I. Global Commercial Aviation Demand Recovery is Obvious, Equipment Construction Demand Drives Military Trade Prosperity Increase

(1) The prosperity of the global civil aviation manufacturing industry is accelerating, gradually entering a new round of inventory replenishment phase

The prosperity of the global main aviation manufacturers' commercial aviation is accelerating. Compared with the main international aviation leaders (aircraft complete sets Airbus, Boeing, engine complete sets GE, Rolls-Royce, forging casting HWM), among them, Airbus, Boeing, Rolls-Royce, and GE companies, which are individually classified as commercial aviation revenue, have growth rates of 18%, 30%, 30%, and 27% respectively. According to the annual reports of GE and Rolls-Royce, GE Aviation and Rolls-Royce delivered 2075 and 458 commercial aviation engines in 2023, with year-on-year growth rates of 25% and 29% respectively; at the same time, the strong recovery of commercial aviation has brought about a rapid increase in service (maintenance & spare parts) revenue. According to GE's annual report, the performance of commercial aviation in 2023 reflected the strong demand for commercial air travel and the continued strong performance of services, with service revenue accounting for more than 70% of the annual aerospace revenue. Taking the world's leading aircraft structural parts supplier, American Forged Company Howmet, as an example, its second quarter revenue in 2024 increased by 14% year-on-year, with commercial aviation as the main growth point, increasing by 27% year-on-year, and raising the full-year performance guidance.

In 2023, the order volume of the world's two major aircraft manufacturers stabilized and rebounded. According to data from Bloomberg, Boeing's official website, and Airbus's official website, Airbus rebounded rapidly after the global health event in 2020, until 2023, its order number reached a new high since 2001, with a net increase of 2094 commercial aircraft orders in 2023, a 155% increase compared to 820 in 2022. Boeing Company, after experiencing a low order period in 2019-2020, began to gradually emerge from the predicament, with the net increase in orders for commercial aircraft gradually rising, with a net increase of 1314 orders in 2023, a 70% increase compared to 774 in 2022. By the end of 2023, the delivery numbers of Boeing and Airbus were 528 and 735 respectively, with a year-on-year increase of 10% and 11%, and the cumulative orders on hand / this year's delivery volume of Boeing and Airbus gradually increased to 11.7 in 2023, with a slowdown in production growth.

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At present, given the high concentration of downstream commercial aerospace main manufacturers and the stability of the supplier system, aircraft manufacturers such as Boeing and Airbus, as well as engine suppliers Rolls-Royce (RR), financial data show a clear trend: the global civil aviation is gradually entering a new round of inventory replenishment. Boeing, during the period of 2019-2023, although the growth rate of raw material inventory slowed down, the demand growth is still strong, judging that it is in the stage of passive inventory reduction - active inventory replenishment; Airbus's demand gradually rebounded since 2020, and the growth rate of raw material inventory increased since 2022, and it is currently in the stage of passive inventory reduction. In terms of engines, Rolls-Royce's inventory began to decline from 2022, and the recent revenue growth rate has increased, gradually entering the stage of passive inventory reduction.

Based on the sustainability of the civil aviation recovery, international core aviation engine leaders are optimistic about future delivery and financial performance forecasts. According to the 2023 annual report content push of Rolls-Royce's public account, in the civil aviation business, the company expects the total number of engine deliveries to reach 500-550 units (458 in 2023), and expects to achieve an operating profit of 1.7-2 billion pounds (1.6 billion pounds in 2023) by 2024, and achieve a target operating profit of 2.5-2.8 billion pounds by 2027. In addition, according to the announcement of GE's investor relations day in 2024, GE expects the Leap series of engines to steadily increase from 2024 to 2028, and at the same time benefit from the expansion of the installed base, service revenue is expected to further increase. From the financial performance, GE Aviation achieved an operating profit of 5.6 billion US dollars in 2023, and is expected to achieve an operating profit of 6-6.5, 7.1-7.5, and 10 billion US dollars in 2024, 2025, and 2028, maintaining steady growth.

According to Alton's forecast, global commercial aircraft production will return to the 2019 level in 2026. As the global aviation market turns to a new generation of aircraft, the demand for new aircraft is strong, and many key aircraft project orders are backlogged to the end of the 2020s or the beginning of the 2030s. Since the current production of Boeing and Airbus is still below the level before 2020, we expect that the recovery of production capacity, the backlog of demand orders, and the recovery of the global civil aviation industry will maintain a high growth elasticity for related manufacturing enterprises in the industry chain in recent years.

At present, the production capacity of the world's main aviation main factories is expected to continue to climb, and is actively increasing the output of main model aircraft. According to the official website of Airbus, the net increase in commercial aircraft orders of Airbus in 2023 was 2094, a significant increase of 155.37% compared to 820 in 2022, and by the end of 2023, the existing undelivered commercial aircraft orders of Airbus reached 8598, a year-on-year increase of 18.77%. According to the guidance update released by Airbus in June 2024, the company plans to deliver 770 commercial aircraft in 2024, and has delivered 323 commercial aircraft by June; for the core model A320 series, the company plans to achieve a production efficiency of 75 aircraft per month in 2027, and if successful, the annual cumulative production can reach 900, an increase of about 57.62% compared to the 571 delivered in 2023.The capital expenditure intensity of aircraft original equipment manufacturers (OEMs) and tier-one suppliers has further increased, with the demand recovery of the OEMs driving the expansion of engine manufacturers. According to Bloomberg data, in 2023, the capital expenditure to revenue ratio for Boeing and Airbus was 3.3%, a year-on-year increase of 0.3 percentage points. For MTU, Safran, and Rolls-Royce, the ratio was 5.3%, a year-on-year increase of 0.5 percentage points. The capital expenditure intensity of both OEMs and tier-one suppliers has reached a new high since 2020.

(II) The recovery of external demand and the internal demand for fleet renewal jointly drive the prosperity of the civil aviation manufacturing industry.

The global civil aviation market's passenger traffic has rapidly recovered. According to the "Air Passenger Market Analysis" report released by the International Air Transport Association (IATA) in March 2024, the industry's total air passenger traffic measured by revenue passenger kilometers increased by 13.8% year-on-year in March 2024, even surpassing the historical record of 2019. The current passenger traffic is at a record level since 2000. According to Airbus's "Global Market Forecast 2024," the global passenger traffic is expected to grow at a compound annual growth rate (CAGR) of 8.4% by 2027. In the medium to long term, the global passenger traffic is expected to return to the trend and speed before 2020, with a CAGR of 3.6% from 2027 to 2043.

At the same time, in terms of aircraft age, the aviation industry's suspension during the pandemic and the stagnation of deliveries have led to a significant increase in the average age of aircraft in service globally. According to CIRIUM data, by 2023, the average age of aircraft in service in North America will reach 13.8 years. According to the WeChat public accounts of financial magazines and Planespotters, the average age of passenger aircraft in Chinese airlines is 8-10 years. In 2023, the total fleet of Chinese mainland airlines is 4,131 aircraft, with an average age of 9.6 years, among which, the average ages of China Southern Airlines, China Eastern Airlines, and Air China are 9.4, 9.3, and 9.4 years, respectively. Resale, passenger-to-cargo conversion, and dismantling are the main destinations for aircraft after retirement, bringing market opportunities for secondary use, maintenance, and recycling. According to the WeChat public accounts of financial magazines and China Civil Aviation Network, aircraft are usually phased out by airlines around 10 years of use, which is not yet the retirement age. Airlines will resell them or convert passenger aircraft into cargo aircraft for use. Aircraft that are about to be scrapped will be dismantled, and about 1,000 parts can be recycled. Among them, metals can be remelted to make other metal products, and second-hand aviation materials such as engines and landing gear can be returned to the aviation materials market after certification. According to Airbus's WeChat public account, Airbus predicts that by 2042, more than 17,000 aircraft will be retired due to fleet renewal and the purchase of the latest generation of aircraft models. The dismantling, recycling, and reuse of large-scale fleet retirements, increasing the use of recycled materials and second-hand usable aviation materials, will become current pain points and hot topics for future industry development.

The demand for the global civil aircraft fleet continues to grow, and Boeing, Airbus, and COMAC have made positive outlooks for the number of civil aircraft in the next 20 years. (1) According to Boeing's "Commercial Market Outlook 2024-2043," the aviation fleet will nearly double by 2043. During the period from 2024 to 2043, 43,975 aircraft will be delivered, of which, the delivery of single-aisle narrow-body aircraft will reach 33,380, accounting for 76% of the total delivery; the delivery of wide-body aircraft will reach 8,065, accounting for 18% of the total; (2) According to Airbus's "Global Market Forecast 2024," over the next 20 years, 42,430 new passenger and cargo aircraft will be delivered, including 33,510 single-aisle narrow-body aircraft and 8,920 wide-body aircraft; (3) According to COMAC's "COMAC Market Forecast Annual Report 2022-2041," over the next 20 years, 4,367 regional aircraft, 30,367 single-aisle narrow-body aircraft, and 7,694 twin-aisle wide-body aircraft will be delivered.

(III) The global arms trade volume continues to increase, and the demand for aircraft transactions is strong.

International military spending continues to grow, with major countries increasing military spending to strengthen equipment construction, and military spending in 2023 setting a new record. According to the "2023 World Military Expenditure Trends Report" released by the Stockholm International Peace Research Institute (SIPRI) in April 2024, the total global military expenditure in 2023 reached $2.44 trillion, an increase of 6.8%. The world military expenditure ratio (defined as the percentage of military expenditure in the global gross domestic product) increased to 2.3%, the average military expenditure accounted for 6.9% of government spending, and the world's per capita military expenditure was $306, reaching the highest level since 1990. The increase in global military expenditure in 2023 is mainly attributed to the ongoing Russia-Ukraine conflict and the escalation of geopolitical tensions in Asia, Oceania, and the Middle East. Overall, despite the significant impact of many uncertainties on the global economy, it has not changed the trend of international military expenditure growth in recent years, especially since the Russia-Ukraine conflict, major countries have further increased military expenditure and strengthened national defense construction.

It can be observed that among various types of global weapons and equipment exports, the volume of aircraft transactions is the highest. Aircraft have a high value and require significant research and development investment, and maintaining the supply chain is more difficult. At the same time, there is a larger space for additional products and subsequent maintenance and operation, which are some of the main reasons. The export opportunities of aircraft are worth paying attention to because aircraft generally become the core weapons and equipment in the equipment systems of various countries. The demand is continuous and easy to induce the demand for related equipment. According to the 2024 yearbook published by the Stockholm International Peace Research Institute (SIPRI), long-range ground attack weapons, including advanced fighters and missiles, as well as simpler and cheaper armed unmanned aircraft and missiles, continue to account for a large share of the total main weapons transfer.

Aircraft are the type of weapon equipment with the highest global main battle weapon trade volume, and countries with a large number of aircraft exports also have a high overall military trade export volume. According to the "Military Aerospace Overview and Development Trend of Composite Materials in the Military Aerospace Industry" published by the "China Composite Materials Society" on WeChat, in modern warfare, military aircraft play an important role in seizing air superiority, air defense operations, supporting ground and naval forces, and have a high value of a single aircraft. According to SIPRI statistics, it is the type of weapon equipment with the highest global main battle weapon trade volume. According to data released by the Stockholm International Peace Research Institute (SIPRI), affected by the Korean War, Vietnam War, and the Cold War, the global aircraft trade volume was mostly at a high level for most of the time before the 20th century, and reached a peak of $21.282 billion TIV in 1982. After the end of the Cold War, although the scale of global aircraft trade has declined, it has gradually increased since the beginning of the 20th century, with a year-on-year increase of 18.1% and 10.2% in 2021 and 2022, respectively, and a decline of 31.4% in 2023. It can be seen that due to the high value of aircraft and the highest global main battle weapon trade volume, countries with a large number of aircraft exports also have a high overall military trade export volume. At the same time, the military trade export power countries such as the United States, France, and Russia have an aircraft export proportion of more than or close to 50% in the past ten years, which shows that aircraft exports occupy an important position and contribute to the core increment.II. Civil Aviation Manufacturing Supply Chain Still Under Pressure, Military Trade Pattern Also Begins to Change

Supply chain issues remain one of the key challenges for the current civil aviation industry, with China potentially becoming an important role in the capacity enhancement of the civil aviation industry. According to the China Business Times report on May 8, 2024, "Reserve Orders Exceed 8,000! Airbus Makes Every Effort to Promote Capacity Improvement, and China Plays an Important Role," the challenge faced by Airbus is to effectively meet market demand while maintaining the stability of the supply chain, ensuring that aircraft can be produced and delivered efficiently and safely. According to Airbus CEO Guillaume Faury, "Airbus will have 10 A320 series aircraft final assembly lines globally, two in the United States, six in Europe, and two in Tianjin. The final assembly production line located in China will contribute 20% of the production capacity." According to the Global Times report on March 24, 2024, "Global Manufacturers Believe China's Improved Business Environment Offers More Market Opportunities," China is a very important strategic partner of Airbus, and its supply chain is an integral part of the global aviation industry. China's supply chain has shown strong industrial resilience and competitiveness, indicating that it has a strong ability to seize future opportunities, which is also part of Airbus's production expansion plan.

In the military trade market, the long-term relatively stable export pattern has begun to change. According to SIPRI data, Russia's exports have halved and dropped to the third place globally. According to SIPRI data, from 2019 to 2023, the global military trade share of the United States has further increased, but affected by the Russia-Ukraine conflict and other factors, the long-term stable export pattern has begun to change. France has risen to the second place globally, while Russia's exports have halved and dropped to the third place. From the two statistical periods of 2014-2018 and 2019-2023, among the main exporting countries, the United States, ranked first, has increased its transfer volume in the global arms market by 17%, with its share increasing from 34% in 2014-2018 to 42% in 2018-2022. The United States has delivered weapons to 107 countries, more than any other five-year period, far exceeding other exporting countries. However, Russia, ranked third, has declined by 55%, with its share dropping from 21% to 11%. The number of countries receiving Russian arms exports has decreased from 31 in 2019 to 12 in 2023. Asian and Oceanian countries have received 68% of Russia's arms exports, with India accounting for 34%. Overall, the United States has further increased its share in the global arms export market, Russia has declined significantly, and France has made a notable improvement, both of which have changed the fixed pattern of the third-ranked exporter accounting for only about 5-10% of the global market.

On the other hand, the current defense budgets of the world's major developed countries have reached a new high, and the demand for defense equipment by developed countries themselves may squeeze the capacity of commercial aviation and other fields. According to the U.S. Department of Defense's "Securing Defense-Critical Supply Chains," the U.S. military faces challenges in casting and forging capabilities and capacity, partly due to the impact of offshoring and industry consolidation since the mid-20th century. There is only one foundry in the United States that can produce large titanium castings required for certain key systems. The U.S. supply chain currently covers a large number of materials and products from foreign manufacturers. The U.S. Department of Defense relies on forging products produced by countries including China to produce some defense systems, machine tools, and manufacturing systems that the Department of Defense depends on.

The growing demand for defense hardware has squeezed the supply side of some engine manufacturers, and supply chain transfer may become a development trend. According to the Galleon Aviation Consulting public account push in June 2024, "Airbus and Safran Strengthen Supply Chain to Increase Engine Turbine Blade Output," Marjolaine Grange, head of the Safran Group's industry, procurement, and performance department, said that production will be outsourced against the backdrop of the growing demand for defense hardware. Some regions have launched a "defense pass," which means that Safran does not have priority when purchasing in these regions, affecting not only defense products but also commercial products. At the same time, to support Dassault Aviation's "Rafale" fighter sales, Safran has established a new Rennes factory to increase the output of the M88 engine.

III. From Product Export to Brand Export, China's Aviation Manufacturing Industry is Expected to Seize the Opportunity of This Supply Transfer

(1) Taking forgings as an example: The domestic capacity accounts for a large number of large-scale equipment, and production will be achieved in 2022-2024

The global capacity of large-scale die forging hydraulic presses suitable for aerospace is limited, among which, China's current production of forging presses with a capacity of more than 400MN accounts for one-third of the global output. According to the AVIC Heavy Machinery 2024 March announcement "Reply to the Inquiry Letter of the Non-Public Offering Report," large-scale die forging hydraulic presses are important equipment for the development of large-scale high-end equipment and large-scale civil aircraft. Only major aviation powers such as the United States, Russia, France, and China have large forging presses and produce large-scale, high-quality, integrated forgings to meet the development needs of the new generation of aircraft. Currently, there are only 12 forging presses with a capacity of more than 400MN globally, of which China has 4. At the same time, according to the AVIC Heavy Machinery 2023 annual report, the construction of the Hongyuan large-scale die forging press is progressing smoothly. In addition to the capacity of large forging presses, the domestic main aerospace structural parts capacity has been achieved since the production started in 2020, and will be achieved in 2022-2024. Looking at the production situation of various links in the industrial chain, since 2018, the upstream of aero-engines - aviation titanium material sector, the upstream of aero-engines - high-temperature alloy sector, the midstream of aero-engines - forging and casting parts sector, the midstream of aero-engines - control system sector, and the downstream of aero-engines - main plant sector, and other links in the industrial chain have accelerated the expansion of production projects. According to the 2023 annual reports of companies such as AVIC Heavy Machinery, AVIC Materials, and AVIC Aerospace Technology, several projects will be achieved in 2022-2024, and they have the ability to undertake the transfer of overseas supply.

(2) Progress is just in time: Domestic key enterprises have laid out overseas business earlier and have the ability to quickly undertake.

(Note: The translation is truncated as the original text was incomplete.)Aerospace, especially in the civil aviation field, has strict requirements for safety and stability. In addition to production capacity, relevant product supply qualifications are also one of the thresholds to become a supplier. Domestic core aerospace enterprises have relatively complete foreign trade qualifications. Taking the Nanshan Aluminum Industry forging assets acquired by AVIC Heavy Machinery as an example, according to the China Nonferrous Metals News Public Account in February 2021, Nanshan Aluminum Industry has reached a cooperation with the French Safran Company and the British Rolls-Royce Company, and delivered the first batch of B737 aircraft wheels to the former, becoming one of the domestic enterprises that can provide forged aircraft wheels for civil aircraft. At the same time, AVIC Heavy Machinery itself is also strengthening the construction of overseas business capabilities. According to the 2023 annual report of AVIC Heavy Machinery, Hongyuan Company has completed the trial production of 13 new products for Boeing and achieved mass production, with international market orders increasing by 38% year-on-year; the development of the gas turbine blade market has achieved significant results, and has carried out in-depth cooperation with Longjiang Guanghan and AVIC Gas Turbine, with new orders breaking through 100 million yuan for the first time in recent years, and was awarded the 2023 Gold Supplier of AVIC Gas Turbine. According to the article "AVIC Aviation Industry Hongshan New Product Delivery Ceremony Held at Safran Suzhou Company" on the WeChat public account of AVIC Heavy Machinery on June 6, 2024, on June 3, Hongshan Company's "A320 Side Support Rod Delivery of 800 Pieces and A320 Front Landing Gear Main Sliding Cylinder First Piece Delivery Ceremony" was held at Safran Suzhou Company. The project started research and development in December 2022, completed the first piece delivery in May 2024, and took 18 months. Hongshan Company successfully completed a series of work such as forging forming, physical and chemical testing, and machining, and achieved the qualified delivery of the first product. In terms of engines, companies such as AVIC Science and Technology have accelerated cooperation with overseas engine manufacturers. According to the 2023 annual report of AVIC Science and Technology, due to reasons such as the supply chain not returning to normal, the blade cooperation project with Rolls-Royce in the second half of 2023 entered the fast lane, and the cooperation further accelerated after the outbreak of the conflict between Israel and Hezbollah, with mass supply expected to start in 2024, and the supply volume is expected to further increase in 2025; the company has completed all the research and development work of the high-pressure compressor blades of the GE90 series engine and obtained the customer's approval for mass production.

(III) Long-term cooperation agreements and trade compensation agreements are expected to stabilize and enhance China's aviation export share in the long run.

Long-term cooperation agreements often last for more than one year, and after landing, they greatly improve the financial indicators of supporting enterprises. According to the prospectus of AVIC Science and Technology, in the aviation industry, manufacturers and suppliers often sign long-term cooperation agreements, which aim to jointly manufacture, develop, or produce aircraft. The agreements will stipulate the purchase volume, price, standards, delivery terms, raw material suppliers, etc., and the company must comply with the agreement. The duration of the long-term cooperation agreement is often more than one year. The landing of the long-term cooperation agreement is very beneficial to supporting enterprises: cash flow is significantly improved, and financial benefits effectively alleviate price pressure; it is expected that production capacity expansion or efficiency improvement will continue to optimize financial indicators. The preliminary certification process of the long-term cooperation agreement is long, and mass delivery of long-term cooperation project products is generally achieved 1-2 years after signing. In the international commercial aviation engine market, the signing process of the long-term cooperation agreement takes a long time. After passing the certification, the customer will carry out processes such as single-piece first-piece package review to evaluate the supply and quality capabilities. After the assessment is completed, the two parties sign a long-term cooperation agreement for specific models. For example, according to the WeChat public account of AVIC Heavy Machinery, on June 3, Hongshan Company's "A320 Side Support Rod Delivery of 800 Pieces and A320 Front Landing Gear Main Sliding Cylinder First Piece Delivery Ceremony", the project started research and development in December 2022, completed the first piece delivery in May 2024, and took 18 months.

Trade compensation refers to the subcontracting production of no less than a certain proportion of parts by the input market to the output market, providing a certain safety cushion for China's aviation subcontracting share. Aviation subcontracting production, based on the "main manufacturer-supplier" model, is a strategy commonly adopted by aviation manufacturers. According to "OFFSET AGREEMENTS IN AEROSPACE" (Harm-Jan Steenhuis, 2018), taking the historical sales contract between Japan and Boeing as an example, 90% of the 787 model is outsourced for production, and Japan needs to complete 35% of the subcontracting production of parts. According to the international aviation development law, the output party of aviation aircraft and engine products (such as Boeing, Airbus, etc.) needs to subcontract no less than a certain proportion of parts to the input market, which is the so-called "compensation trade quota". According to the prospectus of Ailada, this ratio is at least 5%; according to the article "2020 Global and China Aviation Parts Manufacturing Industry Market Status and Competitive Landscape Subcontracting Market Scale Steady Increase" published by the Prospect Industry Research Institute in January 2021, the trade compensation ratio is generally 20%. According to the historical order and delivery data disclosed by Boeing and Airbus, as of June 2024, Boeing still needs to provide 148 commercial aircraft to mainland China, accounting for 2% of its backlog orders, and Airbus needs to provide 509 commercial aircraft to China, accounting for 6% of its backlog orders. In the future, China's aviation industry-related enterprises are expected to benefit from trade compensation and obtain an increase in order volume.

(IV) The inflection point of large aircraft supply and demand is expected to arrive faster, and some defense aviation complete machines have achieved exports.

Large aircraft production acceleration. According to the news of the Aviation Industry Network, at the end of April, AVIC Aviation Electronics Systems Co., Ltd., a wholly-owned subsidiary of China Aviation Industry Corporation, announced its settlement in Shanghai, which is conducive to accelerating the integration efficiency of domestic civil aircraft and helping to accelerate production. On May 6, the Aviation Industry Planning and Design Institute won the bid for the C919 large passenger aircraft batch production conditions and capabilities (second phase) construction project. The project is located in Pudong New Area, Shanghai, with a total construction area of about 330,000 square meters. After the completion of the project, it will meet the future batch production needs of the C919 large passenger aircraft. On May 8, Qi Xuefeng, a member of the Party Committee and deputy general manager of China Commercial Aircraft Co., Ltd., and his team conducted research at FACC, organized a project promotion meeting on the spot among China Commercial Aircraft, FACC, and Fisher, and deeply discussed the transfer and batch production acceleration process of the C919 large passenger aircraft structure and interior parts project, injecting key guiding ideas into the high-quality promotion of the project and the achievement of the annual delivery target. On May 9, He Dongfeng, chairman of China Commercial Aircraft, visited the Safran aircraft engine production line in France to promote the acceleration of C919 production.

After the C919 was approved, it received orders from multiple airlines and leasing companies. According to the Civil Aviation Resource Network, on December 24, 2010, the Civil Aviation Administration of China officially accepted the application for the type certificate of the C919 aircraft. During the 2010 Zhuhai Air Show, the C919 aircraft received orders for 100 aircraft from six launch users, including China International Airlines Co., Ltd., China Eastern Airlines Co., Ltd., China Southern Airlines Co., Ltd., HNA Group Co., Ltd., BOC Aviation Limited, and GECAS (GE Capital Aviation Services) of the United States. In the first half of 2024, major airlines successively disclosed C919 procurement plans. According to the announcement of China Southern Airlines on April 30, 2024, China Southern Airlines signed an agreement with China Commercial Aircraft to purchase 100 C919 series aircraft. Since April 2024, China National Airlines, China Southern Airlines, and the plan announced by China Eastern Airlines last year, major domestic airlines have successively disclosed large C919 order procurement plans. On May 27, 2024, according to the article in the China Eastern Airlines public account, China Eastern Airlines officially received the first aircraft of the newly ordered 100 C919s, increasing the fleet size to 6. According to the announcement of China National Airlines on June 20, the company purchased 100 C919 aircraft (extended range type), with a price of $10.8 billion.

The plan is to reach a production capacity of 150 aircraft in the next five years, and the supply side's ability to catch up quickly. According to China News Network, on January 12, 2023, Zhang Yujin, deputy general manager of China Commercial Aircraft Co., Ltd., revealed that the C919 large aircraft will inevitably speed up production expansion, and plans to reach an annual production capacity of 150 aircraft in the next five years. From the perspective of the supplier's production capacity investment rhythm, taking Haiying Special Materials as an example, according to the article on the WeChat public account of China Aerospace Science and Industry Corporation on May 30, 2023, the company undertook the research and development tasks of the C919 rear fuselage rear section, rear fuselage front section, aileron, and vertical tail composite material parts. According to the report "2024 Investment Strategy of the National Defense and Military Industry" released by GF Securities on December 1, 2023, as of the end of August 2023, the company's second-phase project construction has been fully launched, and it is expected to complete all process equipment delivery and installation and debugging in 2024, and in 2025, it will have the batch production capacity of 50 sets of rear fuselage front and rear sections, vertical tail webs, and 25 sets of ailerons and wing fairings for the C919 large passenger aircraft project, and the production expansion progress of related suppliers may to some extent predict the production capacity progress of C919. According to the news from the Aviation Industry Weibo, in May 2024, the Aviation Industry Planning and Design Institute won the bid for the C919 large passenger aircraft batch production conditions and capabilities (second phase) construction project, and after the completion of the project, it will meet the future batch production needs of the C919 large passenger aircraft.

In the medium and long term, China's civil aviation large aircraft cost-effectiveness advantages and stable supply chain advantages are expected to gradually open up the international market. On May 10, 2022, China Eastern Airlines disclosed a private placement announcement, planning to raise 15 billion yuan for the introduction of 38 aircraft and other matters, including 28 domestic large aircraft C919 and regional aircraft ARJ21-700, with the rest being Airbus and Boeing aircraft. The announcement revealed that the unit price of the domestic large aircraft C919 is 99 million US dollars, equivalent to 653 million yuan. In terms of price, the unit price of the Airbus A320 and Boeing 737 MAX series aircraft both exceeded 100 million US dollars, and C919 is lower than the two large aircraft of the same series of Airbus and Boeing, with performance advantages and price advantages. According to the report by VIETNAMNET GLOBAL in June 2024, Vietnam Airlines is experiencing a severe shortage of aircraft. Due to the fault of the Pratt & Whitney (PW) engine on the Airbus aircraft, Vietnam Airlines currently has 11 aircraft grounded and is expected to ground another 6 before the end of the year. Faced with the shortage of aircraft, it has turned its attention to the C919 aircraft production line developed by China. It is expected that after C919 truly achieves batch production and stable delivery, it may gradually open up the domestic and international markets.Important conference documents have repeatedly mentioned that military trade is a key area of development for our country at present. On July 21, 2024, according to Xinhua News Agency, the "Decision of the CPC Central Committee on Further Comprehensively Deepening Reform and Promoting Chinese-Style Modernization" mentioned the need to strengthen the construction and management of fields such as aerospace and military trade. According to the Aviation Industry Public Account, on July 24, 2023, the Party Group's "High-Quality Development" promotion meeting and the 2023 Military Trade Work Conference proposed to take military trade as the main responsibility and main business of the group company, to seize strategic opportunities to promote its own high-quality development, and it is necessary to resolutely achieve "both hands grasp, both hands hard" in military products and military trade, and promote the construction of a new pattern of military trade development that promotes each other between domestic and international dual cycles. Taking Hongdu Aviation's training aircraft as an example, some of our country's defense aviation products have achieved exports. According to Hongdu Aviation's 2023 annual report, Hongdu Aviation is a scientific research and production base for domestic training aircraft, and is the only company in the country that has the ability to develop and produce a full range of primary, intermediate, and advanced training aircraft. The corresponding products of the company are CJ6 primary training aircraft, K8 basic training aircraft, and L15 advanced training aircraft. Among them: The K8 aircraft is a basic training aircraft designed by Hongdu Aviation Industry according to international standards and developed through international cooperation. According to the official website of Hongdu Aviation Industry, the K8 aircraft made its first flight in 1990. The aircraft has excellent flight quality, high reliability, good maintainability, and low life cycle costs, mainly used for basic training of pilots and some advanced training. After the K8 aircraft is equipped with a multifunctional flat display and video camera system, it has achieved the unification of information display and flight control, which can better complete night flight, aerobatics, formation, stall tailspin and other flight training subjects, and is an ideal new generation of jet basic training aircraft. As a major export aircraft of our country's aviation foreign trade, the K8 aircraft has been exported to many countries and regions in Asia and Africa.

The Falcon L15 aircraft is a new generation of twin-engine supersonic advanced training aircraft independently developed by Hongdu Aviation Industry. According to the official website of Hongdu Aviation Industry, the Falcon L15 aircraft made its first flight in March 2006. The aircraft has typical characteristics of the third generation of fighter aircraft, and the design adopts a large leading edge wing aerodynamic layout, a highly integrated wing-body structure, an advanced digital fly-by-wire system, and an integrated avionics system based on open data bus technology. It has agile handling, strong large angle of attack maneuverability, and can fully meet the combat entry training and tactical basic conversion training of the third generation of fighter pilots. The aircraft design life is up to 10,000 hours, with a high cost-effectiveness ratio for training. According to the public account of Aviation Industry on January 4, 2024, the L15 advanced training aircraft is equipped with two turbofan engines with full authority digital control functions, which have the advantages of high maneuverability, high safety, and high cost-effectiveness. According to the public account of Aviation Industry Hongdu on February 21, 2023, the L15 advanced training aircraft was displayed at the Abu Dhabi International Defense Exhibition on February 20, 2023. The L15 "Falcon" is painted in the colors of the UAE Air Force and has air refueling capabilities. The L15 is a new generation of light combat attack trainer aircraft, used for the training of the 4th and 5th generation fighter pilots, as well as air combat and ground attack missions.

IV. Overseas Review: What lessons can the history of Japan's aircraft manufacturing industry going overseas offer?

Japan began to actively participate in international cooperation from the 1960s, and then quickly increased its share in mainstream aircraft projects. According to "A Brief Analysis of the Development of Japan's Aero Engine Industry" (Liao Zhongquan, Aero Power, 2019), after World War II, Japan's aircraft production and research were completely banned until 1952 when the government approved the production and research of aircraft. Starting from the 1960s, Japanese aircraft manufacturing companies actively participated in international cooperation. From subcontracting to joint development, the share of Japanese companies in some mainstream aircraft projects gradually increased. Japan's international cooperation in the field of airframes has gone through a process from nothing to something, from weak to strong. In nearly 20 years, Japan has gone from initially undertaking 15% of the tasks of the Boeing 767 airliner (airframe and cabin door) to undertaking 35% of the tasks of the 787 airliner (wings, central wing box and other difficult components).

The Japanese aircraft industry shows signs of recovery, and the growth of aircraft parts and engine parts orders is the main driving force. According to data from the Japan Aerospace Industry Association, after the order amount of the Japanese aircraft industry plummeted to 110.9 billion yen in 2020, the lowest in recent years, the field has shown signs of recovery, and the order amount has increased. The total order amount in 2022 was 138.53 billion yen, a year-on-year increase of 14%, and it is expected that the total order amount in 2023 will reach 205.75 billion yen. In the composition of Japan's aircraft industry orders, the proportion of aircraft parts and engine parts is particularly prominent, with the two together accounting for more than 50% of the share, becoming an important force to promote industry recovery. In 2022, the order amount for aircraft parts was 4.4 billion yen, a year-on-year increase of 17%, and the order amount for engine parts was 4.2 billion yen, a year-on-year increase of 52%.

Japan has formulated the "Amendment to the Aviation Industry Promotion Law" to provide policy support and protection for the aviation industry. According to "A Brief Analysis of the Development of Japan's Aero Engine Industry" (Liao Zhongquan, Aero Power, 2019), in 1952, when the aviation industry just recovered, the Japanese government formulated the "Aviation Industry Enterprise Law" and adopted a series of protective and preferential policies. In 1958, the aviation industry shifted from imitation to independent research and development, and the government promulgated the "Aviation Industry Promotion Law". In the mid-1980s, when the Japanese aviation industry carried out international cooperative research and development, the government formulated the "Amendment to the Aviation Industry Promotion Law" in 1986 and established the "Aircraft International Cooperative Development Promotion Fund" (IADF). It stipulates that the research and development costs undertaken by Japanese aviation companies in international cooperative projects are borne by the government by 55% (called development subsidies), 70% of the remaining 45% can be obtained from the Japan Development Bank at low interest rates, and the government also provides interest subsidies. Timely policy support has provided a good environment for the development of Japan's aviation industry after the war.

The international subcontracting model is an important path for the development of Japan's aviation industry. According to "A Brief Analysis of the Development of Japan's Aero Engine Industry" (Liao Zhongquan, Aero Power, 2019), and the Japan Policy Investment Bank's "The Past, Present, and Future of Japan's Aircraft Industry", in 1952, with government approval, aircraft production and research were resumed. The establishment of the Japanese Defense Agency in 1954 marked the beginning of licensed production of aircraft by the Japanese Defense Agency. This licensed production includes the introduction of new process technology and quality control methods. The Japanese aircraft industry has developed from a technical and production foundation of licensed production for the Defense Agency's aircraft, gradually moving towards the localization of aircraft, and the research and production system of major aircraft manufacturers has also gradually taken shape.

The international joint development of civil aircraft is a choice made by the Japanese aviation industry after trial. According to the Japan Policy Investment Bank's "The Past, Present, and Future of Japan's Aircraft Industry", due to the limited growth expected from defense needs alone, Japan began to develop the first post-war civil transport aircraft YS-11 in 1959. Due to the existence of competitive models, as well as the immaturity of market sales ability and sales organization required for selling commercial transport aircraft in the international market, the price competitiveness and after-sales service system are not perfect, and the YS-11 business suffered huge losses. In addition to YS-11, other companies' developed commercial aircraft also struggled in sales. The development of engines requires long-term investment and a large amount of funds, especially civil aircraft. As they become larger and more high-performance, the risks also increase, which has exceeded the bearing capacity of private enterprises. Therefore, in order to diversify development risks and expand the market, the international joint development of civil aircraft has become a trend.

The international cooperation of the Japanese aviation industry is based on the development of its own technology, and technical level is the foundation of international joint research and development. Since the 1960s, Japan began to shift to civil aviation subcontracting and joint research and development. According to the Japan Policy Investment Bank's "The Past, Present, and Future of Japan's Aircraft Industry", Japan began to spend more than 10 years and nearly 20 billion yen on the research and development of the FJR710 turbofan engine in 1971. When the UK tested the FJR710, the UK highly praised Japan's technology. This became the basis for the later RJ500 UK-Japan international joint development project.

From product going overseas to brand going overseas, the share of the Japan Aero Engine Association in the international subcontracting market continues to expand. In 1981, Ishikawajima-Harima Heavy Industries, Mitsubishi Heavy Industries, and Kawasaki Heavy Industries jointly established the Japan Aero Engine Association (JAEC). According to "How the Japanese Aero Engine Industry Went Global" (Dong Guoxiong, Big Aircraft, 2019) and "A Brief Analysis of the Development of Japan's Aero Engine Industry" (Liao Zhongquan, Aero Power, 2019), as a non-profit foundation organization, JAEC coordinates Japanese aero engine manufacturers to participate in international cooperation projects for civil aviation engines, and as a representative, establishes technical cooperation relationships with foreign companies, and after obtaining aero engine technology cooperation projects, it carries out division of labor and cooperation within Japan. The establishment of JAEC has formed an entity among the three major engine manufacturers in Japan, concentrating the advantages of each, avoiding competition among domestic companies when undertaking international cooperation tasks, and strengthening the ability to undertake international cooperation tasks when concentrating forces externally. According to "The International Division of Labor Structure of Civil Aviation Engine Manufacturers" (Yamazaki Fumio, Social System Research, 2018), initially, Japanese aviation companies were only subcontractors providing parts for the main manufacturers according to drawings, and then gradually transitioned to risk cooperation, becoming a stable supplier for foreign manufacturers, and even a permanent supplier for some parts, undertaking more and more research and development tasks, and even having a certain share in the new type of engine they participated in. The development of Japanese companies has been gradually realized against the backdrop of the continuous expansion of the aircraft and engine market, and their participation ratio, production scale, and production facilities have also been continuously expanded with the improvement of production technology.In the field of aircraft structure business, through a series of international cooperations, Japanese companies have gradually mastered a large number of core technologies. According to "How the Japanese Aero Engine Industry Entered the World" (Dong Guoxiong, Big Aircraft, 2019), for example, Ishikawajima-Harima Heavy Industries has reached a world-leading level in the production of low-pressure turbines, compressors, and main shafts connecting the engine fan of jet engines. Today, worldwide, in the production of high-difficulty aero engine main shafts over 3 meters, the market share of Ishikawajima-Harima Heavy Industries has reached 70%.

Japanese manufacturers started accumulating development and production experience from lower difficulty parts to form entry barriers against foreign companies. According to "The International Division of Labor Structure of Civil Aviation Engine Manufacturers" (Yamazaki Fumitoku, Social System Research, 2018), the technical characteristics of aircraft engines make long-term, continuous business relationships very effective. Moreover, Japanese companies entering the market have accumulated technology in specific fields and are familiar with type approval procedures, which provides support for the international division of labor of Western companies and also forms entry barriers for companies that have not yet entered the market. In addition, the production of aircraft engines requires the production of complex and precise parts, with scales ranging from hundreds to thousands. Therefore, Japanese companies start from parts with relatively lower production difficulty, participate in the development and production of similar and combined parts of the same part, gradually accumulate technology, and develop to be responsible for the production of the entire module. After entering the aircraft industry, Japanese companies improve technology in their own fields and accumulate experience in dealing with post-operation failures, while suppliers responsible for similar parts can continue to develop and gain a technological advantage.