AIDC faces turbulence

Aerospace Industrial Development Corp (AIDC, 漢翔航空), the government-owned builder of aircraft and related equipment, has reached a critical point in its 32-year history. AIDC is continuing to lose money and the government, which is struggling to support other state-owned industries, is becoming more reluctant to provide continued funding.

Taichung-based AIDC's earnings fell sharply at the end of 1999, when it delivered the last of 130 Ching-kuo Indigenous Defense Fighters (IDFs) to the ROC Air Force, and since then the company has struggled to find revenue to offset the loss of IDF production. Nearly 80 percent of the company's income is currently derived from military contracts, including maintenance services for the IDFs.

The government has put an estimated US$13 billion into the company since 1969.

In recent years, AIDC has attempted to attract foreign investors. The company held unfruitful talks with Canada's Bombardier, France's Dassault, Boeing and GE of the US. Foreign aircraft manufacturers balked at purchasing a stake in AIDC for fear of becoming co-owners with their competitors.

As a result, AIDC's full privatization, originally scheduled for last year, has been delayed. The new deadline is Dec. 31, 2001, but that date is also unlikely to be met.

AIDC's revenue has shrunk from about US$750 million per year during IDF production, to about US$300 million. Vice Chairman Willy Peng (彭元熙) would not disclose how much money AIDC is losing, but analysts put the figure at between US$60 and US$85 million annually.

Many of AIDC's risk-sharing ventures are still in the development stage. Projects include building cockpits for the Sikorsky S-92 helicopter, the back wings and tail for the Bombardier BD-100 business jet and Boeing 717, and wings for the Aero Vodochody AE-270 turboprop.

Because of a lack of capital, AIDC is unable to rebuild and retool its three factories, and it cannot take further risk-sharing stakes in international projects. A joint venture with Airbus to build parts for the giant A380 passenger plane has been abandoned, because AIDC doesn't have the US$120 million required to take a 1 percent share in the project.

AIDC has asked Chiao Tung Bank (交通銀行) and China Development Industrial Bank (中華開發銀行), for additional funding. If they agree, state-owned shares of AIDC would be transferred to the banks, along with a new stock issue that would boost the company's working capital.

Other possible investors are the China Aviation Development Foundation (航發會), which owns 71 percent of China Airlines Co (華航), and employee shareholdings, Peng said.

"Our future depends on the attitude of the government," said an AIDC spokesman. "The banks [China Development and Chiao Tung] still have the money."

In a best-case scenario, AIDC would get US$120 million to US$200 from the banks, land some contracts from foreign companies, and then use the money to modernize and rebuild its three factories to produce the contracted items.

Meanwhile revenue would peak from programs like the S-92, AE-270, and BD-100, which have put in the development costs, but are not yet in full-scale production. "Many of our products are still in the investment stage, not in the production phase, so it will take many years to recover the revenue," Peng said.

One promising source of new business is target practice. In cooperation with Meggitt Defense Systems of the US, AIDC has bought an Astra SPX business jet, which can tow 545kg targets on each wing. AIDC tows the targets, and the Air Force and the Navy shoot at them, with the results recorded on a computer. AIDC has a three-year contract with the ROC Air Force and a one-year contract with the navy to provide target services.