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REACHING FOR WIDER SKIES

Two years ago, in 2010, China was one of the four countries (along with Guinea, Myanmar and Zimbabwe) to have been targeted by the world’s multilateral arms embargos. It had begun with the European Union arms embargo imposed on China in June 1989 in the aftermath of the violent repression of the people’s protest at Beijing’s Tiananmen Square. More than two decades later, the Western economic downturn seems to have started working in favour of the Chinese, as the Spanish foreign minister Miguel Angel Moratinos, expressed his desire to lift the EU’s embargo during his country’s six-month EU presidency in early 2010. Although he was unsuccessful, the issue of Chinese isolation and arms embargos again cropped up in late 2010 during the debate on China-EU relations. This time the French foreign minister, Bernard Kouchner, made a strong plea for lifting the embargo on Beijing.

Understandably, a cash-starved, debt-ridden Europe had set its eyes on the astronomical cash reserve of the Hans for purposes of business. So much so that in December 2010, the EU high representative for foreign affairs and security policy, Catherine Ashton, made a fresh case for lifting the embargo on the ground that “the current arms embargo is a major impediment for developing stronger EU-China co-operation on foreign policy and security matters”. Ashton too failed to push the China case; but, in spite of the failure of Europe, China suddenly loomed larger than ever before in the midst of international economic gloom. It was no surprise that Beijing would burst into the Western defence/civil aviation mart with a bang.

Thus on July 10, 2012, during the Farnborough air show in the United Kingdom, it was announced that the “bulk of Hawker Beechcraft Inc — the former Raytheon Aircraft Company — is to be sold to Chinese aerospace company, Superior Aviation Beijing Company Limited” for $1.79 billion, thereby marking the biggest ever aircraft acquisition by Beijing in the United States of America.

Although the Chinese acquisition of the US company reportedly excluded Hawker Beechcraft’s “military interests, which are housed within the Hawker Beechcraft Defence Company”, there is little doubt that the Chinese have made deep inroads into the US manufacturing arena following an 18-month tenacious acquisition enterprise, thereby saving Hawker Beechcraft from falling under bankruptcy protection in the US.

China has reason to be happy as it has really got things cheap. The same company had changed hands from Raytheon to equity investors GS Capital Partners, an affiliate of Goldman Sachs, and Onex Corporation “at the peak of the market in 2007 for $3.3 billion through a highly leveraged buyout”. And now Superior Aviation, 60 per cent of which is owned by Beijing Superior Aviation Technology Corporation Limited, a private enterprise, and 40 per cent by Beijing E-Town International Investment Corporation Limited, controlled by the Beijing municipal government, has acquired the coveted industrial asset at a hugely depreciated price tag of $1.79 billion.

The moot point today, however, is not the ‘value for money’ but the competitive price paid for the quality of the ready-to-use industrial product in an alien land under Chinese ownership and operational management. The foresight and wisdom of the Beijing bosses were visible between 2009 and 2011 when “Chinese state-backed companies purchased Cirrus, Continental Motors and Epic Air in the USA and Fischer Advanced Composite Components in Austria”. In comparison, Indians (without any State sponsorship), too, are acquiring foreign assets, as is demonstrated by Lakshmi Mittal’s venture into Arcelor Steel and Ratan Tata’s foray into the Jaguar automobile industry.

But the present Chinese deals could be viewed as a means of “gaining international exposure, experience, expertise, market access and advanced technologies” while building mutual trust, faith and confidence through selected and selective targets that are not perceived to fall under sensitive and state-secret subjects with a potentially adverse fallout.

The present Chinese acquisition has been a virtual bonanza. China’s aviation assets in the US include Raytheon aircraft facilities and other assets in Wichita and Salina, Kansas; Little Rock, Arkansas; Dallas, Texas; and Chester (Hawarden) in the United Kingdom, as well as its “fixed-base operations network across the USA and Mexico; and more than 100 authorized service centres worldwide”. The Chinese would inherit facilities covering almost 558,000 square metres, and a total work force of 8,000 with over 6,000 based in Wichita alone. The company, thus far, has built over 54,000 aircraft since 1932 out of which more than 36,000 are currently in use. The Hawker Beechcraft production line delivered 462 aircraft in 2006; 430 in 2007; 477 in 2008 and 309 in 2009 with business and private aircraft being the technical, financial and commercial mainstay.

Although the Chinese are said to have been deprived of Hawker Beechcraft’s military interests, one is sceptical about the possibility of the US business lobby not following its self-propelled ethics, the sole goal thereof being “profit from the market”. Else, how does one explain Pratt and Whitney Canada, a subsidiary of the US aerospace giant United Technologies Corporation, pleading guilty to illegally providing military software used in the development of China’s Z-10 attack helicopter?

By brazenly violating US defence trade restrictions against China and “making false and belated disclosures to the US export licence”, Pratt & Whitney has clearly showed the way to profit. Of late, it has also been debarred from licence privileges under the US International Traffic in Arms Regulations, thereby implying that it will require fresh approval for new licences. The US vulnerability to Chinese prosperity stands out for the world to take note of. Simply put, it now has become a scenario resembling “pay me cash and carry my technology. Law or no law.” So much for the slogans of “business, ethics, morality and transparency” of the arms merchants. When the financial chips of the high-tech companies are down, cash obviously is the god.

According to US court documents, the Pratt & Whitney saga began a decade ago. The US private armament manufacturer ignored the fact that “from the start of Z-10 project in 2000... the Chinese were developing an attack helicopter and that supplying it with US-origin components would be illegal”. Even the US department of justice coyly conceded that “Pratt & Whitney’s conduct was driven by profit” as it visualized its involvement in China would “open the door to a far more lucrative civilian helicopter market in China”, which was estimated at $2 billion.

China’s time to buy out anything or everything appears to have arrived, sanction or no sanction. Unlike the Indian propensity to import ready-to-use high-tech military hardware and then building and upgrading with more imports at inflated prices, thereby filling several coffers, China appears to own the technology, factories, men behind the research, material and then tries to penetrate the market with “Made in China” goods. So it is able to create a space the world market in case the US fails to maintain its position on top.