Deer Jet seeks partners outside China to continue growth

Deer Jet Gulfstream G550

China’s Deer Jet says that to continue its growth, the company will have to look outside the Chinese mainland for new partners.

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Deer Jet’s history is intertwined with the history of business aviation in China. Aside from Broad Air Conditioning, who operated the first privately-owned business jet on the Chinese mainland, it is Deer Jet’s name that has been at the forefront of business aviation in the country.

Established in 1995 as a subsidiary of Hainan Airlines Group, Deer Jet’s 19-year history can be viewed as the history of business aviation in China. In 1998, it became the first Chinese operator to join the NBAA and in 2005 it became the first Chinese operator to offer aircraft management within the country.

Based today in downtown Beijing’s Chaoyang business district and at Beijing’s Capital International Airport, the Deer Jet fleet has grown from a small fleet of Hawker 800s in 1995 to a large and diverse fleet that includes 82 aircraft, ranging from smaller Hawker aircraft, right the way up to a Boeing Business Jet.

But with business aviation in China stalling, Deer Jet is now facing a new set of challenges. Corporate Jet Investor sat down with Deer Jet president Zhang Peng at NBAA 2014 to talk about the company’s plans:

Why has Deer Jet come to NBAA?

“This is the third time we are here for the NBAA show. This is a great show, the biggest show around the world, and you know that Deer Jet are the biggest business jet operator in China.”

Before 2011 most of our flights were Chinese domestic flights, but after 2011 – because the new government has a new policy for this industry – we think the best way to continue the growth is to go outside the Chinese mainland and into the international market.”

“So right now, more than half our flight time and flights are international flights. That’s the reason we want to be here, because we want to develop the international business. We want to work with international partners, let them know the Chinese market and also take the Chinese market international.”

NetJets chose to concentrate on charter and management when it entered China, is that a sign that it’s not possible to make money from fractional operations?

“Yes and no, because most of the Chinese prospective buyers have the expectation for the fractional because this program can benefit them, but the challenge is financial policy and economic policy cannot support the US fractional model, so I think that anyone that wants to develop the fractional program on the Chinese mainland has to develop a customised program suitable for Chinese clients, and also suitable for Chinese policy.”

“I think the market potential is there and also all the clients they have the expectation, demanding for this program, but in terms of the financial policy and the economic policy, more than one person can buy an aircraft together, but they cannot get their part of the asset to be financed.”

So do you think that there are more chances for foreign financiers to come in and finance the Chinese market?

“Yes, definitely I think so.”

Everybody talks about airspace and infrastructure being the biggest barriers to growth in China. What do you see as the biggest challenge?

“The biggest challenge for the industry on the Chinese mainland is the airports. For example, at Beijing Capital Airport, it’s the only airport in the capital city (that can accept business jet visitors) they don’t have enough slots to support the business aviation, they only allow the commercial airliners to base at the airport and stay there overnight. And right now, frequently the business jets have to land and disembark their passengers and then fly to another airport. So that imposes extra costs for the aircraft owner.

So I think this is the biggest challenge for the development of business aviation in China. Also the education is the problem. You know, business jet is a transportation tool, but in China, especially in the last several years, the expression of the civilian in the Chinese mainland, is that they think (business jets are) a luxury.”

Deer Jets challenge is to adapt to changing needs for business aviation in China. With Chinese premier Xi Jinping’s anti-corruption and austerity measures picking up steam every day, the company is changing its business model and looking outside management and charter as a way to make money.

One way that Deer Jet is doing this is opening up FBOs around the country, with the company currently operating FBOs in Changsha, Shanghai, Sanya and Shenzhen. The company also owns an FBO in Beijing, with the facility being built especially for the 2008 Olympic Games.

Under current Chinese rules, only one FBO can be operated per airport, and with Capital Jet (CCJET) operating the FBO in Beijing, Deer Jet had to seek special permission to operate its FBO during the games.

Permission was granted, and Deer Jet handled 68 aircraft over the course of the Games. However, once the Olympics had finished, Deer Jet had to stop operating the FBO.

During Deer Jets NBAA press conference, Zhang said that the company would look outside the Chinese mainland for new FBO locations. Although he later declined to answer a question about where Deer Jet was looking, he did say that there would likely be an announcement in 2015.

Zhang also said that Deer Jet will announce the locations of three more FBOs in China by the end of the year, along with a further three or four in 2015.