AVIC Heavy Leads China Aerospace-Engine Asset Share Gains

  • Companies in state-led reorganization haven't been announced
  • Aerospace is a focus sector under China's restructuring plan

AVIC Heavy Machinery Co. led gains in shares of China’s state-backed aerospace-engine assets after the government was said to consider establishing a company to bring all related assets under one entity.

AVIC Heavy closed up by the 10 percent daily limit to 19.43 yuan in Shanghai trading, its largest gain since July 2014. AVIC Aviation Engine Corp. gained as much as 8.8 percent and ended up 4.2 percent at 51.50 yuan.

The restructuring plan, which straddles multiple ministries, is still in the initial stages and will pool all related assets from existing state-owned firms, said people familiar with the matter, 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 after the restructuring, the two listed companies said in separate statements this week.

Economic Revival

China is overhauling state-owned companies to revive an economy growing at its slowest pace in more than 20 years, with the economic value added by state enterprises declining in August for the first time since December 2008. 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 said it would respond as soon as possible to a Bloomberg News request for comment. Calls to spokesmen for AVIC Heavy Machinery and AVIC Aviation Engine went unanswered Friday.

Shares of other state-backed aircraft-related companies also advanced Friday. Sichuan Chengfa Aero-Science & Technology Co., a parts maker, rose 3.1 percent to 46.79 yuan in Shanghai trading. AVIC Aero-Engine Controls Co., a provider of airplane parts and repair, rose 10 percent to 30.07 yuan.

Component Makers

China Avionics Systems Co., a maker of aero-mechanical components, rose 5.1 percent to 26.63 yuan. AVIC Electromechanical Systems Co., a maker of seat-related devices, gained 1.91 percent to 21.91 yuan. AVIC Aircraft Co., which makes plane components, gained 2 percent to 26.20 yuan.

The official China Securities Journal reported last week that the suspension in trading of three AVIC units -- Sichuan Chengfa, AVIC Aero-Engine and AVIC Aviation Engine -- 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 large commercial 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.

State Reforms

In early September, China’s Communist Party Central Committee and State Council issued a document 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, the document said. It also will promote cross-shareholding and “blending” between state-owned capital and private investments.

— With assistance by Clement Tan, and Steven Yang

Before it's here, it's on the Bloomberg Terminal.