Giant new State-owned conglomerate to give massive boost to industry, according to analysts

Share prices of three related aviation companies lifted off on Monday, after the formal establishment in Beijing on Sunday of Aero Engine Corp of China, the new State-owned conglomerate to develop aircraft engines - a development which analysts said will extensively boost the country's aviation industry.

AVIC Aviation Engine Corp, Sichuan Chengfa Aero Science and Technology Co Ltd, and AVIC Aero Engine Controls Co Ltd, saw their shares jump 2.78 percent, 2.77 percent, and 1.33 percent, respectively, by the close of trading on Monday.

The three were among the best performers on Monday when many other stocks went down.

According to announcements by the three companies, which were controlled by Aviation Industry Corp of China, they will have their ownership stakes transferred to the newly founded Aero Engine Corp.

Headquartered in Beijing, the new aircraft engine manufacturing company has a registered capital of 50 billion yuan ($7.5 billion), and 96,000 employees.

President Xi Jinping said on Sunday in response to the establishment of the new conglomerate that the new company would accelerate the research, development and manufacturing of aircraft engines and gas turbines to help China build a strong aviation industry.

In the next 20 years, demand for military aircraft engines is expected to reach $150 billion, and the demand of civil aircraft engines will be $1.6 trillion, according to forecasts by Rolls-Royce Holdings Plc, the leading global aircraft engine manufacturer.

Analysts said the manufacturing of aircraft engines was one of the weaknesses that restricted the growth of China's aviation industry. Currently, aircraft engine manufacturing powers include the United States, the United Kingdom, Russia and France.

"Aero Engine Corp of China is likely to integrate nearly all of the domestic research and development organizations of aircraft engines, and its total assets are expected to reach 150 billion yuan," said Bohai Securities Co Ltd.

In the first half of 2016, AVIC Aviation Engine Corp, Sichuan Chengfa Aero Science and Technology, and AVIC Aero Engine Controls saw healthy earnings. Chengfa achieved sales revenues of 998 million yuan, up 11 percent year-on-year. Its net profits reached 31 million yuan, surging 42 percent year-on-year.

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