High risk of Chinese state influence in the aviation industry
Our thorough analysis of a company’s ultimate beneficial owner (UBO) can reveal links of seemingly private companies to the Chinese government. Based on these links, we determined the risk of Chinese state influence for all major inbound investments to the US, as we did for the EU. Our data shows a clear influence of the US’ investment screening mechanism which is more mature than that in the EU. Chinese investments to the EU were significantly more likely to involve a high risk of Chinese state influence.
Moreover, our data also showed large differences in the degree of Chinese state influence across sectors. For example, in the aviation sector, almost half of the Chinese acquisitions show a high risk of state influence. Aviation takes a central role in China’s ambitions to become a technological superpower, as exemplified by prestige projects like the COMAC C919 aircraft. This case study illustrates the high level of Chinese state influence in Chinese acquisitions of companies in the American aviation industry.
Continental Aerospace Technologies has a longstanding tradition in the American aviation industry, having produced its first aircraft engine as early as 1929. Based at the Brookley Aeroplex in Mobile, Alabama, it manufactures a range of gasoline and Jet-A engines and offers avionics services. Apart from this core business, it also produced air-cooled gasoline engines for several US army tanks.
In 2011, the company was acquired by AVIC, a Chinese state-owned defence conglomerate, for $186 million. In 2020, AVIC was blacklisted in accordance with Section 1237 of the National Defense Authorization Act. Consequently, American companies and individuals are not allowed to own shares in AVIC. Nevertheless, Continental Aerospace Technologies is still owned by AVIC as of November 2022.
AVIC has also made further acquisitions in the US through Continental Aerospace Technologies. The company acquired Thielert in 2013, Southern Avionics in 2014 and Danbury Aerospace in 2015. These companies are now all ultimately controlled by AVIC.
The connection between AVIC and the US aviation industry has also thickened in terms of personnel. Top Chinese executive directors of Continental Aerospace Technologies concurrently hold board positions in other AVIC subsidiaries based in China. At the same time, American board members of Continental Aerospace Technologies are also closely linked to other parts of the aviation industry in the US. For example, one person is concurrently chairman of STS Aviation, which staffs US defence projects.
Hidden links often go unnoticed
Overall, our research into Chinese investments to the US highlighted the maturity of American investment screening. Hence, there are relatively few investments in strategic sectors in recent years.
However, acquisitions that happened in the early 2010s are often still in Chinese ownership. This case, for example, shows that a Chinese defence conglomerate like AVIC can still maintain a wide web of influence in the American aviation industry which it had built up before being blacklisted. These dynamics though, are not affected by existing investment screening mechanisms.