SHANXI SECURITIES: The localization rate of the C919 large aircraft will continue to increase, and the industry chain's structural components are expected to benefit

According to the Zhitong Finance APP, Shanxi Securities has released a research report stating that the large civil aircraft industry is continuously deepening global division of labor under the wave of globalization. During this period, China has entered the aircraft industry at the low end of the supply chain, where technological and financial barriers have significantly decreased, and is gradually upgrading its level. The C919 is a product of global industrial chain and supply chain cooperation. Currently, the localization rate of the C919 has exceeded 60%. Through the development of the C919, China has established the capability for integration and final assembly of large civil aircraft, and can subsequently leverage the C919 platform to develop its various subsystems. After a long period of technological competition, more and more Chinese companies will enter the supply chain, and the level of localization will be further enhanced. It is recommended to pay attention to the structural components and raw materials of the large aircraft industry chain. The main viewpoints of Shanxi Securities are as follows: China's large aircraft development has experienced ups and downs but never gives up, ultimately realizing the dream of the C919. The R&D of China's large aircraft project has gone through a bumpy road before the C919, from the independent development of the Y-10 in the 1970s to the cooperation with foreign countries in the production and assembly of large aircraft in the 1980s and 1990s. China's large passenger aircraft project has faced many ups and downs and has never completed a full model development process until the successful development of the C919, which marks that China has basically gone through the entire process of large aircraft development. COMAC, as the main vehicle for realizing the industrialization of China's civil aircraft, has formed a complete series of products through the development of the regional jet ARJ21, the narrow-body trunk aircraft C919, and the wide-body aircraft C929, establishing a complete R&D system and product spectrum, and exploring a unique development path for China's commercial aircraft. The demand for large aircraft is shifting towards the Asia-Pacific region centered on China. Driven by sustained robust economic growth and accelerated domestic aviation infrastructure construction, China's commercial aviation passenger turnover has seen strong growth. Driven by huge passenger and cargo demand, China's aviation market has become the fastest-growing market in the world, and in the next twenty years, it will surpass Europe and North America to become the largest aviation service market globally. According to COMAC's forecast, in the next twenty years, Chinese airlines will receive 9,323 new aircraft, accounting for 21.3% of global new aircraft deliveries, with a market value of approximately $1.4 trillion, where the largest driving force for new aircraft demand will come from the single-aisle narrow-body aircraft sector. COMAC is the most promising disruptor in the duopoly of large aircraft supply. The large aircraft manufacturing industry and its market structure have always been in dynamic change. Following McDonnell Douglas's merger with Boeing in the 1990s, the large civil aircraft market formed a duopoly between Boeing and Airbus, which has continued to this day. In recent years, Boeing has faced frequent accidents and troubles, while Airbus has been under supply chain pressure and insufficient capacity. The backlog of orders for Boeing and Airbus has reached a historical high for reserve orders. Based on the delivery volume in 2024, the global aviation industry will need nearly 14 years to process the backlog of orders, creating opportunities for a third company outside the duopoly to seize market share. The large civil aircraft industry is continuously deepening global division of labor under the wave of globalization. During this period, China has entered the aircraft industry at the low end of the supply chain, where technological and financial barriers have significantly decreased, and is gradually upgrading its level. With the ARJ21 and C919 gradually entering commercial operation, China has gained capabilities at various levels of the supply chain, achieving a turnaround At the same time benefiting from the huge domestic aviation demand market, Commercial Aircraft Corporation of China (COMAC) is most likely to become the disruptor of the duopoly in the trunk aircraft market. C919 is a product of global industrial chain and supply chain cooperation, and the localization rate will continue to improve The C919 adopts the internationally mainstream "main manufacturer-supplier" development model, where the main manufacturer is responsible for overall design, supply chain construction, and final assembly integration, while components such as airframe structural parts, engines, and onboard systems and equipment are outsourced to suppliers. Foreign enterprises, Chinese enterprises, and Sino-foreign joint ventures together form the vast supplier system for the C919. Currently, the localization rate of the C919 has exceeded 60%. Through the development of the C919, China has established the capability for civil large aircraft integration and final assembly, and can subsequently leverage the C919 platform to develop its various subsystems. After long-term technological competition, more and more Chinese enterprises will enter the supply chain, and the level of localization will be further enhanced. Key Companies to Watch In terms of airframe structural parts in the large aircraft industry chain, we recommend AVIC Xi'an Aircraft Industry Group (000768.SZ) and AVIC Shenyang Aircraft Corporation (600760.SH). AVIC Xi'an is a major manufacturer of military large and medium-sized transport aircraft, bombers, special aircraft, and other aviation products in China, and is also the largest supplier of airframe structures for the C919, which will directly benefit from the mass delivery of the C919. AVIC Shenyang has successfully developed China's first carrier-based stealth fighter, the J-35, and is responsible for the development of some major airframe structural components for the C919. The company will continue to benefit from the new demand for the new stealth fighter and the future ramp-up of the C919. In terms of raw materials in the large aircraft industry chain, we recommend AVIC High-Tech (600862.SH). AVIC High-Tech focuses on carbon fiber prepreg products and is at the core hub of the carbon fiber industry chain. With the rising demand for military and civilian aerospace equipment and the increasing application ratio of composite materials, the company, as a major supplier of prepreg, is expected to continue benefiting. Risk Warning Production capacity improvement may not meet expectations; supply chain risks arising from international conflicts and great power competition; international airworthiness certification progress may not meet expectations; mispositioning of large aircraft products