Press Release

Issued by Withers.

May 20, 2008

Guy Facey, Head of Commercial law in the Hong Kong office of international law firm Withers LLP.

In 2000 Boeing predicted that it would sell between 15 and 20 BBJ corporate jets in China within five years. The reality is that for privately owned operations in China, whose rapid growth in the manufacturing sector is driving demand for corporate jets, there are still significant obstacles to growth.

In 2005 there were only 13 business jets operating in China outside the government sector. Nine of them were acquired directly by airlines for the VIP charter market. China only has 100 airports (compared with 10,000 in the USA) and 22% import tax on aircraft combined with a shortage of facilities. Operators such as Metrojet in Hong Kong, who do flight planning and scheduling for foreign operators taking corporate jets into China, point out that the operating costs are much greater in China than in the USA. Landing fees, handling fees and the cost of permits are much higher and there are no tax breaks for corporate jet owners. This is despite the Civil Aviation Administration of China (CAAC) announcing in March 2006 that China was making general aviation (GA) a priority. At that time the majority of GA operations were forestry and offshore industry flights. CAAC announced new rules based on FAR Part 135 (the FAA regulation aimed at on demand air charter and air taxi operations) which would allow some operators, such as Deer Jet, a subsidiary of Hainan Airlines, to move off Part 121.

Obstacles are not limited to China - other Asian countries also pose difficulties. Japan has excellent facilities but a regulatory regime which restricts business jets by placing limitations on slots and permissions. The situation in other countries in Asia is variable. Indonesia, Malaysia, Thailand and Singapore welcome business aviation. Vietnam and Indo-China are in their infancy.

Cultural differences may also be acting as a brake on growth. Reports from India suggest that in Indian business culture it enhances your image to travel in a corporate jet. This is not the case in China where modesty is a virtue and ostentatiousness is not.

However, Hong Kong (whose Civil Aviation Department operates within Hong Kong independently from the CAAC) is seeing huge growth.

Today there must be 30 corporate jets on the ramp at Hong Kong and last year the Hong Kong Business Aviation Centre built a new hangar for HK$100 million (US$12.8 million) with 3,530 square meters of space, more than double the space of its first hanger on the same site. The hangar is large enough to accommodate an airbus ACJ or Boeing Business Jet.

In 2000, the corporate jet fixed base operations (in Hong Kong?) had 981 aircraft movements. This had grown to 2,583 in 2006.

Operators must bear in mind that it is not possible to base an aircraft in Hong Kong long-term without it being on the Hong Kong register, although there are non-Hong Kong operators who try to do things on the cheap, basing themselves elsewhere and flying into Hong Kong to pick up their clients before departing. Fractional ownership has not really taken off in Hong Kong, however what does work is co-ownership where four or five owners get together and have the aircraft managed by the same operator.

The bottom line is that growth is still forecast for China but it will be a long time coming before the market really opens. In the meanwhile, the Hong Kong corporate jet industry will continue to benefit from burgeoning demand from the mainland.