Photographer: Ng Han Guan/AFP/Getty Images

China Said Considering Merger in Push Toward Plane Engine Dream

China is considering setting up a new company that will bring all its aerospace engine assets under one entity as part of a government restructuring drive of state-owned enterprises, according to people familiar with the matter.

The plan, which straddles multiple ministries, is still in its initial stages and will pool all related assets from existing state-owned firms, according to the people, who asked not to be identified because the deliberations are private. Aviation Industry Corp. of China may end control over AVIC Heavy Machinery and AVIC Aviation Engine Corp. following a restructuring, the two listed companies said in separate statements this week.

With the economic value added by state enterprises declining in August for the first time since 2008, China is overhauling state-owned companies to revive an economy growing at its slowest pace in more than 20 years. In March, the government cited aerospace as a focus sector as it seeks to shift the economy away from labor-intensive work toward more advanced manufacturing to rival Germany and Japan.

China’s Ministry of Industry and Information Technology didn’t immediately respond to a faxed request for comment. Two calls each to spokesmen for AVIC Heavy Machinery and AVIC Aviation Engine Corp. went unanswered.

Engine Desire

The official China Securities Journal reported last week that trading of three AVIC units had been suspended, a move that may have been linked to plans to spin off engine assets into a separate company.

China is keen to develop its own engine to power its first commercial jumbo jet, the single aisle C919 being developed by Shanghai-based Commercial Aircraft Corp of China, known as Comac.

As it stands, CFM International, a joint venture between GE Aviation and a division of France’s Safran, will supply a version of the LEAP engine to power the narrow body jet.

China uses Russian-made RD-93 engines for the J-31 fifth-generation stealth fighter it’s developing, Russian news agency RIA Novosti reported last November.

SOE Reform

The move to centralize China’s aerospace engine industry comes after the Communist Party Central Committee and State Council issued a document in early September pledging to push state-owned enterprises “to reform and go public and create conditions for conglomerates to list all their assets.”

Government-run companies in competitive sectors must seek more diversified ownership by selling stakes to state and non-state investors, according to the document.

The government also plans to create special investment vehicles to manage state-owned capital, and may merge or restructure state companies, according to the document. It also will promote cross-shareholding and “blending” between state-owned capital and private investments.

— With assistance by Clement Tan

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