Expert Risk Articles

Aviation in China: Ready for takeoff

China’s tightly controlled skies and cumbersome regulations have, until recently, stifled general aviation growth. However, new measures, such as allowing low-altitude flights over some cities and halving times to obtain permits, are feeding hopes that the market may take off.

Current developments in Chinese aviation

Aviation in China is on the radar as the government introduces several measures aimed at developing its nascent market. Industry observers now estimate that it will see an annual increase of 7.9 percent over the next 20 years, trailing India as the world’s fastest-growing market. The Asia-Pacific region including China and India could account for up to 31 percent of global demand by 2030.

Emerging markets, in particular China, have kept aircraft manufacturers airborne through a bout of weak demand from Western carriers. Chinese airlines accounted for 20 percent of global aircraft deliveries in 2010, and China’s civil aviation authorities estimate that by 2012 the country will need 2,100 aircrafts, nearly half of those for general aviation. It is also estimated that, for every dollar spent on an aircraft, $6 is spent on supporting sectors, leading to the burgeoning growth of the overall industry.

Toby Palham, Senior Manager for Aviation at Allianz Global Corporate & Specialty Asia Pacific, is welcoming this liberalization and the growth opportunities it presents. However, he sees it as a first step in a long journey toward freeing up the country’s airspace. He believes the main challenges in China are restrictions on landing approvals and various regulations such as fly-over approvals, airport access, restricted routes and parking limitations. However, awareness of these issues has risen considerably, and the move to change things is encouraging.

From a risk perspective, Palham says the key difficulty is obtaining quality data on risk profiles, pilots and aircraft. “It is a new industry in China, and there is still a learning process for our local partners in China to acquire the required expertise and aviation capabilities,” he said.

A real growth bottleneck has been low technical expertise and professional training for pilots, instructors, sales, support, financing and insurance. Palham estimates that at least 10,000 professionals are needed to fill the gap. “The healthy and sustainable development of China’s aviation industry requires a complete set of auxiliary projects and support industries,” he added.


Tony Palham: Senior Manager for Aviation at Allianz Global Corporate & Specialty Asia Pacific

Opening the skies

The Chinese government showed its commitment to the market earlier this year, announcing in its five-year plan for 2011–2015 that it would promote general aviation, reform airspace management and make the allocation and utilization of airspace more efficient. Authorities agreed to low-altitude flights over Hainan on a trial basis, and similar trials should start later this year near Changchun, Guangzhou and Shenyang.

Palham notes that China also needs to draw up a set of management policies and industry standards, and to implement supervision on operations, safety procedures and risk management systems.

Long-term partner

China’s aviation insurance market remains domestically controlled, with local insurance giants taking the lion’s share of business with their large risk appetites. “From an underwriting perspective, we are adopting a measured approach and closely observing developments in the industry, but we are committed to being a long-term partner working alongside our clients through the liberalization of the sector.”

“We run several international insurance programs in aviation, and Allianz can assist major clients through this platform. We are constantly identifying ways we can help clients do business in China. The AGCS philosophy is to provide exemplary service that is centrally coordinated but locally deployed,” he said.