Joint venture: Safran Group & Shanghai Aircraft Manufacturing Company
As part of our ongoing research into European joint ventures in Europe, Datenna decided to highlight and research remarkable cases. This case considers the joint venture, Shanghai SAIFEI Aviation Ewis Manufacturing, set up by the French Safran Group and the Chinese Shanghai Aircraft Manufacturing Company.
- Shanghai SAIFEI Aviation Ewis Manufacturing Co., Ltd has a Registered capital of 29.4 M euros and displays a high percentage of state influence according to Datenna’s data.
- The Chinese partner, Shanghai Aircraft Manufacturing Company, Ltd., is fully state-owned and works with the national air force.
- The European partner is Safran Group. It was founded in 2005 with the merging of the French companies Sagem operating in the defense and Snecma operating in the aerospace industry.
- The potential application of jointly developed technologies in the military sector represents a risk especially considering France’s “narrow definition” of dual-use goods within its export control regulations.
The Joint Venture
Shanghai SAIFEI Aviation Ewis Manufacturing Co., Ltd. is a joint venture established between Shanghai Aircraft Manufacturing Company, Ltd. and the French SAFRAN Group. The joint venture is the main manufacturer of EWIS, an Electrical wiring connection system, for Chinese C919 commercial aircrafts. Throughout the joint venture, the two partners cooperate in the supply of EWIS systems which can then be applied to a number of Aircraft sections and processes. The joint venture has been active since 2012, and since then the entity has filed several patents, suggesting flourishing research and development activities. Within the joint venture, the Chinese party holds the majority share (51%), with the foreign partner holding the remaining 49% of the shares.
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Shanghai SAIFEI Aviation Ewis Manufacturing
The French party Safran is involved in the defense sector, as the company “offers a wide range of defense systems and equipment, deployed by armies, navies and air forces from around the world to protect nations and populations”. – Shanghai SAIFEI Aviation Ewis Manufacturing
Safran Group
The French party, Safran Group, is involved in the defense sector, as the company “offers a wide range of defense systems and equipment, deployed by armies, navies and air forces from around the world to protect nations and populations”. The company is also active in the aerospace field, “enabling technologies for rocket propulsion systems and high-performance space optics.” Given the company’s size and footprint within Europe, a partnership with Safran could provide a partner with access to cutting-edge aerospace technology.
COMAC’s C919 project
The joint venture between Safran and COMAC dates to the announcement by COMAC of the C919 project in 2012. The COMAC C919 project refers to the development of a specific aircraft, namely a 190-seat passenger plane through which the company envisions to capture market share from the Boeing 737 and Airbus 320 within China. Special foreign suppliers were appointed for the project through a bidding process. To become suppliers for COMAC, the company specified that winning suppliers would set up joint ventures with Chinese companies to assemble the modules for C919 in China. A joint venture agreement was thus mandatory. Taking all foreign suppliers into account, it has been estimated that up to 85% of COMAC’s C919 has been developed through inputs from designated foreign suppliers. The joint venture discussed above can be considered a direct result of this agreement, which also led to further cooperation in the field.
Technology Transfer Risks
Foreign suppliers are often eager to join these kinds of projects. COMAC, a Chinese state-owned company, made it clear that their goal was to seize a considerable portion of the commercial aircraft market worldwide. Therefore, foreign partners face challenges in protecting their international property rights and should develop strategies to safeguard their IP and technologies. Even more so when they could potentially contribute to the rise of a relevant competitor in their sector in the near future. That the Chinese government has a clear strategic interest in the aviation sector is visible in the market access for foreign investors. Articles 15 and 16 of the Special Administrative Measures for Market Access of Foreign Investment still provide that Chinese control is required for investments by foreign investors in public air transportation enterprises. The detected military links and the lack of control over the joint venture by the European partner justify concerns over the transfer of relevant technology and IP rights.
Inconsistent application of EU arms embargo on China
Another perplexing point is the fact that military-related activities are conducted by both partners, which could potentially lead to the application of the jointly developed technologies and goods in such contexts. These concerns are legitimated by France’s “narrow interpretation” of the “arms embargo” announced in 1989 by the European Union placed to sanction Chinese government suppression of demonstrations in Beijing. The post-1989 list of the items to be included in the embargo wasn’t clear, which gave freedom to single member states to decide how to compile national lists. Therefore, both the UK and France decided to only make “lethal items” and “major weapon platforms” fall under the arms embargo. This “narrow definition” excludes a myriad of other goods which have potential application in the military sector. This situation represents a point of concern. Regulations on export control have prevented most EU countries from entering the Chinese market but potentially distortive export control practices could lead to the circumvention of such limitations.
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