Asian economic slowdown may liberalize aerospace sector
Asian economic slowdown may liberalize aerospace sector
By Bradley Perrett
SINGAPORE (Reuters): The sudden weakening of Asia's economic outlook this year may prompt liberalization of the region's costly air transport and aerospace sectors.
Subsidies, public ownership and regulation will probably diminish, industry analysts said.
But any loss of subsidies must impede the region's uphill struggle to develop a leading aerospace industry, perhaps leaving the big U.S. and European companies dominant until well into the new century.
Analysts say airlines would benefit from reforms in the long term, but air transport is highly geared to gross domestic product and the next few years may be quite bleak.
"GDP growth, or lack of it, translates directly to air passenger and freight demand," said the Center for Asia Pacific Aviation, an Australian consultancy.
"The only question is how significant the slowdown will be and how long it will last," the consultancy said this month in a report on Asian airlines.
The weakening has started, in fact.
"We have already seen a softening of load factors," Carlos Chua, an executive with the Association of Asia-Pacific Airlines in Manila, told Reuters.
The Australian consultancy said that could even kill off a few of the weaker Asian airlines, or at least prompt mergers and maybe regional alliances.
Air transport and aerospace traditionally attract government intervention like few other industries. National airlines are a focus of national pride and building aircraft is internationally glamorous, especially for a developing country.
But analysts said Asia could no longer afford the traditional world-wide practice of restricting air traffic treaties to favor home airlines at the expense of consumers and business passengers.
Instead, said an aviation analyst at a regional bank, governments pressured to stimulate growth would increasingly see foreign competition as a way of driving down prices, sharpening economic efficiency.
"Open skies are coming," he said. "Not everywhere, and not quickly, but they are coming."
Peter Harbison, managing director of the Center for Asia Pacific Aviation, saw the International Monetary Fund urging liberalization as it doled out cash to replenish the depleted foreign reserves of some Asian governments.
"The international aid packages will be accompanied by extensive advice about the need to liberalize the region's aviation system, in order to stimulate growth," he said.
"There will be renewed pressure from both within and outside the region to relax route access and entry controls."
Regional governments, sensing opportunity in their weaker and therefore increasingly competitive currencies, would find it an attractive option, he said.
"Tourist growth is a rapid stimulus for economies."
Many Asian airlines are now privately owned, but few governments have parted with their airports.
Airport expansions could be a good way to boost fading economies, but governments may not be able to afford them. The analysts saw the only solution in privatization, if not 100 percent, then at least enough to pay for extensions.
Every country can develop an airline industry roughly proportionate to its own economy, but the barriers to establishing a leading aerospace sector are huge.
"Aerospace requires a tremendous amount of long-term investment," said Paul Lewis, Asian editor for industry magazine Flight International. "You are not going to see a return on your money for 10, 15, 20 years."
Several Asian governments have provided prolonged financial support to overcome those barriers, but analysts increasingly wonder whether the subsidies will continue to be available. Such national development projects are exactly the ones that economists say have wasted Asian capital, consumed public money and driven up current account deficits.
"People like the IMF and the World Bank are going to take a long, hard look at these cash-intensive (aerospace) investments," Lewis said. "They will want to know what the money is going to, whether there will be a return."
So far, civil aerospace has been one Western industry that Asian innovation and efficiency have been barely able to dent. Unlike General Motors and Volkswagen, Boeing and Airbus worry almost entirely about each other, not Asia.
Many countries make some of their own military equipment, but even Japan tried and failed in the 1960s to develop an industry that designed and built its own civil aircraft. Now it mostly makes parts for U.S. and European aircraft and engines.
China is trying to develop in the niche market of satellite launchers, but offers little in the much larger business of civil air transport.
Indonesia, on the other hand, has some of the most ambitious aircraft programs in Asia -- but might now cull them.
The national aircraft maker, IPTN, currently offers a range of turbo-prop transports and wants to develop a jet airliner seating 114 to 132 passengers, a market already covered by Boeing and Airbus.
Since development of the N2130 jet is expected to cost $2 billion, the project has been heavily criticized as a luxury that Indonesia could do without.
Its future may be in doubt. Shortly before the IMF approved a financial bailout of Indonesia this month, Jakarta said it would review government expenditure "for state-owned enterprises and strategic industries."
Hopes for an Asian civil aircraft rest also on the survival of two less ambitious projects
In one of them, a Korean consortium has signed a memorandum of understanding to build a 70-seat jet with European partners.
The other is a 105-seat airliner that China and Singapore, little affected by the 1997 market collapse, may build in partnership with Airbus.