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China to Buy U.S. Plane Maker
Published on: 2011-03-03
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The state-run company behind China's stealth fighter agreed to buy Minnesota-based private-aircraft maker Cirrus Industries Inc.—a small deal that highlights the expanding ambition of China's aerospace industry.

The deal comes amid heightened political sensitivity in the U.S. to Chinese deal making, especially involving technology.

A unit of China Aviation Industry Corp. plans to acquire Cirrus's line of four-seat propeller aircraft with an eye toward expanding in China's general-aviation market, which are small planes owned by individuals and small businesses. Terms weren't disclosed.

Even though the use of such aircraft is limited in China and most of its airports lack facilities to handle small, privately owned planes, the country is considered one of the world's most promising markets for growth. China's Civil Aviation Administration recently proposed relaxing restrictions for low-altitude airspace in five to 10 years to open up flight lanes for small planes.

The deal, which the two companies said they expect to close around midyear, would give the Chinese company access to Cirrus's technology, which includes a small jet in development. The deal eventually could give AVIC a way into the U.S. general-aviation market, the world's largest.

AVIC has caused concern for some U.S. lawmakers and officials, who oppose the company's efforts to bid on U.S. defense contracts. The company is working with California-based U.S. Aerospace Inc. to offer a replacement for the helicopter fleet used by the president. The companies also are in talks to offer AVIC's L-15 trainer jet to the U.S. Air Force. AVIC in 2009 created a joint venture with General Electric Co. to produce avionics—the electronic brains of an aircraft—for civilian planes.

Cirrus and AVIC said their deal is subject to regulatory approval, including from the Committee on Foreign Investment in the United States, which vets deals with potential national-security implications. The panel recently forced Chinese telecommunications-gear maker Huawei Technologies Co. to unravel a $2 million acquisition of a Bay Area start-up. CFIUS has approved the transfer of aerospace technology in the past, however, and the Huawei flap could work in AVIC's favor.

"The U.S. might want to give this one to China as a consolation prize," said James Lewis, of the Center for Strategic and International Studies.

Washington is conflicted about Chinese investment, however, as the U.S. tries to keep the economic recovery on track and gain access to China's huge market. During Chinese President Hu Jintao's visit in January, President Barack Obama said the U.S. "is open for investment and would welcome it."

The acquisition by cash-rich AVIC gives Cirrus resources to expand. The company is developing a jet, the Vision, that would have up to five fullsize seats. Brent Wouters, Cirrus's president and chief executive, said the company plans to keep production in the U.S. for the near term, adding manufacturing capacity in China only as that market grows.

The deal also points to the growing ambition of China's aerospace industry. AVIC unit Commercial Aircraft Corp. in November said it won its first 100 orders for a plane that would compete with single-aisle jetliners from Boeing Co. and European Aeronautic Defence & Space Co.'s Airbus unit. The Comac C919's maiden flight is already two years behind schedule, however, and isn't expected until 2014. Its first deliveries aren't expected until two years later.

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