Aviation is a niche passion. In the United States, barely one person in 500 has a pilot’s certificate — and the U.S. has most of the world’s pilots. Of the U.S. total, a little under one half are working for airlines or in the military, which leaves a relative handful of people for “general aviation,” or GA. The non-airline, non-military GA activities at the 5,000 small airports dotted across the U.S. include piloting corporate jets, flying crop dusters, conducting search-and-rescue missions, doing air-drops on forest fires, ferrying patients to hospitals on “Angel Flights” or delivering organs for transplant operations, and in other ways flying for convenience, business or pleasure. 

Small and specialized as this GA subculture may be, it has long had outsized geographic, commercial and technological significance. Today’s U.S. hub-and-spoke airline system offers dozens of flights per day between, say, Chicago and Atlanta, or Denver and San Francisco, but only a handful to or from places like Erie or Topeka. For business, for medical care, even for tourism and other purposes, small aircraft and airports can be nearly as important a means and symbol of connection as broadband service. 

The 200,000 or so private GA airplanes in the U.S. are also little business centers of their own. They all need to be fueled, maintained, inspected, repaired, equipped with avionics, housed in hangars or on the tarmac, and insured — at costs easily exceeding tens of thousands of dollars per airplane each year. The GA fleet has also been the place where advanced electronics and avionics are adopted, adjusted, user-tested and improved before the airlines take the risk of investing for their entire fleets.

It’s a surprisingly big business. According to the latest FAA estimate, general aviation in the U.S. represents nearly $50 billion in direct output, with spillover regional effects. And while the history of startup aircraft companies around the world is littered with high hopes leading to costly failures, the few that pay off can do so on a large scale — which has been the case for the company at the center of this story, Cirrus Aircraft, based in Duluth, Minnesota. 

Thirty-five years ago, this company, then known as Cirrus Design, was a gleam in the eyes of Alan and Dale Klapmeier, two aviation-enthusiast brothers working out of a barn in Baraboo, Wisconsin. Today, it is the best selling propeller-driven and small-jet airplane company in the world. But despite its Americana origin story, the company has, for the past dozen years, been a wholly-owned subsidiary of Aviation Investment Corporation of China, the Chinese state-owned aviation conglomerate better known as AVIC. 

AVIC supplies the People’s Liberation Army, or PLA, and was added to the U.S. Treasury Department’s sanctions list in 2020, barring certain transactions with U.S. companies or investors. In the summer of 2021, the Biden administration listed AVIC among Chinese companies that potentially pose a national security threat. (The company also has longstanding business ties to American giants like Boeing, GE and Honeywell.) 

There is no plausible reason to consider AVIC’s ownership of Cirrus a national security story. Cirrus makes little propeller planes and single-engine jets that are equipped with electronics available nearly anywhere in the world. Nor was the takeover a technology-transfer story. Its airplanes are still built at Cirrus’s main facility in Duluth, or at smaller plants in North Dakota and Tennessee. Through its years of Cirrus ownership, AVIC has never seriously proposed moving the plane’s assembly operations, design centers or corporate management out of the U.S. — or copying any of those functions within China. 

Instead, what followed AVIC’s buyout of Cirrus in 2011 is a surprising, significant, and recently mystifying U.S.-China interaction. 

A Chinese company that has been doing the right thing is about to do the wrong thing.

James McGregor, a Duluth native who lived and worked in China for three decades and was an advisor to the city during the AVIC acquisition

Despite everything else that has gone wrong between and within the two countries in the past decade, AVIC’s ownership of Cirrus has been nearly all upside for everyone involved. Cirrus has grown commercially stronger under Chinese state-owned enterprise (SOE) ownership, with reported sales in 2022 approaching $1 billion and net profit of close to $100 million. It has also been part of Duluth’s transformation in the past two decades, from a declining Rust Belt community to a bustling center of outdoor-recreation tourism with an aviation-production base. 

Although only a tiny percentage of its sales have been in China, Cirrus’s growth and innovation over the past decade has been a success for China too, representing its Chinese owners’ responsibility and maturity. In taking the long view, AVIC-as-owner has secured a respected place among world leaders in general aviation, long a strategic ambition for China. 

“We have had an iconic American technology and airplane created right here, in a Midwestern town, with a huge pocket of very good jobs,” says James McGregor, a Duluth native who lived and worked in China for three decades and was an advisor to the city during the AVIC acquisition. “AVIC has made a success of it — and I can’t think of another SOE that has done so well with its foreign investments.”

By the end of this year, perhaps even this month, Cirrus plans to have a very public celebration of these accomplishments and complete an initial public offering (IPO) on the Hong Kong Stock Exchange. In another era, the IPO might be seen as a fairytale ending for U.S.-Chinese business engagement. But today, given AVIC’s reputation in the U.S., the story of Cirrus’s impending Hong Kong IPO is fundamentally a mystery: Why would a stable and increasingly profitable arrangement that has so far escaped damage from U.S.-China tensions place itself in the middle of them?

As McGregor put it to me, “A Chinese company that has been doing the right thing is about to do the wrong thing.” 

APPLE OF THE SKY

The easiest way to think of Cirrus is as the Apple computer of the aviation world. Like any comparison, that oversimplifies and distorts. But it also conveys a central truth. Before Cirrus, the small-aircraft world was dominated by the counterparts to clunky MS-DOS machines, or early “portable” computers the size of beer coolers. But in 1999, when Cirrus brought to market its first production model — the propeller-driven, four-seat SR20 — it had an effect on general aviation that can reasonably be likened to that of the first Mac model on personal computing in 1984. In both cases the new entry wasn’t for everyone, had some obvious “Version 1.0” rough spots to work out, and created both loyalists and critics — but it undeniably moved its industry in a new direction.

As a pilot myself, I remember that 1999 Cirrus debut vividly. Through the 1990s I’d been training in and renting the available small airplanes of those days: mainly battered Cessnas, Pipers and sometimes Mooneys that had been built in the post-World War II decades and had the reliability but also the style and comfort of 1970s-era AMC Gremlins. 

Aviation magazines kept reporting on what might be ahead from the tiny upstart Cirrus company. Their new plane would look sleek rather than clunky. Its interior would be like a BMW sedan rather than a road-worn pickup. Its controls would have computerized moving maps rather than the Lindbergh-era dials known as “steam gauges.” It intended to be a platform for everything else that was new, and its vision was to make point-to-point aviation a more practical reality. By the late 1990s a NASA engineer and technology-futurist named Bruce Holmes was using Cirrus as an example of how air travel could become faster, safer and more convenient. For Cirrus believers, the line “they promised us flying cars…” was a commitment rather than a sardonic put-down. 

As part of this path, Cirrus provided and popularized a truly revolutionary safety measure in small-plane aviation: a parachute for the entire plane, which could safely take it to the ground when the engine failed. 

It is difficult to express how haughtily the Right Stuff-style pilot community sneered at this feature when it was introduced. Real pilots, after all, were expected to be able to glide planes to the ground in the event everything went wrong. But the only thing harder to convey is the difference this innovation made in the market. Grizzled pilots might have scoffed at the parachute, but many other people — including my wife and me, who put our names on the customer list — thought: What took so long! 

In 1999, its first year of sales and production, Cirrus was dwarfed by small-plane stalwarts like Cessna, Beech and Piper. But starting around 2003, it became the leading small-plane manufacturer in the world and has maintained that spot ever since. Cirrus has produced, sold and delivered well over 9,000 propeller planes and more than 500 personal jets, all of them equipped with the built-in, whole-plane parachute. More than 120 times over the past quarter-century, someone inside a Cirrus plane has had reason to pull the parachute, and more than 250 “souls on board” — the aviation term for people at risk on an airplane — have been saved.

Everything looked promising for the two brothers from Wisconsin. Until the money ran out. 

‘THE WORLD WAS ON SALE’

In the beginning, Cirrus’s financial story was classic bootstrap capitalism, consisting of family, friends, regional banks and businesses, and aviation enthusiasts. The young company was in serious danger during the Internet-bubble crash of 2000 and 2001. But through a long and tangled tale, it found funding from a Bahrain-based sovereign wealth operation called Arcapita. Through an even longer, more complex and much more bitter tale, those financiers and some U.S. allies eventually forced out the older and more visionary of the Klapmeier brothers, Alan. In part this was because they disagreed about some investments he thought crucial for the company’s future, including making its propeller planes relatively ice proof, introducing advanced “glass cockpits” to improve pilots’ awareness, and developing a viable “personal jet.” (More than 80 percent of planes in the GA fleet are piston-driven propeller aircraft, rather than small jets or turbo-props.)

This came amid a broader emergency: the financial collapse of 2008. Bankers called in loans, and customers canceled orders. Cirrus had been taking $100,000 deposits on its jet, which would not finish certification and come to the market until 2016, and was using the money as working capital. But Cirrus had advertised the deposits as fully refundable, and some people wanted their money back. The Arcapita investors also wanted out — and big U.S. funds, who didn’t see immediate payoff potential, passed.

“The world was on sale,” a person in position to know the company’s finances in that era told me. “And the Chinese were the only buyers.” 

“The Chinese,” in this case, meant the state-run and state-owned aviation conglomerate AVIC, and its subsidiary concentrating on general aviation, known as CAIGA (China Aviation Industry General Aircraft). By the summer of 2011, AVIC’s deal to buy out Arcapita, at a price widely reported as being around $210 million, had passed financial and national-security clearances in both the U.S. and China, and a Chinese delegation came to the main factory in Duluth for a formal announcement and celebration.

If the subsequent Cirrus and AVIC chronicle had headed toward disaster, you might begin the narrative with that gathering in Duluth. According to several people who were present, the U.S. team had hung a banner across their main hangar heartily welcoming their new “partners” from China. One of the Chinese officials was puzzled, then miffed. What was this “partners” reference, he asked an American. The Chinese were the owners. 

You can imagine a million ways in which things could have gone downhill from there. Think only of the 2020 Oscar-winning documentary American Factory, in which Chinese owners ham-handedly try to revive an auto-glass factory in Dayton, Ohio. But in Duluth the banner episode was a blip, not an omen. Most of the things that could have gone wrong, didn’t. When AVIC and CAIGA came to town, they doubled down on building the next great American airplane. 

READY FOR TAKE OFF

Why was AVIC interested in Cirrus? The specific reason was the role of aerospace in China’s early-2000s push to develop advanced industries of its own and move beyond its role as the world’s lowest-cost factory. This was the Hu Jintao-era modernization — the predecessor to Xi Jinping’s “Made in China 2025” — and it focused on information technology, bio-tech, and aerospace at all levels, from Moon exploration to a network of small airports. During the 2000s, AVIC made a number of “strategic investments” or outright purchases not just of Cirrus but of other small and medium-sized aerospace companies in the U.S. and Europe.

The broader vibe of those times gave aviation and aerospace special importance for China. Back in the 1980s and early 1990s, air travel had been a laggard in China’s ambition to open up and modernize. Chinese airlines flew mainly Soviet-era rattletraps. The old Civil Aviation Administration of China (CAAC) was a parody of how massive bureaucracies can fail. CAAC designed and built airplanes, ran airlines, regulated airspace, trained and certified pilots, funded research — and predictably did a terrible job at each. As China’s airline routes expanded, its fatal-crash rate went up, ranking among the world’s worst.

It is a reminder of the buoyant spirit of the 1990s and 2000s that Chinese officials decided that the surest way to safer flying (apart from paring down CAAC and parceling out many of its functions to other bodies, including AVIC) was to open up their operations to help from “foreign experts,” in this case mostly from the United States. Pilot-trainers and elite check-pilots from United Airlines went to China to work with pilots from Air China. Engineers from Boeing were sent on long advisory assignments in China. Officials who ran airports in Beijing and Shanghai came to see how things worked at places like LAX and O’Hare. Once, on a flight from D.C. to Beijing, I sat next to an FAA air-traffic controller. He told me he was moving to China to help his Chinese counterparts prepare for the 2008 Olympics traffic. 

By the time of those Beijing Olympics, Chinese airline routes and passenger volume had expanded rapidly, and Chinese airlines had gone from among the world’s deadliest to among the safest.

This open spirit applied to general aviation as well. China’s large land mass leads to a serious problem of left-behind and disconnected areas. Why not make small-plane connections part of the solution, as other sprawling countries like the U.S., Canada, Australia and Brazil had done? The U.S. Embassy in Beijing and assorted American companies and agencies sponsored something called the Wright Brothers Partnership to connect aviators, small-airport operators, manufacturers, and other people in America’s general-aviation complex with those trying to create a similar system in China. 

I reported on a lot of these efforts, many of which are surreal in retrospect. I went with a delegation to a remote outpost in Shaanxi, where provincial developers had laid down a bomber-scale runway hoping that it would attract air traffic and thus prosperity. I met a factory-owner/inventor in Shandong, who with Wright brothers spirit had attached wings to a motorbike, in hopes that it could fly. I attended a sales conference in Hunan for nouveau-riche provincial entrepreneurs, in which private airplanes — in particular, Cirrus — were proposed as tokens of achievement, along with personal yachts and villas in Europe. I served as co-pilot on a ferry flight of a new Cirrus to the enormous Zhuhai air show, where customers could troop through and consider a purchase.

It was a weird, wild, hopeful time — and it went nowhere, in terms of China’s own general-aviation market.

The problem with bringing GA to China is that there are not enough places to take off or land. In comparison with the 5,000-plus U.S. landing spaces, China has perhaps 500, even after a recent building boom. There is also not enough airspace to fly through. In North America and western Europe, the military controls specific and limited tracts of airspace: Much of the sky over Nevada and Arizona, for instance, is military-controlled, while relatively little is over Pennsylvania or Michigan. The majority of the U.S. sky is open for airlines and general aviation. 

…the domestic aviation ambitions that many Chinese officials had, back when AVIC bought Cirrus, have come to naught. 

It’s the reverse in China, where the PLA controls well over two-thirds of the airspace and closes it to most civilian use. A flight between Beijing and Shanghai, for instance, generally takes longer than a flight of the same distance in the U.S. because the military bars airlines from so much of the airspace in between, forcing them to take indirect routes.

The situation is worse for private jets and other small planes, which are barred from even more of China’s airspace.

Fifteen years ago, Chinese regulatory officials told me this was “just about” to change. Perhaps they are saying the same thing to reporters now. But it hasn’t changed, and there is little reason to think that the PLA will loosen control any time soon. As a result, the domestic aviation ambitions that many Chinese officials had, back when AVIC bought Cirrus, have come to naught. 

For at least the past two decades, aviation enthusiasts inside China, as well as outside aviation businesses hoping to sell to China, have been asking What if? What if the PLA decided it could relax its stranglehold on the country’s airspace? What if they decided that such a move could make the country stronger and safer, by allowing a robust and inventive local aerospace culture to grow up? 

For most of China’s aviation ambitions, such questions lead to wistful or disappointing answers. Yet not all of China’s “take-off” dreams have been dashed. 

LEAVING WELL ENOUGH ALONE

Everyone can think of a Chinese overseas acquisition that has gone poorly. In fairness, everyone can think of a U.S., German, or Japanese acquisition that has failed as well. But it’s difficult to think of a Chinese overseas acquisition that has gone better than AVIC’s dozen years with Cirrus. 

In 2018, seven years into AVIC’s ownership, Cirrus won the Collier Trophy, the Nobel Prize of the aerospace world, which is given for breakthrough innovations. In addition to its safety measures, Cirrus was recognized for Alan Klapmeier’s brainchild — the first-of-its-kind “personal jet,” which came to fruition in the 2010s and now retails for $3 million. 

“By revolutionizing general and personal aviation, Cirrus Aircraft, with their Vision Jet, has added to a great and historic Collier legacy,” said Greg Principato, president of the National Aeronautic Association, in announcing Cirrus’s selection. 

Cirrus now dominates the market with its propeller-driven and small-jet airplanes, and even has a backlog of orders several years into the future. Cirrus officially declined all comment while the IPO was pending, but according to the prospectus it filed with the Hong Kong stock exchange, its piston-planes and jets accounted for 42 percent of the worldwide “comparable personal aviation” market in 2022. The long-dominant Cessna, still a U.S.-owned company, was a distant second, at 18 percent. Cirrus’s revenues in the past three years, no doubt boosted by pandemic-era avoidance of the airlines, are similarly impressive: $586 million in 2020, $738 million in 2021, and $894 million last year. 

Like any business, Cirrus has had its problems. But the greatest immediate business challenge is hiring enough people to staff its production sites, which are now in Grand Forks, North Dakota, and Knoxville, Tennessee, in addition to Duluth. 

How did AVIC do it? I’ve asked this of dozens of people, whose hours of answers boil down to: AVIC knew not to meddle. And, AVIC took the long view. Two-thirds of the current Cirrus board of directors are Chinese, most from AVIC or CAIGA. But by all accounts they have known how to leave well enough alone. Soon after the takeover, AVIC kept the company open and bankrolled development of the personal jet (which Bahrain’s Arcapita had resisted). It has also authorized Cirrus plowing its revenues back into development. 

Alan Klapmeier, who since his forced departure from Cirrus has started other aircraft companies, told me that the “consequences of Chinese ownership have not been as bad as what I believe would have been the consequences of typical U.S. financial ownership,” which would have squeezed the company to cut costs.

Maybe Cirrus enjoyed “benign neglect” because it was a relative blip on AVIC’s massive balance sheet. Maybe some of the AVIC/CAIGA officials dispatched to Duluth went native and enjoyed the life there. (Some families my wife and I met in Duluth, soon after the takeover, could hardly believe their good fortune at winding up in large houses with spacious yards.) Maybe the Chinese owners sagaciously took a long view. Maybe some business analyst will do a case study one day.

Whatever the reasons, the arrangement has worked — and it is about to be changed with an IPO.

For the normal tech-startup world, the logic of an IPO is obvious. Entrepreneurs and their backers have put up capital, knowing that most startups fail. It’s part of the startup model to point companies that do survive toward a “liquidity event” as soon as is feasible.

But for a Chinese state-owned enterprise? At this moment of U.S.-China relations? With a “don’t rock the boat” success on its hands? 

“The company has enjoyed greater freedom of action because of Chineses ownership,” a person who knows Cirrus’s finances told me. “Now will they enjoy less freedom because they’ll be in the cross-hairs as ‘Chinese’? That’s the concern.”

IPO FOR SHOW?

The more than 500 pages in Cirrus’s IPO prospectus are studded with REDACTED markings, but enough remains to repay careful reading.

One of the themes that emerges is how additionally complex the new governing structure will be for Cirrus. By all accounts, AVIC and CAIGA are not giving up control of the company. According to multiple informed sources, the two SOEs intend to retain 80 percent of the shares. Because the offering is on the Hong Kong Stock Exchange — and because of various sanction complications for U.S. individuals and institutions — initial purchases for the IPO are closed to most U.S. investors. The presumed customer base, then, is other Chinese entities, private or public, meaning that after an IPO, Cirrus would go from Chinese-entity control — to a more cumbersome version of the same thing. 

Despite its Chinese ownership, the prospectus makes clear how thoroughly American the company’s business remains. It has sold only a tiny trickle of planes into China or elsewhere in Asia; some 90 percent of its market remains “North American,” which overwhelmingly means the United States. Mentioned again and again in the obligatory “Risks” part of the prospectus is how vulnerable a Chinese-owned U.S.-based company is to souring relations between the two nations. For example, recent legislation in U.S. states, including several where Cirrus operates, restricts land or property ownership by Chinese citizens or companies.

“The impact of recent geopolitical conflicts on our procurement and current prospects has been minimal,” the prospectus says. “However, there is no assurance that any escalation of geopolitical tension in the future … could have a material adverse effect on our business, financial condition, results of operations and prospects.” 

For the objectively large increase in friction, the company stands to gain a comparatively small amount of money. Although IPO-target numbers are redacted throughout the prospectus, the widespread assumption among aviation sources is that the IPO aims to raise $300 million for that 20 percent share in the company, with a valuation of $1.5 billion for the company as a whole. The stated ambition for this extra capital includes expanding plants, working down the backlog and developing new “personal transportation” vehicles (presumably including battery-powered and otherwise-sustainable aircraft). 

But the reported $300 million is, at current rates, about four months’ worth of Cirrus’s revenues, or two to three years of profit, causing many observers to scratch their heads.

“The logic behind the IPO just does not make sense,” one of the doubters, who has worked frequently with the Chinese enterprises involved, explained to me. “The path that is envisioned [i.e., $300 million] doesn’t give them a lot of new firepower. And it creates additional complexity, additional cost as a public company, additional nightmares for political reasons.” 

Alan Klapmeier himself told me: “From my outside point of view, I don’t see how this IPO does anything for Cirrus. I see no benefit in terms of advancing a vision for the company, its products, its customers, which I believe is usually necessary for real, long term value.” 

…maybe now, the reverie goes, with its track record and reliability, [Cirrus] will finally attract a North American or European knight in shining armor to save it.

For many aviation enthusiasts, this is not the ending they imagined for Cirrus, which, with its enterprising brothers, represents as hallowed a story as the Wright brothers. Several people I spoke with in the industry expressed longing for a last minute plot twist. Cirrus couldn’t get money from U.S. investors in the early 2000s, when it turned to Bahrain, or between 2008 and 2011, when it was saved by China. But maybe now, the reverie goes, with its track record and reliability, it will finally attract a North American or European knight in shining armor to save it. If AVIC got a better offer, it could close out the investment on top and call off the IPO, sparing Cirrus the geopolitical headaches. 

“Once you decide there’s going to be a change, all kinds of possibilities open up,” notes Klapmeier. One such possibility might just include AVIC and CAIGA going out on top as the Chinese enterprises with the wisdom and long view to send an American enterprise, the better for its time under Chinese supervision, to ownership back home.

---