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Posts Tagged ‘asia’

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The outbreak and rapid spread of the H1N1 swine influenza virus in Mexico and now the United States puts policymakers and business leaders in a difficult position vis-a-vis air travel. Pandemics exploit all the virtues of the air travel boom of the past few decades — a system that transports people and goods for travel, commerce, and economic opportunity suddenly becomes a primary agent of deadly disease. It’s the downside risk of international economic and cultural integration. Such integration still pays handsome benefits, however, and the risks can be mitigated by a multilateral public health infrastructure poised to go into action.

We are now in a critical moment for U.S. and World Health Organization (WHO) policymakers and the international aviation industry. To declare a pandemic right now and impose travel restrictions (as the U.S. and WHO have not done) might overstate the threat from swine flu and excessively impair travel to Mexico and U.S. border regions. But this outbreak appears to be unusually aggressive, with high mortality, suggesting that policymakers should nip it in the bud regardless of the cost to the travel industry. As the first case was reported in Europe, EU authorities issued travel advisories for the United States and Mexico. The danger to the aviation industry from either an over-aggressive response or from a widespread pandemic is high. In April and May 2003, at the height of the SARS epidemic in Southeast Asia and Canada, air traffic in the Asia-Pacific region dropped 45 and 51 percent, respectively. U.S. carriers with extensive routes in Asia — Northwest and United, especially — also suffered. This is an even worse problem in a recession, in which the prospect of future growth after an epidemic-related contraction is limited.

Part of the problem for policymakers is that U.S. citizens are inexperienced with pandemic response procedures. We are used to frequent and easy travel, not only by air but also locally, for work, school, or recreation. With deadly infectious diseases like smallpox and polio eradicated, we have become lazy. Less than half the number of people for whom the annual flu vaccine is recommended get it. Activists play on fear to spread the unproven belief that ingredients of children’s vaccines can cause autism, and their success in misinforming the public is correlated with a spike in pediatric measles infections (Megan McArdle referred to parents who decline to vaccinate their children as “twee BoBo sociopaths“). Our cities are unaccustomed to quarantines. How would you react to an order to stay indoors except for essential business? Would you obey it? The discipline of disease control is honed over time and cannot be immediately adopted with success. Moreover, the scale of the United States is also unsuitable for a concerted public health response. It’s one thing to isolate SARS in a tiny enclave like Hong Kong (which is extremely vigilant, at any rate) or on an island like Taiwan (unconscionably prohibited by Beijing from receiving WHO support during epidemics, by the way).

Whether or not this swine flu outbreak becomes an epidemic or a pandemic, policymakers and airline industry leaders need to be prepared for the dark side of global integration. Preventing the spread of epidemic diseases should be at the top of any government’s list.

Further reading:

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Barack Obama has been watching the Olympics and marveling at how amazing China’s infrastructure is.

Here’s the text:

Everybody’s watching what’s going on in Beijing right now with the Olympics. Think about the amount of money that China has spent on infrastructure. Their ports, their train systems, their airports are vastly superior to us now, which means if you are a corporation deciding where to do business, you’re starting to think, “Beijing looks like a pretty good option.”

China’s infrastructure may indeed look impressive, but I wouldn’t say that “their airports are vastly superior to us now.” The new Beijing airport is very fancy, but according to Anming Zhang and Andrew Yuen of the University of British Columbia, “travel delays have become a serious problem at some of the major Chinese airports,” the military has a chokehold on air traffic control and routing, and air traffic control staffing is at “20-40 percent of the level needed to meet the minimum safety standards” (much worse than the FAA’s staffing shortages). To the extent that China’s aviation system has improved, it is as a result of liberalization and privatization. (See their chapter in Aviation Infrastructure Performance.)

But let’s assume for a moment that China does actually have a better transportation infrastructure than we do. How did they get it? By being a repressive, authoritarian regime. If the Party wants to build something, it does! It’s easy to displace ten thousand people to expand your airport, or two million to build the Olympic complex. Compare this to Chicago O’Hare, whose long-awaited expansion continues to be impeded by homeowners protecting their property in court. (Of course, given Obama’s connections to Mayor Richard Daley, perhaps he secretly admires Daley’s “easier to ask forgiveness than to ask permission” approach to airport planning.)

There’s none of this messy environmental review process in Beijing. That’s one of the main reasons it takes so long to build a runway here. And China takes advantage of cheap labor in terrible working conditions. Here, governments are required by the Davis-Bacon Act to pay prevailing (read: union) wages for public works projects, which drives up costs further. Obama supports Davis-Bacon and cosponsored legislation in 2005 to repeal George W. Bush’s suspension of Davis-Bacon in Katrina-afflicted areas. Is Obama really admiring China for its exploitation of labor?

No, the Olympics are just another excuse for Obama to beat up on the Bush administration. Fair enough, it’s an election; but he owes it to us to get the facts straight. The United States has an infrastructure problem. We have especially failed to provide an aviation infrastructure that can grow to meet demand. Looking to China will not provide useful solutions.

H/T: Hot Air

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This AP story on Aviation.com has a troublesome lede. Check it out: “China plans to set up its own company to make passenger jumbo jets, making it less dependent on Boeing and Airbus, official Xinhua News Agency said Thursday.” (Emphasis added.) I’ve blogged previously about China’s aerospace ambitions. Here, the reporter errs in his word choice. China and its airlines are not dependent on Western jumbo jet manufacturers any more than any other airline. Dependency does not bear on fair commercial transactions. A Chinese airline pays for an Airbus product, and both sides theoretically benefit. Dependency assumes that one party to a deal is a benefactor — a very different relationship than that between a vendor and a customer. Unfortunately, what China will do is make its airlines more dependent on the state-run Chinese aerospace firms.

And here is the second error in the article — or at least what should be a category error. Paul Krugman famously argued that countries don’t compete; firms do. The reporter should not be referring to China, Airbus, and Boeing in the same category. But China’s state-run aerospace firms make the country virtually identical to the firm. Here, the country is competing with the firm. The media have a regrettable habit of treating Airbus and Boeing as national proxies, but China has a regrettable habit of actually having state proxy companies.

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Best search term so far!

Asian Airlines do they have delays

Ah, that magical Shangri-La where the airlines always fly on time.

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Welcome, Airliners.net readers! I hope you’ll poke around the site and subscribe to my RSS feed to get the very latest.

The Chinese were nestled all snug in their beds,
While visions of jumbo jets danced in their heads.

China, not stopping with its forthcoming small-to-medium-size civilian jetliner, is moving forward with its jumbo jet program. Its two state-run and owned aerospace companies, AVIC I and AVIC II, will be restructured. AVIC I (an acronym for China Aviation Industry Corporation) produces larger jets, both civilian and military, and AVIC II focuses on small aircraft and helicopters, both military and civilian. The word is that a new company will be launched by March 2008 to handle the jumbo jet program. The civilian jets will be a twin-aisle, twinjet, 200-300 seat CS2000 (pictured above, and in the vein of the Boeing 787 or Airbus A330) and a single-aisle, 150-200 seat CS2010 (along the lines of a Boeing 757). Eventually, a military-use jumbo jet will be offered (see the illustration below from Xinhua).

AVIC I and II will be reworked to produce parts and equipment for the jumbo jet program, in addition to continuing their own product lines. These developments raise the question of why China is going this direction. The global market for large aircraft is well-served by Boeing and Airbus, both of which produce excellent aircraft without being centrally managed by the state. Furthermore, both Airbus and Boeing compete in an open international market. I’ve written elsewhere that China may attempt to use its emerging network of proto-client states in Africa, Southeast Asia, and Latin America as a market for uncompetitive Chinese products.

More worrisome is China’s insistence on “homegrown” aircraft. Just as the major aircraft producers are developing sophisticated international supply chains and moving toward truly global jets (the B787 is 25 percent foreign-produced, and parts are manufactured all over the United States), China wants to move in the direction of nationalism. They’re not there yet (many components of the ARJ21 are U.S.-made), but China’s jumbo-jet drive illustrates a troubling trend.

China’s determination to produce a large jet (as if that is a sine qua non of superpower status), combined with the fact that the industrial drive is being managed from Beijing, means that China is ignoring the market for the jets which it will produce. Maybe the market will accommodate the Chinese product, but it might not. Famously, Boeing almost went bankrupt in the 1960s producing the eventually successful B747 for an untested widebody market. The state-owned company that will produce the CS2000, CS2010, and larger jets will probably not be exposed to such risk, and the absence of risk may severely distort the market for commercial aircraft.

China’s major aircraft companies to restructure as ‘jumbo’ jet tops agenda [ATW Daily News]
China to establish company to build large jet [Reuters]

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My exchange with Daniel Hall earlier this week made it onto The Economist‘s Free Exchange, which was in turn picked up by Megan McArdle’s Asymmetrical Information.

The Economist writer brings in the intervention dimension:

[S]o politicised an industry as air travel need not fear dislocations in any case; governments would react incredibly quickly to pull back on any part of an agreed-upon energy bill that appeared to cause significant damage to airlines or aeroplane manufacturers. This, in fact, is one of the arguments made by carbon pricing sceptics–that governments will not allow the necessary pain to be felt.

McArdle follows this with

[G]overnments will not allow anything to harm the airline industry.

What I don’t quite understand is why this is so. Why is everyone obsessed with having protected domestic airlines, and indeed, airplane manufacturing capacity? . . . Now China, too, wants its own airframe manufacturer. And everyone wants to protect their national airlines.

 

Why is flying so emotional? And so heavily, heavily protected by the heavy hand of the state?

Two things to say about this: amen, but things may be looking up.

Aviation remains one of the most nationalized industries on the planet. British author Simon Calder once wrote, (more…)

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Travel Weekly reports that after four years of talks, the U.S.-Japanese bilateral aviation agreement has been amended for the first time in ten years, with minimal changes: a minor codeshare rule change, more flexibility in setting fares (“While that provides more fare freedom in theory, the U.S. government never blocked fares, and it was not clear how often the Japanese government did so, if at all. It is possible, however, that airlines avoided offering fares they believed might be rejected.”), fifth freedom rights for some cargo operators, and more charter flights. Progress, sure, but wow, not very much.

U.S. and Japan revamp aviation deal [Travel Weekly; registration required]

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The Department of Transportation has awarded new China route authority (see my earlier post on this), and all the major airline applicants took home a prize. Delta goes first, with immediate approval for Atlanta-Shanghai. The 2008 route is for Guangzhou only, and only United submitted a bid, for service from San Francisco. Finally, in 2009, US Airways will begin serving Philadelphia-Beijing, Northwest will fly Detroit-Shanghai, American will add Chicago-Beijing, and Continental will launch Newark-Shanghai service.

What’s too bad about this is that there is so much pent-up demand for China flights stymied by trade restrictions and tight control. Chinese airlines won’t even use all their allocated routes, but U.S. carriers can’t step in and take them over. Hopefully, recognition of this demand will stimulate movement toward an open skies agreement with China.

What’s great about this is the increased connectivity. By 2009, virtually every U.S. airport with commercial service will have one-stop access to China. This is an impressive gain since deregulation, when Pan Am and Northwest Orient dominated Asia routes (and often flew through intermediate gateways like Honolulu, Anchorage, and Seattle), and especially with respect to service to nonstop service to China itself, which was very limited and did not begin until the 1980s. The remarkable expansion of accessible China service to almost everywhere in the United States is something to applaud.

Delta, United get first crack at new China routes [USA Today via Today in the Sky]

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One of the media’s tropes is the battle royal between Boeing and Airbus, with the two companies as respective proxies for the United States and Europe. This is really no more than a trope, as both companies have been making their operations more international. The new Boeing 787 is really only American-assembled, not American-made–its parts are produced all over the world and shipped to Everett, Wash., for assembly.

Boeing has announced that China is now its largest supplier, with over $2.5 billion in contracts on all Boeing models. This is a sign of healthy trade interaction. When China’s state-owned aerospace companies start producing “homegrown” Chinese jetliners, one hopes that they will have learned a lesson about the value of international business cooperation and not follow the nationalistic path they seem inclined to.

China Now Largest Foreign Parts Supplier for Boeing [Aero-News.Net]

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As the BRICs develop their aerospace industries, they will decide whether they will participate in the international trading system or sell to a bloc of client states. Unfortunately, Russia seems to be returning to familiar paths as it attempts to produce 4,500 aircraft by 2025. Russia’s state-owned UABC is selling several Tupolev 204s to the Islamic Republic’s state-owned Iran Air. U.S. and European sanctions on Iran prevent the airline from buying the spare parts needed to maintain its Boeing and Airbus fleets. The sanctions are in place to pressure Iran to drop its nuclear program.

By constricting the Iranian economy, the West may persuade the regime in Tehran to give up its expensive nuclear ambitions and open up to true wealth. Russia’s decision to sell to Iran–not only airplanes–undoes that work. Russia is expressing its disdain for the multilateral trading system and bucking up a state sponsor of terrorism, a force for regional instability, and one of its old Cold War clients.

Russia is allowing its need for an outlet for production of new jets to supersede its interest in a stable regional neighbor. Moscow’s course, while it may bring good business in some quarters, indicates the path Russian aerospace and commerce in general will take in coming years.

Iran Turns to Russia for Airliners [AP]

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