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07SHENYANG250 2007-12-20 07:39:00 CONFIDENTIAL Consulate Shenyang
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1. (U) Cessna Aircraft Corporation, as part of successful
negotiations to contract with Shenyang Aircraft Corporation
(SAC) to manufacture Cessna's new 162 Skycatcher Light Sport
Aircraft (LSA), received assurances from Chinese officials
that, by the time the aircraft rolls off the production line,
China's skies will be open to private aviation, allowing
Cessna to open China's domestic market. Cessna officials
noted, however, that the primary target market for the
Skycatcher remains the United States. Cessna hopes that the
LSA, with a low price point of USD 110,000, will reinvigorate
America's private aviation market.




2. (C) At a private, SAC-hosted dinner for visiting Cessna
officials, SAC Senior Vice-President Chen Yongman, who will
lead the Cessna manufacturing program, assured Cessna that
within three years China's skies would be open to domestic
private aviation. He went on to report that SAC was forming
a recreational aero club so that there would be a ready
supply of qualified flying enthusiasts when the aircraft
reached the market. Chen added that SAC would take personal
responsibility in making sure that Beijing followed through
on the open skies commitment.

3. (C) SAC's contract calls for production of 900 aircraft
per year, with first-item delivery scheduled for late 2009.
Doug Morales, who will have overall management responsibility
of the project for Cessna in China, has already established a
residence in Shenyang and begun to take a thorough look at
SAC's facilities and procedures. Morales reported that there
is still a lot of work to do, expressing dismay at SAC's lax
quality-control procedures and its disregard for technical
instruction. Morales told Econoff that SAC employees
routinely substituted cheap construction fasteners for higher
quality aircraft fasteners, which he said concerned him not
only with regard to the Cessna program, but also because lots
of SAC products were flying around with the wrong fasteners.




4. (SBU) Responding to Econoff's query about attitudes in
Wichita to Cessna's China gambit, Cessna Senior
Vice-president for Human Resources, Jim Walters, said the
plan has gotten rave reviews from workers back home. He
explained that Cessna wanted to make an aircraft comparable
in price to high-end luxury sedans, something he said they
couldn't do in the United States. Because of the China move,
Cessna not only would be able to keep from reducing its
workforce, but it had actually expanded the number of U.S.
workers substantially. The expanded U.S. workforce was
needed to build the aircraft engine and avionics packages
that will be shipped to China for installation.

5. (SBU) According to Walter, this system of off-shoring the
airframe construction and keeping the higher technology
manufacturing at home substantially lessened the risk of
losing proprietary information and technology. Finally, he
said that making new airframes affordable would increase both
the safety margins and access levels for private aviators.




6. (SBU) While Cessna's China operations will begin at SAC's
existing facilities, the entire operation will ultimately
move to the newly-designated Aviation Economic Development
Zone south of Shenyang (reftel B). While Cessna officials
had not been made aware of this plan prior to entering into
the contract with SAC, Morales reported that he did not see a
big problem in making the move. Like Cessna, Boeing's
operations will also move to the new Zone. Boeing is
actively involved in the start up process for the zone, which
upon completion will be host to all of SAC's commercial

SHENYANG 00000250 002 OF 002

lines, both domestic and foreign.

7. (SBU) Cessna plans to permanently locate five U.S.-hired
personnel in Shenyang. The company has selected housing in
the Sheraton Hotel building, which just happens to be
convenient to the new zone. Morales said Cessna,s HR chief
had expressed concern about the status of Shenyang
International School, which is the subject of frequent rumors
of impending closure. Econoff explained that school
officials hope to finally resolve their long-standing
licensing problems in the near future and report that closure
is therefore unlikely. We have encouraged Cessna and other
U.S. firms to make the Shenyang and Liaoning authorities
aware of the need to keep the school open and have advised
their employees also to register with the consulate.