Harbour Air deal with Zuo Zongshen 左宗申 larger than first thought

Harbour Air deal with Zuo Zongshen 左宗申 larger than first thought

June 17, 2015

VANCOUVER: June 16 ,2015. - Greg McDougall, CEO of Harbour Air outside of their float plane terminal in downtown Vancouver on Tuesday, June 16, 2015. VANCOUVER, June 16, 2015. (Jenelle Schneider/PNG staff photo).

Posted by:
Jeff Lee

The news yesterday that Harbour Air, one of B.C.’s best-known aviation companies, has formed a strategic partnership with the huge Chinese power company Zongshen Industrial Group, signals an interesting new direction in Canadian aviation.

In  doing the story that Zongshen had aquired 49 per cent ownership and 25 per cent of the voting shares, I was surprised to learn that China has no significant general aviation industry. (See also here.)

That may seem hard to believe, given all the stories we’ve read about the rising power of the Chinese economic tiger. Perhaps we take for granted the robust general aviation industry we have in North America to realize that in China the use of small aircraft for commercial, tourism and commuter service has largely been banned.  Even as Chinese companies have voraciously targeted the acquisition of U.S. aviation companies, buying up manufacturing rights as well as the companies themselves.

My story today on Harbour Air’s unique cooperative arrangement with Zongshen illustrates that the Canadian aviation industry also has a lot to offer, especially when it comes to our well-established seaplane operators.

But it seems that Zongshen’s plans go well beyond what was originally portrayed in the story. After the story went to bed I received a rough translation of a media statement Li Yao, the executive vice-president of Zongshen Industrial Group gave yesterday in Chongqing. There were several important additions that I didn’t know about and are worth mentioning.

In addition to Harbour Air providing strategic consulting advice to Zongshen’s Tianchen Aviation Services, Zongshen says Harbour Air will open up new operations routes in Northern B.C. to take advantage of oil and gas development.

On one hand Zongshen will support the management team of Harbour Air who has been managing the seaplane business in Canada and has had great business performance and safety record. With the development of oil and gas resources in the north of British Columbia, new market demand is springing up, and Harbour Air will open up new operation routes.

In addition, it seems that Zongshen also intends to expand its new float plane business to Southeast Asia, including Vietnam, Indonesia, Malaysia, the Phillipines “and other coastal island countries.”

Zuo Zongshen, motorcycle magnate and owner of Zongshen Industrial Group. [he he] One of China’s richest men, he’s bought a minority interest in Harbour Air to help build new float plane routes for China’s emerging general aviation industry. Photo credit China News.

Zongshen’s majority owner, Zuo Zongshen, has long recognized the value of inexpensive forms of travel; he pioneered a small motorcycle repair company into one of the world’s largest motorcycle manufacturers, and his low-powered machines have become ubiquitous on China’s clogged arterials.

Now, through Harbour Air, he sees the value of small commuter aircraft using the waterways of Asia for transport, unfettered by the lack of developed regional airports.

(Zuo Zongshen is no stranger to B.C.; his company has a joint partnership in the 618-acre Cape Roger Curtis estate on Bowen Island, where his company has been developing luxury estates. He’s also investing in BCIT in the area of LNG technology. Not surprisingly, he uses Harbour Air to get to his Bowen Island estate.)

It seems that Zongshen is also investigating whether to begin manufacturing the floatplanes it will use in its expansion. Although there may be a new market for Saanich-based Viking Air, which has the rights to the Twin Otter, now the workhorse of Harbour Air’s fleet, Li points out in the media statement that Zongshen will look to partner with aircraft manufacturers wanting access to the Chinese market.

Seeing that Zongshen has 33-year solid history and impressive performance in small power system for motorcycles, we believe, Zongshen will become the ideal partner for the global general aircraft manufacturers to enter into China market.

That isn’t the only advancement Zou Zongshen is making in cheap aviation; his Zongshen Power company is investing heavily in the manufacture of drone engines. Don’t be surprised if his inventions end up powering the likes of Amazon’s proposed drone delivery system  and other commercial unmanned aerial vehicle (UAV) operations.

Here’s the rough translation of Li’s media statement yesterday. It includes details of the UAV program. Although it has some grammatical errors, the context is easy enough to understand.

Speech at a Press Conference on Acquisition of Shares in Harbour Air by Mr.Li Yao-Executive President of Zongshen Industrial Group Co., Ltd.–
(June 16, 2015)Distinguished Friends from the Media:Good morning. I warmly welcome you all to this conference.
Firstly, I’ll bring good news to all of you: For the acquisition of 49% shares in Harbour Air by Zongshen Tianchen General Aviation Investment and Development Co., Ltd. under Zongshen Group, up to June 11 local time, all terms and conditions have satisfied the requirements of Canadian regulations, and the share acquisition has gone into closing status.

I. Basic information of Harbour AirHarbour Air was established in 1982. Its headquarters is located in Vancouver. Harbour Air is the largest seaplane company in the world. Harbour Air has over 400 employees, over 50 planes (including one training aircraft and one helicopter offering a commute to executives). It carries more than 400,000 passengers per year. The number of daily flights reaches 175 during peak time. The company keeps the highest safety standards in the global industry.
The business of Harbour Air includes scheduled airline service, scheduled tourist route service, business and private charter services, aircraft maintenance services, aviation logistics and transport services, and subsidiary food and beverage service. The operating routes are mainly distributed in Vancouver and surrounding coastal area. Moreover, the operating routes include 11 routes of Lower Mainland in Britain Columbia, and the business accounts for 90% market share of seaplane operation in this area. 
II. Vision after Zongshen Acquires the Shares in Harbour Air

That Zongshen acquires 49% shares of Harbour Air is not only a financial investment, but a strategic investment.

On one hand Zongshen will support the management team of Harbour Air who has been managing the seaplane business in Canada and has had great business performance and safety record. With the development of oil and gas resources in the north of British Columbia, new market demand is springing up, and Harbour Air will open up new operation routes.   
On the other hand, we are more interested in the air traffic service business model that has been established by Harbour Air in air traffic operation practice of more than 30 years. This model can be duplicated to the water cities around the world. Zongshen will bring the unique Harbour Air business model to China, so as to provide an efficient and fast transportation mode for the coastal cities of China. Since the beginning of this year, Zongshen has planned the seaplane tourist routes from Banan, Chongqing to Hongchiba, Wuxi, from Dushu Lake, Suzhou to Putuo Mountain, Zhoushan, from Qinzhou, Guangxi to Hainan, and Zongshen has received strong support from local governments and tourism sectors.
As you know, Zongshen Power became the stockholder of HATC (Hua An Tian Chen) in 2012. HATC is a technical support enterprise for national airspace evaluation, which is conferred by State Air Traffic Control Commission. It has provided airspace evaluation, airport site selection, airline design and optimization services for many provinces, cities and autonomous regions. At present, HATC is actively involved in the construction of domestic seaplane operation network of Zongshen, providing reliable technical support. At the same time, the system of surveillance, Airspace management, Flight plan management, Enhanced FSS  (also called S.A.F.E system)developed by HATC has been applied to the general aviation pilot cities including Chongqing. If S.A.F.E system passes the acceptance of CAAC and other organizations, it will become an effective control method for civil aviation and the military to master and monitor low-altitude aircraft flight plan and dynamics.
In another aspect, in the long term, with the implementation of the national strategy of “One Belt And One Road” , the successful business model of Harbour Air can be copied to Southeast Asia, including Vietnam, Indonesia, Malaysia, Philippines, and other coastal or island countries. The above-mentioned countries have numerous islands. As the seaplane characterized by low investment and quick effect does not require land to build a land-based airport, the seaplane has a brilliant future.       
In addition, at the time when Zongshen arranges the seaplane operations, Zongshen consults with aircraft manufacturers around the world, and plans to introduce foreign technologies and produce the seaplanes by a joint venture, so as to meet the rapid development demand of seaplanes in the future. Seeing that Zongshen has 33-year solid history and impressive performance in small power system for motorcycles, we believe, Zongshen will become the ideal partner for the global general aircraft manufacturers to enter into China market.
III. General Aviation Development Strategy of Zongshen
As you all know the general aviation business of Zongshen is also involved in UAV power and complete UAV business.

On April 29, 2015, TD0 UAV engine prototype developed by Zongshen Power was mounted on the complete UAV of CAAA “Rainbow-3 UAV”  for flight test. Successful  flight test means it has broken foreign technical barriers. Currently, Zongshen is actively building TD0 engine manufacturing platform, so as to enhance the mass manufacturing capacity of products rapidly, fill the domestic gap, and meet the demands for the pwoer.

As for complete UAV business, in April this year, Zongshen Power increased the investment of RMB 70 million Yuan in Qingdao Hongbaichuan Precision Metal Products Co., Ltd. Now, Zongshen Power holds 28% shares of the company. The company’s business scope includes, the R&D, design, consultation, manufacturing, marketing, operation and maintenance of UAV, USV, infrared spectrum load equipment and their core components. The R&D products cover military and civilian industry products. In May, Zongshen Power signed a “Joint Venture Agreement” with Qingdao Hongbaichuan Precision Metal Products Co., Ltd. RMB 50 million Yuan is jointly funded to establish “Chongqing Zongshen Tianyi Aviation Technology Co., Ltd.” in Chongqing (Zongshen Power holding 67% shares). It is predicated that the mass production of complete UAV will be realized in September this year, including a new generation of agricultural plant protection plane.    
From the strategic level, Zongshen UAV business is not only actively integrating domestic and foreign resources to build a strong manufacturing platform of UAV power, but also directly involved in the production and marketing of complete UAV.
Zongshen seaplane business will build the whole industry chain, including the front-end airspace planning, middle-end seaplane manufacturing, back-end seaplane operations and network construction. 
Friends from the media: The general aviation business of Zongshen (including seaplane business and UAV business) is only one of four strategic transformation directions of Zongshen Group. Zongshen transformation is on the way. Maybe the road is bumpy, but Zongshen will continue to move ahead, with firm determination and confidence in transformation.