Defense News
08/18/08
INTERVIEW: FENG SHIH-KUAN; AIDC Chairman and CEO
By Wendell Minnick – Taipei, Taiwan
As military deals with its home country have dwindled, Taiwan's Aerospace Industrial Development Corp. (AIDC) has pushed into the commercial arena in recent years. Its commercial partnerships and deals include manufacturing the empennages for the Learjet 40/45, Challenger CL-300 business jet and the C-27J Spartan military cargo plane.
Other deals include the production of Airbus A320 training edge panels, Dassault Falcon 900/2000 business jet rudder, Sikorsky S-76 cabin/crew door and S-92 cockpit. Total engine manufacturing includes the 601K industrial engine, CT7 turboshaft engine and the AS907 turbofan.
However, AIDC is working on an upgrade of Taiwan's Indigenous Defense Fighter (IDF)-2 and is planning a new attack trainer to replace the aging AT-3 jet trainer.
Feng "Kent" Shih-Kuan, who retired as vice chief of the General Staff at Taiwan's Ministry of National Defense (MND) in 2006, was appointed AIDC's chairman and CEO in May 2006. Feng is a former Taiwan Air Force F-5 fighter pilot and was a military attaché to the United Arab Emirates and the United States.
Q. What were your expectations for changing AIDC when you joined, and how have your views changed since?
A. I have instructed AIDC management in new directions - that is, to meet national defense needs, to expand the scale of Taiwan's aerospace industry and to reinforce strategic business alliances.
These are my goals in leading AIDC forward. I know that we have many challenges in front of us. I face these challenges and strive to accelerate AIDC's pace in moving forward. We still have a long way to go, but the courses have been set. I am sure we will see more progress within a short time.
For a state company to be a commercial entity is not easy, but I am confident it will be a success in the long run.
Q. What have you done to improve AIDC's financial situation?
A. AIDC's gross revenue in 2007 was $475 million, which was a growth rate of 18 percent higher than 2006. By controlling costs, the average gross profit ratio for the civilian program was 5 percent. The profit margin for military programs was higher than civilian.
In 2008, we expect the profit will be higher than 2007, but the soaring cost of raw material will squeeze profits, along with the uncertainties in the aviation industry associated with rising oil prices.
AIDC is taking two measures to improve the financial situation: reducing costs and company privatization. AIDC is a state-owned company operating under the Ministry of Economic Affairs. Company privatization is the only way for long-term development. A strategic business unit spin-off is under consideration now.
Q. What are AIDC's plans? What programs are planned or have been implemented?
A. AIDC's five-year business plan can be categorized in military and commercial programs and company facility enhancement.
AIDC is a leading provider of aircraft components and structures. Customers include Boeing, Airbus, Sikorsky, Bell, Bombardier Aerospace, Dassault and Alenia. Military programs include a new advanced trainer and an upgrade to the Indigenous Defense Fighter. Commercial ones include the Bell M429 helicopter, Mitsubishi Heavy Industries MRJ 70/90 regional jet, Boeing B787 and Airbus A380 programs.
As for the engines, it is our hope to pursue parts-manufacturing deals, which include GEAE GE90 and GENx, Rolls-Royce V2500 and Snecma CFM56.
AIDC is also trying to build the Advanced Composite Center by 2009. By then, AIDC shall have an adequate composite material capability to fully support global market demands.
Q. With direct flights between China and Taiwan, and economic and political agreements between the two countries planned, do you see AIDC and mainland Chinese aerospace companies working closely in the future?
A. Given the fact that major international aerospace companies such as Boeing, GEAE [General Electric Aircraft Engines] and Airbus have invested and set up manufacturing plants in China, AIDC is mapping out possible cooperation plans with aerospace industries in China.
Our plan includes pushing for government deregulation by appealing to the Taiwan government and legislature to relax restrictions on investment and trade with state-owned enterprises in and with China. We want to be a key supplier to China. The fact that AIDC is a qualified supplier to many major international aerospace companies will be instrumental to our pursuit as a key supplier to China's aerospace industry.
We want to establish a research and development center, as well as a design center, in China to enhance our competitiveness and profitability. We want to source raw materials for aircraft or engine parts manufactured from China. We also want to outsource labor to China by seeking reliable partners in China to outsource labor-intensive or low-profit work. And we want to take part in risk- and revenue-sharing programs of major international aerospace companies through strategic alliances with companies in China.
Q. What does AIDC do for Taiwan's military?
A. AIDC has offered the Air Force comprehensive maintenance service as well as total logistics support. Support contracts include fleet support and a government-owned, contractor-operated arrangement.
Two years ago, the life extension program for the AT-3 jet trainer was completed, and there are no plans for additional AT-3 upgrades.
The IDF upgrade program will be launched in 2009. There have been more than 200 test flights of the IDF upgrade prototypes, and it is verified to be compliant with the original design goal. The plan is still under consideration by the Air Force.
Q. Do you think the U.S. sale of F-16s will kill the IDF upgrade program? Do U.S. arms sales hurt Taiwan's indigenous defense industry?
Taiwan's aerospace industry has evolved to take advantage of global aviation trends. I would like to say that the F-16C/D and IDF-2 upgrade play different roles in Taiwan's defense.
Q. The AT-3 fighter trainers are going to be replaced at some point in the future. What is AIDC offering the Air Force?
A. In order to meet the Air Force pilot training requirement, AIDC launched an indigenous advanced trainer development program in late 2006. The conceptual design phase has been finished, and AIDC is also looking for international cooperation to help facilitate the program.
Q. What is the status of your manufacturing agreement with Bell to produce tailbooms for the new UH-1Y and AH-1Z helicopters for the U.S. Marine Corps?
A. AIDC has delivered more than 20 shipsets of the H-1 tailboom for the USMC. A new memorandum of agreement will be signed for new lots soon. AIDC will keep providing the high-quality tailbooms for the USMC through Bell. AIDC is producing parts for the Sikorsky S-92 under the contract.
Q. Were you disappointed when Taiwan's Army selected the Boeing AH-64D and Sikorsky UH-60 Black Hawk over the Bell AH-1Z and UH-1Y, especially considering your 30-year relationship with Bell?
A. Taiwan's military conducted a conscientious and integrated evaluation for the Army's helicopter acquisition. Many factors needed to be considered to meet operational requirements. I believe that the selection of the Boeing AH-64D and Sikorsky UH-60 definitely came out of a comprehensive evaluation process determined by performance and costs.
Besides, for weapon system procurements with budgets over $5 million, an offset obligation called the Industry Cooperation Program [ICP] is supposed to be fulfilled under government supervision. AIDC will be able to take advantage of this to get more contracts through either direct or indirect ICP plans.
Despite the fact that Bell showed an aggressive intent to win the Army's helicopter program, Boeing, Sikorsky and Bell are all vital customers to AIDC. They are continuing to expand business relationships with AIDC due to our good quality and on-time delivery. For example, Bell is discussing with AIDC a collaboration contract on its new commercial helicopter. We should have good news shortly.
A. C-27J is currently under a low production rate. However, AIDC is making efforts to collaborate with Alenia to develop new business opportunities. In our understanding, there is a substantial requirement for the C-27J. We foresee a bright future between Alenia and AIDC.
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COMPANY PROFILE
-- 2007 sales: $475 million.
-- Employees: 3,158 plus 1,383 contract employees.
-- Headquarters: Taichung, Taiwan.
-- History: Established in 1969, Taiwan's state-run AIDC has been involved in virtually every Taiwan military aircraft program. It has expanded into the commercial market with deals to make parts for Boeing, Bell Helicopter, Sikorsky and Dassault. AIDC has built or co-assembled military aircraft including the AT-3 attack trainer, F-5E/F fighter, UH-1H helicopter and the IDF.
