Asian economic slowdown may liberalize aerospace sector<\/p>\n
By Bradley Perrett<\/p>\n
SINGAPORE (Reuters): The sudden weakening of Asia's economic
\noutlook this year may prompt liberalization of the region's
\ncostly air transport and aerospace sectors.<\/p>\n
Subsidies, public ownership and regulation will probably
\ndiminish, industry analysts said.<\/p>\n
But any loss of subsidies must impede the region's uphill
\nstruggle to develop a leading aerospace industry, perhaps leaving
\nthe big U.S. and European companies dominant until well into the
\nnew century.<\/p>\n
Analysts say airlines would benefit from reforms in the long
\nterm, but air transport is highly geared to gross domestic
\nproduct and the next few years may be quite bleak.<\/p>\n
\"GDP growth, or lack of it, translates directly to air
\npassenger and freight demand,\" said the Center for Asia Pacific
\nAviation, an Australian consultancy.<\/p>\n
\"The only question is how significant the slowdown will be and
\nhow long it will last,\" the consultancy said this month in a
\nreport on Asian airlines.<\/p>\n
The weakening has started, in fact.<\/p>\n
\"We have already seen a softening of load factors,\" Carlos
\nChua, an executive with the Association of Asia-Pacific Airlines
\nin Manila, told Reuters.<\/p>\n
The Australian consultancy said that could even kill off a few
\nof the weaker Asian airlines, or at least prompt mergers and
\nmaybe regional alliances.<\/p>\n
Air transport and aerospace traditionally attract government
\nintervention like few other industries. National airlines are a
\nfocus of national pride and building aircraft is internationally
\nglamorous, especially for a developing country.<\/p>\n
But analysts said Asia could no longer afford the traditional
\nworld-wide practice of restricting air traffic treaties to favor
\nhome airlines at the expense of consumers and business
\npassengers.<\/p>\n
Instead, said an aviation analyst at a regional bank,
\ngovernments pressured to stimulate growth would increasingly see
\nforeign competition as a way of driving down prices, sharpening
\neconomic efficiency.<\/p>\n
\"Open skies are coming,\" he said. \"Not everywhere, and not
\nquickly, but they are coming.\"<\/p>\n
Peter Harbison, managing director of the Center for Asia
\nPacific Aviation, saw the International Monetary Fund urging
\nliberalization as it doled out cash to replenish the depleted
\nforeign reserves of some Asian governments.<\/p>\n
\"The international aid packages will be accompanied by
\nextensive advice about the need to liberalize the region's
\naviation system, in order to stimulate growth,\" he said.<\/p>\n
\"There will be renewed pressure from both within and outside
\nthe region to relax route access and entry controls.\"<\/p>\n
Regional governments, sensing opportunity in their weaker and
\ntherefore increasingly competitive currencies, would find it an
\nattractive option, he said.<\/p>\n
\"Tourist growth is a rapid stimulus for economies.\"<\/p>\n
Many Asian airlines are now privately owned, but few
\ngovernments have parted with their airports.<\/p>\n
Airport expansions could be a good way to boost fading
\neconomies, but governments may not be able to afford them. The
\nanalysts saw the only solution in privatization, if not 100
\npercent, then at least enough to pay for extensions.<\/p>\n
Every country can develop an airline industry roughly
\nproportionate to its own economy, but the barriers to
\nestablishing a leading aerospace sector are huge.<\/p>\n
\"Aerospace requires a tremendous amount of long-term
\ninvestment,\" said Paul Lewis, Asian editor for industry magazine
\nFlight International. \"You are not going to see a return on your
\nmoney for 10, 15, 20 years.\"<\/p>\n
Several Asian governments have provided prolonged financial
\nsupport to overcome those barriers, but analysts increasingly
\nwonder whether the subsidies will continue to be available.
\nSuch national development projects are exactly the ones that
\neconomists say have wasted Asian capital, consumed public money
\nand driven up current account deficits.<\/p>\n
\"People like the IMF and the World Bank are going to take a
\nlong, hard look at these cash-intensive (aerospace) investments,\"
\nLewis said. \"They will want to know what the money is going to,
\nwhether there will be a return.\"<\/p>\n
So far, civil aerospace has been one Western industry that
\nAsian innovation and efficiency have been barely able to dent.
\nUnlike General Motors and Volkswagen, Boeing and Airbus worry
\nalmost entirely about each other, not Asia.<\/p>\n
Many countries make some of their own military equipment, but
\neven Japan tried and failed in the 1960s to develop an industry
\nthat designed and built its own civil aircraft. Now it mostly
\nmakes parts for U.S. and European aircraft and engines.<\/p>\n
China is trying to develop in the niche market of satellite
\nlaunchers, but offers little in the much larger business of civil
\nair transport.<\/p>\n
Indonesia, on the other hand, has some of the most ambitious
\naircraft programs in Asia -- but might now cull them.<\/p>\n
The national aircraft maker, IPTN, currently offers a range of
\nturbo-prop transports and wants to develop a jet airliner seating
\n114 to 132 passengers, a market already covered by Boeing and
\nAirbus.<\/p>\n
Since development of the N2130 jet is expected to cost $2
\nbillion, the project has been heavily criticized as a luxury that
\nIndonesia could do without.<\/p>\n
Its future may be in doubt. Shortly before the IMF approved a
\nfinancial bailout of Indonesia this month, Jakarta said it would
\nreview government expenditure \"for state-owned enterprises and
\nstrategic industries.\"<\/p>\n
Hopes for an Asian civil aircraft rest also on the survival of
\ntwo less ambitious projects<\/p>\n
In one of them, a Korean consortium has signed a memorandum of
\nunderstanding to build a 70-seat jet with European partners.<\/p>\n
The other is a 105-seat airliner that China and Singapore,
\nlittle affected by the 1997 market collapse, may build in
\npartnership with Airbus.<\/p>",
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