetary policy maintained to an appropriate
degree, guide monetary credit and social financing to steady moderate growth, and promote the smooth operation of
economic health,” declared the bank in an official statement.
“Survey
findings from this
part of the world rely on
a smaller base of operator
pools, and we do not believe
the 2014 results represent any
long-term structural change in the
region’s fundamental underlying
growth drivers or commitment to
business aviation,”
-Brian Sill, President, Business
and General Aviation,
Honeywell Aerospace.

4. “We agree that the long term prospects remain very
strong,” said Richard Koe, an analyst with WINGX
Advance. “That’s because of fundamentals such as size of
country, increase in number of very wealthy individuals,
growth in trade and FDI, and planned investment in
aviation infrastructure development.”
Business aviation executives agree with these forecasts
and say demand for corporate jets in China has been
rising. They are positive about long term prospects for the
industry. “In the next 10 to 20 years China will become
one of the biggest aircraft markets in the world,” predicts
Diana Chou, Chairwoman of Jetcraft Asia. “One day it
could be even larger than the US sector.”
4 APRIL 2015 | www.cit.com
Where do you see the Chinese business aviation
market in 5 – 10 years?
We are confident that in the long term - certainly over
the next 10 years - the prospects for the Chinese business
aviation market are good. China’s large population,
growing segment of high net worth individuals, high-
growth companies and vast geography will propel an
increase in business jets. In the short run (the next couple
years), the market looks as though it will be tempered
by decelerating economic growth and internal political
pressures. But certainly the long term fundamentals for
business look good.
Is the economic slowdown a short term concern?
The key word here is “slowdown.” Any time an economy of
China’s size slows, it is a concern for world economies and
markets. And we are seeing the effects of this slowdown
in energy and commodity prices. But it is important to
note that China’s economy is not contracting. So, what
we are seeing in China is not a recession. Rather, even if
you cut the official growth statistics by half, you see an
economy that is growing at a pace that would be envied by
most other countries. Certainly there are notable pockets
within the Chinese economy - such as real estate - where
the effects of past overinvestment are being felt and
where we would expect some pain going forward. But the
macro theme in China is growth at a pace that is lower
than the past but still good by world standards. Whether
that reduced level of growth is a short or long term
phenomenon (once the economy and the people adjust to
a pace of growth that is lower than the past - but still good)
we would argue that it is a more fundamentally sound and
sustainable basis for the country’s future.
What is your view of financing in China?
CIT has been in China for 17 years, financing a wide
variety of general equipment types as well as commercial
aircraft. In recent years we have been financing business
jets for Chinese entrepreneurs. This is the latest expansion
of our lending activities in the country and the region. For
sure, it is still by comparative standards a new market.
The fact that many of the legal remedies available to
financiers of business jets have not been tested in the
courts is a consideration when making a loan or entering
into a business jet lease in China. But in that sense
China does not differ much from many other emerging
markets. There are many regions in which the fact that
legal remedies have not been tested is largely because
there have been virtually no contentious defaults. So to
that extent, financing business jets in China has all of
the inherent risks (and rewards) that are seen in other
developing economies worldwide.
Any thoughts on airspace/infrastructure issues?
We have seen sharp growth in the number of business
jets deployed in and around China. It is encouraging
to see the recent commitment from the government to
change regulations that will open airspace. These changes
will eventually promote faster growth in the general
aviation business sectors - particularly the rotary wing
and turboprop areas. Construction of additional airports
and other infrastructure is still needed to support growth
in aviation across China. The government certainly
recognizes how infrastructure can impact macroeconomic
growth – positively and negatively. We see this in the
country’s commitment to building highways and high-
speed rail service. In the past the commercial and general
aviation industries have grown despite these headwinds.
And the fact that government seems to be taking steps -
however halting - to address these issues going forward,
makes us feel that the long term potential for growth in
China is good.
Q&A with Mike Kahmann, CIT Business Aircraft
Mike Kahmann is Managing Director & Group Head,
CIT Business Aircraft Finance

5. China’s airspace is strictly controlled by the military.
Starting in 2010-2011, Chinese officials put a greater
emphasis on business aviation as a growth sector in the
national economy. The Civil Aviation Authority of China’s
(CAAC) Air Traffic Management Bureau has
led efforts to free up access to air space
and to ease congestion. The amount
of airspace now free from military
use is about 20 percent, which is
actually an improvement over
a few years earlier. Despite
these gains, the military still
keeps a tight grip on the
availability of most of the
national airspace.
In addition to airspace
access, there is a related
problem of flight plan
restrictions. This makes
it difficult for anybody
wanting to get approvals
to fly private aircraft in
the country. But there have
been some bright spots when it
comes to the reform of flight plan
restrictions. Five years ago, it took on
average of between three to six days to get
flight plans approved by the government. There
was also a fee of $4,000.
The fee has since been waived for Chinese-registered
aircraft and flight plans can now be filed up to six hours
before a departure. But the restrictions and fees are still
in place for foreign-registered aircraft. Moreover, the
military often schedules air drills and weapons tests on
short notice, disrupting both commercial and private
aviation operations.
China also suffers from infrastructure problems that
make it harder for business aviation. There is only
one flight training school in the entire country, which
contributes to a chronic shortage of pilots. There are less
than 200 airports available to private aircraft in China.
By comparison, the U.S. has more than 5,200 airports
available to private aircraft. In addition, Chinese airports
are only allowed to have one fixed base operator (FBO) at
each facility.
The capital city of Beijing is the prime destination for most
business travelers. However, it has only one major airport,
which is already at capacity with commercial flights.
Private aircraft are granted only one slot per hour during
peak traffic times.
There are plans for an additional airport in Beijing.
In 2013, Chinese officials announced the
construction of a new airport with seven
runways. It should be completed by
2018 though it is still unclear to
what extent private owners will
be able to access the facility.
A promising development
is the proposed Superior
Aviation Town, a private
facility built by Superior
Aviation Group that
will be devoted entirely
to business aviation.
Located just south of
Beijing, the project will
include a 7,800-foot
(2,400 meters) hard-surface
runway, taxiways, three FBOs,
helicopter pads and aircraft
parking areas. Superior Aviation
Town is scheduled to be completed
in 2020 though final approvals are still
pending from the Chinese government.
5 APRIL 2015 | www.cit.com
“Air space restrictions
are the number one
restriction in our view.
Essentially it comes down to
military (PLA) control. That has
eased a little, with some low level
airspace freed up the last 2 years. Also
it’s now easier to get flight permits, at
least for locally registered operators.
But airspace reform is still very partial
(remains 80% restricted). In this
respect China will never resemble the
US market.”
-Richard Koe, Managing Director,
WINGX Advance
Changing Perceptions
of Private Aircraft

6. 6 APRIL 2015 | www.cit.com
Changing Perceptions
of Private Aircraft
Unlike the U.S., where business aviation is seen as a
necessity for commercial activity, private jets in China are
still viewed as an ostentatious status symbol according to
Alud Davies, editor of Corporate Jet Investor. “Changing
the attitude of China towards the real value of
business aviation is proving to be hard
work, with the general public still
believing that business jets are simply
play things for the rich. And there
is undoubtedly an element of
truth in that.”
In fact, Chinese billionaires
often think of their jets much
like their yachts and use them
for parties and gambling trips,
notes Davies.
Many Chinese executives prefer
expensive, wide-body jets as the
aircraft are still considered vehicles
for entertaining clients, friends and
partners, even as they are used for
business.
But as Chinese companies started to expand overseas,
executives began to appreciate business aviation for more
tangible benefits. Simply put, more Chinese executives
need to fly on a regular basis to Australia, Europe or the
United States.
“Many of our clients bought their own private jets so they
could have more flexibility regarding where to fly to and
when to fly,” said Jenny Lau of Sino Jet Management. “Jets
are more than just something to show off their wealth -
they are a key transportation means.”
But recently the government has frowned
upon private jet ownership and there
may be a backlash against business
aviation. President Xi Jinping
launched austerity measures upon
taking office in November 2012.
His reforms were primarily
directed at China’s wealthy elite
and its state-owned companies,
with the stated goal of reducing
graft and corruption.
“This is a problem and we don’t
see it going away in the short term,”
states Koe. “China is only at the
beginning of a major reform program.
Also the anti-corruption drive appears to
be the personal crusade of Xi Jingping, and
he’s only just started his term in office.”
It remains to be seen to what extent these measures will
have a harmful long-term impact upon the sector.
According
to Forbes, China
had 242 billionaires in
2014, up from 168 in 2013.
For comparison, there are 492
billionaires in the United States.
The list of Chinese billionaires
includes Alibaba’s Jack Ma who is
the country’s richest person with
a net worth of $19.5 billion.
The top 100 richest Chinese
billionaires are now worth
a combined $376
billion.

7. 7 APRIL 2015 | www.cit.com
Conclusion
All forecasts indicate a steadily expanding pool of private
aircraft owners in China. There are currently 377 private
jets in China, with an additional 344 Chinese-registered
aircraft located around the globe according to industry
analysts. This is a relatively small number given the
increasing amount of high net worth individuals in the
country. Indeed, there are only slightly more jets than
there are billionaires in the nation. For comparison, there
are over 15,000 private aircraft in the U.S. with only
about 250 more billionaires than China. Brokers and
other business aviation executives have good reason for
optimism in the growth of this sector.
However, short term issues have arisen which, if not
addressed, could endanger or at least limit this growth
potential.
An economic slowdown, lack of airspace, limited
infrastructure and changing attitudes to wealth and
private jet ownership have contributed to a slowing of
growth in this sector. How Chinese officials react to these
issues will have a tremendous impact upon the nation’s
business aviation industry in both the short and long
term. These effects will also be felt by the global business
aviation industry which sees China as perhaps the major
region for future growth.
“For the last few years China has been the star of Asia and
viewed as ‘the next big thing’ in business aviation. And
with good reason.
From 2013 to 2014 Asia’s total fleet grew by 6 percent.
China is the major player in this region and has the largest
fleet. But to put this into a global perspective, China
remains outside the world’s ‘top 10’ countries by business
fleet. The U.S. leads by far with Brazil – another emerging
market - in the number two spot with 1,635 aircrafts.
France rounds out the top ten list with 410 so China is still
slightly behind the top nations.
That being said, China’s market is quickly maturing – not
only in terms of infrastructure, but also in aircraft type.
Although enthusiasm for the market remains high, most
economic indicators point to a recent slowdown in China’s
economy. It will be interesting to see if this trend towards
maturity continues or whether China simply stalls.”
-Nick Klenske, Editor, FlyCorporate

8. 8 APRIL 2015 | www.cit.com
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