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A Harbour Air pilot gets ready to take off from Vancouver's Coal Harbour. (Andrew Querner for The Globe and Mail)
A Harbour Air pilot gets ready to take off from Vancouver's Coal Harbour. (Andrew Querner for The Globe and Mail)

Slow plane to China: B.C.’s Harbour Air eyes massive market Add to ...

In a Chinese province you’ve never heard of, in a city with more people than you thought possible, a Canadian CEO is sitting down with Communist Party officials to a dinner of stewed offal, chicken’s feet and fermented “stinky” tofu that the CEO says smells (and tastes) like “a horse’s barn.” He is doing so with a short, bespectacled Chinese billionaire who has bought half of the man’s Vancouver-based company in an unlikely alliance that may soon see float planes buzzing along the Yangtze.

But before that can happen, the rice wine comes out of a back room, carried by an elegant waitress in the employ of the local Party office. Dressed in a sedate black outfit, she flits around the enormous round table filling up each guest’s tiny, personal glass jug with throat-searing Chinese rice wine, known as baijiu, or “white alcohol.” The toasts are about to begin, and they are not the day’s first: The billionaire has already been forced to take an early-afternoon nap, after pounding back baijiu at lunch.

So it goes in China. Sometimes, when foreign businesspeople come here, they are feted with extravagant banquets of Peking duck among the gleaming towers of Shanghai or Beijing. And sometimes, when they arrive to help pry open some obscure part of China’s endlessly alluring market of 1.3 billion people – as Greg McDougall of Harbour Air has – they end up in a place like rural Anhui province, in a rather unremarkable regional capital like Hefei, dining with Communist officials who, in this case, happen to be in charge of industrial development in a district called Binhu. And as the evening progresses and the toasts become not table-wide events but stand-up, one-on-one affairs, the baijiu is choked down not from the minuscule shot glasses placed next to each guest’s jug, but from the jugs themselves.

Pretty soon, almost everyone in the room has toasted the evening’s main guests: McDougall, the straight-talking entrepreneur who turned a ragtag operation of pilots into the world’s largest all-seaplane airline; the Chinese billionaire Zuo Zongshen, who built a motorcycle repair shop into an industrial empire and now wants to bring McDougall’s float planes to China’s mist-shrouded mountains; and the district’s newly appointed Communist Party secretary, Ning Bo, who has ambitious plans for transforming the lakeside region now under his control into a tourist attraction for China’s growing middle class.

In a way, they all need the other. McDougall needs Zuo to finally take Harbour Air international after a couple of unsuccessful attempts. Zuo needs McDougall to help transform an industrial empire that has been sputtering as China begins to transition away from manufacturing to domestic consumption. And Ning, like local Communist officials across China, wants his own district to shine–and having a famous, Beijing-connected billionaire like Zuo, not to mention a foreign partner like McDougall, is almost too perfect.

As the dinner progresses, the minor guests – including me – begin moving around the table and exchanging business cards in a highly choreographed dance. But McDougall, Ning and Zuo remain where they are. At one point, McDougall is surprised to find himself being embraced by the local Party boss, Ning.

“I love you very much,” Ning tells him in limited English, looking deep into McDougall’s eyes. “I love you very much.”

***

When McDougall was a boy, his father owned a rustic cabin on an island off British Columbia’s Sunshine Coast, a scenic strip of coastline and islands that stretches north of Vancouver. The family lodge was located on a five-acre island, in the middle of a lake on a larger island, that his father bought in 1947 for $200. To get there, the McDougalls had to take a ferry, drive to a boat landing, take an aluminum boat to the bigger island, and portage through the woods before taking another small boat to their cabin, which was on a lake so clean, he says, you can still drink the water.

It was on this lake that McDougall fell in love with float planes, which for decades have buzzed over the massive Douglas firs of the Pacific Northwest. One pilot in particular would often land on the lake and tie up to the family’s dock to have a swim or a cup of coffee with McDougall’s father.

Though his parents were both Canadian – his father was a teacher, his mother a nurse – McDougall grew up near Santa Barbara, Calif., and the wild life of a seaplane pilot was irresistible. “I always knew that when I got out of high school in California, I would just stay here one summer and learn how to fly – which is what I did,” he says.

He landed his first pilot job flying float planes out of Fort Simpson in the Northwest Territories, lifting off the Mackenzie River and taking supplies into remote First Nations villages. By the early 1980s, McDougall was flying for a struggling West Coast outfit called Hyack Air. Then he hooked up with a real estate entrepreneur who owned a plane and operated from a barge in Vancouver’s harbour. When the recession put an end to his boss’s high-flying exploits, McDougall asked if he could lease the plane and dock. Another pilot soon joined up with his own de Havilland Beaver, and Harbour Air was born: a short-haul airline for a land of trees, mountains and water.

The company’s history has been turbulent, to say the least. One of McDougall’s former partners died in a plane crash near Squamish, B.C., after his Grumman Goose hit bad weather. Another got busted with 73 kilograms of weed he hoped to fly south of the border. A third partnership ended when McDougall’s co-owner, a wealthy Albertan named Kenn Borek, was killed in a car crash, along with his daughter, on the icy roads leading to Grand Prairie, Alta. His death gave McDougall full control of a company that was then riven by internal feuds. “It was a shitty way to get it,” he says, “but it was transformational.”

With McDougall as its sole owner, Harbour Air took off. At the time, the float-plane business was largely seasonal and highly fragmented. But McDougall flew regular scheduled flights (particularly between Vancouver and Victoria) as well as charters, and began buying up other operators, including the only float-plane facility in Whistler. Today, Harbour Air has 43 aircraft – mostly single-engine Otters and Beavers. But there’s only so much opportunity flying short-range aircraft in a province of 4.7 million people.

“Our market here is mature,” McDougall says, “so it made sense for us to look for new investment. And also, I guess I’m kind of looking down the road. What’s my exit strategy?”

Over the years, McDougall had considered many proposals for international expansion. Let’s bring your float planes to Indonesia! To Greece! To Malta! He even visited Shanghai back in 1994 to discuss a possible deal, long before the Middle Kingdom had any middle class to speak of. But those efforts crashed. Then came the financial crisis, and investment dried up.

In 2014, Harbour Air went looking for investors and ended up meeting Joanne Yan, a consultant who’d known Zuo for years. When the billionaire showed up in Vancouver to visit friends, Zuo took a few jaunts on Harbour Air’s planes, to play golf and search for real estate deals (he ended up buying 500 acres on Bowen Island), and was taken with the idea of bringing the concept to China. And after months of back-and-forth, with complex documents being translated from English to Chinese and back again, Zuo agreed to buy 49 per cent of the company. Then he hired Harbour Air’s top executives as consultants to help set up a tourism operation in China.

Finally, McDougall had a real shot at going global.

***

Zuo was born in 1952, just three years after Mao’s Communist army declared the creation of the People’s Republic of China. At age 10, his accountant father decided to leave Shanghai for Chongqing, in southwestern China, part of the government’s bid to spread growth to poorer, inland provinces. By 1966, the Cultural Revolution had plunged China into a state of confusion and terror that would last a decade. Zuo’s school shut down. “I was in high school for a year,” he says, “and then three years of nothing.”

He was sent to the countryside in 1969 to learn about the peasants that powered Mao’s revolution and landed in a small farming community 200 kilometres from Chongqing. “I was just like a peasant, ploughing the soil,” Zuo says from a couch in his suite at a five-star hotel in Hefei, as he puffs away on elongated Chinese cigarettes. “We grew rice and wheat and yams and potatoes. It was hard work.” He was paid ¥30 (about $6.30) for a year’s work.

Zuo tilled soil until 1974, when he was allowed to return to Chongqing. There, he worked in a porcelain factory, making more than his former annual salary each month. But he was unsatisfied. “There was no future,” he says. Four years after returning home, as China’s population began to boom, Zuo started buying and selling local goods like books and fruit. He also got married – but his wife soon tired of his unpredictable income. And so, in 1982, around the time China’s total population tipped over one billion, he opened a motorcycle repair shop. “I just learned by doing it,” he recalls. “At that time, I felt it was very complicated. But looking back, it was quite simple.”

When the Chinese government began allowing the creation of private enterprises in 1992 – spurred by Mao’s successor, Deng Xiaoping – Zuo founded Zongshen Group in Chongqing. He began manufacturing engines, then marketed a 70cc motorcycle of his own in 1996. As China’s economy boomed and workers began to accumulate disposable income, millions of them bought their first motorized vehicles: cheap, Chinese-made bikes. Zuo’s business flourished, and he expanded.

“The demand was bigger than the supply,” he says, wreathed in cigarette smoke. “Of course, seizing market opportunities needs hard work and management skill. But most important was that the government opened up the opportunity for individuals to own their own companies.”

Zongshen Group, with its 20,000 employees, is now one of the largest motorcycle manufacturers in China – it churns out around four million bikes, electric bikes and three-wheelers each year, and exports many of them to emerging markets in Southeast Asia, Africa and South America. The company also runs joint ventures with Piaggio, the Italian scooter manufacturer, and Barbieri, an Italian maker of small agricultural machines. In 2015, Zuo had a net worth of $2-billion (U.S.), according to the annual Hurun Rich List. He has gone from uncertainty and grim, rural impoverishment to sumptuous urbanity and wealth.

“I’ve followed China’s development,” Zuo says simply.

***

A decade ago, if you wanted to take the train to Anhui province, you’d first have to fight your way through crowds of ragged migrant workers sleeping in the giant square in front of Shanghai’s central train station. Then you’d have to jam into an ever-shifting queue of peasants jostling to be first at the ticket counter. When you finally found a seat on board, you’d rumble out of the station on a 12-hour overnight journey.

Today, the subway glides into the shiny new Hongqiao station on Shanghai’s outskirts, and escalators ascend to a cavernous main floor loaded with electronic ticket machines. The high-speed train practically floats out of the station, covering the 468 kilometres to Anhui in just three hours.

In Hefei, the province’s ho-hum capital, broad boulevards are congested with BMWs, buses, motorcycles and sputtering three-wheelers loaded with farm produce. The hotel where the Harbour Air and Zongshen executives are camped out has a view shrouded in the smog of unprecedented and unsustainable growth. Just 25 years ago, Hefei had a population of 715,000. Now it is a city of almost eight million, on par with London or Hong Kong.

In the morning, Brent Davies, a restaurateur who sits on Harbour Air’s board of directors and owns a minority stake in the business, stands in the middle of the hotel’s cavernous lobby, examining a soaring Greek column that’s already missing some tiles.

“I wonder how long this is going to last,” Davies says.

Then Zuo sweeps into the lobby with an entourage.

“How’s your business?” Zuo asks Davies.

“A very good year,” Davies replies.

“You should open a restaurant here,” Zuo says, “or maybe a high-end Chinese restaurant in Vancouver.”

“I’ve wanted to do that for years,” Davies says.

“I’ll find you the best chef,” Zuo says.

When McDougall arrives, the group files out of the hotel and into a waiting minibus en route to the local government development promotion office for Hefei’s Binhu district. There, a 15-metre-wide diorama shows a vast new industrial area that will house back-office functions for major Chinese banks operating in the area.

“So there are currently no subways?” McDougall asks.

“No, it’s under construction,” his government minder replies. “Next year, we’ll have three lines.”

“In Vancouver, we’d still be planning,” McDougall mutters.

Zuo stands in a dark blue suit and brown brogues, glasses at the tip of his nose, watching a promotional video on a massive screen over the diorama. The camera swoops above the district’s lake – the future home of Zuo’s float-plane base – and through the skyscrapers of the new white-collar district. Soaring music plays.

“Do you hear that?” asks Chad Wetsch, Harbour Air’s vice-president of ground operations. “They ripped off the Lord of the Rings song!”

The crew piles back onto the bus. Outside the windows, everything is under construction: office towers and hotels, an indoor water park, an amusement park (complete with half-built Ferris wheel) meant to attract 60,000 people a day, a retail complex that developers hope will one day house Hermès and Versace. The area’s population of 400,000 is expected to double soon – all of them potential float-plane passengers.

Our next destination is a grassy hill overlooking the lake – and an under-construction marina. Eventually, Zuo hopes to fly tourists 220 kilometres south, to the rounded, cloud-piercing peaks of Huangshan, or Yellow Mountain, which looks like an ancient Chinese scroll painting. But thick, white haze hangs in the air, and it’s impossible to see more than 100 metres.

“Why is the sky always like this?” Davies asks. “Every time I’m in China, it’s like this. I’ve never seen the sun.”

That’s a problem: Float-plane pilots fly by visual flight rules (unlike commercial jetliner pilots, who fly using instruments). If they can’t see through the smog, they can’t fly.

“What are the lake conditions out there?” McDougall asks.

“Not many waves,” replies Jay Wang, who works for a local investment company.

“When are they actually going to develop the marina site?” McDougall asks. That’s where the float planes will land and dock before flying tourists to as-yet-unbuilt luxury hotels near the mountains.

“In a year.”

“When they say it will be done next year,” says McDougall, shaking his head, “it will.”

“We talk fast. We do everything fast,” Wang replies. “Two weeks ago, there was no grass here.”

McDougall looks down: The grass is yellow and trampled, with the occasional patch of parched, cracked dirt.

“I think it needs water,” McDougall murmurs.

***

China is a country in transition. It couldn’t remain an export-led, manufacturing-centred economy forever. And so the government is struggling to keep its GDP growing as it tries to orchestrate a transition to domestic consumption, advanced research, high-tech manufacturing and greener technologies that will put an end to the smog that darkens the country’s skies and poisons its people.

As part of that campaign, gas-powered motorcycles like the ones produced by Zuo’s industrial empire have been banned in 200 Chinese cities, including most major metropolises. Although good for the environment, that’s bad for Zongshen Group’s business – particularly as rural Chinese continue to pack into big cities. At the same time, increased shipments of cheaper products to emerging markets have put Zongshen at the mercy of volatile currency shifts.

To hedge against these changes, Zongshen has diversified into agricultural machinery and electric vehicles, and plans to get into liquefied natural gas (retrofitting vehicles to run on natural gas and building components for LNG import and distribution). “We feel great pressure,” says Zongshen’s chief investment officer, Li Yao, who has spearheaded the shift. “All of the enterprises in China are facing this transformation. If you don’t transform, you will die. If we transform, we will survive – maybe.”

Now that the Chinese government has opened some of its low-altitude airspace (1,000 metres and under) to civilians, aviation is another target for expansion. So far, Zongshen has invested in Harbour Air and an airspace evaluation and planning consultancy aimed at Chinese governments. Zuo has already forged partnerships in China to build drones with both civil and military applications. The long-term plan is to manufacture planes, too.

Zongshen isn’t the only company interested in this space. Victoria’s Viking Air has signed a strategic partnership to make Twin Otters in China. And U.S.-based Textron Aviation, which owns Cessna, Beechcraft and Hawker, is also eager to help expand the industry. Alden Zhang, Textron’s Shanghai-based flight operations support director, is a Zongshen consultant and tagged along as Zuo visited officials in Anhui. “We’re here to help China set up the general aviation industry. And then maybe they will buy one of our aircraft,” Zhang tells me. “Gulfstream, Bombardier, Embraer–they don’t think like this. They just want to sell planes. But for us, once we develop the industry, that will be a huge benefit to our company. We have forecast this market will be booming.”

To people used to the pace of change in the West, these hopes might seem far-fetched. But things move startlingly fast in China when the government wants them to. The state-owned Commercial Aircraft Corp. of China unveiled its C919 airliner in November, just seven years after its creation. And Zongshen – a company few in the West have heard of – is a perfect example of how China’s private enterprises are pushing ahead even faster, pursuing profits by following Beijing’s path. Zuo seems to see himself as a sort of general helping execute Beijing’s long-term strategy. He is politically connected as a member of the Chinese People’s Political Consultative Conference, and on the wall of Zongshen’s Chongqing showroom, there are photos of him greeting former president Hu Jintao. He takes Beijing’s policies to heart, from the “One Belt, One Road” plan to export the nation’s excess industrial capacity, to the “Maritime Silk Road” emphasis on countries such as Indonesia. As wages increased in China – Zuo says his workers are paid 50 per cent more than five years ago – he built factories in Vietnam and Thailand.

“China is facing another adjustment,” Zuo says. “The past 30 years of high growth have been the biggest economic development in the history of the world. But the government has seen issues in the current structure. Europe has been through this, and Japan. We need to follow the same route. If this is successful, China’s economic growth will be extended and stay strong.”

“If it’s not successful,” he adds, “we’ll face issues.”

***

But as Zongshen and Harbour Air push forward in China, they’re not exactly flying into clear skies – literally or figuratively. One of the issues is planes. Harbour Air can’t deploy its own fleet of trusty Otters and Beavers here, since those hardy aircraft went out of production decades ago, making them something of a rarity. Harbour Air rebuilds its planes every five years; the parts are new, but the fuselages date from 1953 to 1967 – “vintage,” McDougall calls them. That makes them ineligible for import into China, which bars planes more than a decade old.

That’s why as McDougall was sampling the charms of Hefei, Harbour Air’s president, Peter Evans, and its vice-president of operations and safety, Eric Scott, were in an even more remote city, inspecting potential aircraft for the venture. Up in Harbin, in China’s north, they examined the Harbin Y12, which is built by a state-owned Chinese company. They also visited a city whose name neither man can pronounce (Shijiazhuang, about 300 kilometres southwest of Beijing) to inspect a joint-venture factory building Textron’s Cessna Caravan.

From there, they flew to Chongqing, where Zuo owns a luxury guest lodge on the side of a steep hill overlooking the city of 30 million, then drove five hours to Wushan, the proposed site of Zuo’s second float-plane base. Wushan is a tiny agglomeration of newish apartment blocks that hugs the shore of a Yangtze tributary. Technically, this is the new city of Wushan; the old one sits 95 metres below the boat on which Evans and Scott are now standing, one of the many towns flooded when the Three Gorges Dam was built more than a decade ago.

The pair have already scoped out the dock area for the new marina. Now they’re looking at the likely air route from the Wushan harbour through the scenic Longmen Gorge–past its ancient Buddhist temple, a group of rambunctious monkeys and ancient wooden coffins stuffed into caves on the steep cliff faces – to the Nine Lakes National Wetland Park on the other side. As the boat begins its slow journey, small groups of fishermen wave as they power past in wooden skiffs. Scott and Evans’ tour guide, Tan Guochun, a local whose old Wushan apartment now lies deep under water, grimaces at the rubbish floating past.

As the yellowish stone walls of the gorge rise on either side, Scott and Evans chatter excitedly.

“There isn’t a pilot I know who wouldn’t want to fly through this gorge – and they could do it,” says Scott, who used to fly water bombers. “But with paying customers on board? Flying through the gorge would be a lot of fun, but it’s not the right thing to do.”

His eyes take in possible obstructions to a future flight path. There are bridges and electrical towers, none of them outfitted with warning lights, since China doesn’t really have low-flying aircraft yet. That means pilots will have to fly higher, into thicker clouds and fog. Wushan is famous for them, surrounded as it is by hills and mountains. How feasible is a float-plane venture that could be grounded half the time due to poor visibility?

“Fog, clouds and airplanes don’t really mix,” Scott says nervously.

There are other issues, including a pilot shortage. China barely has enough pilots as it is – Scott says he gets two e-mails a week from scouts looking to fill commercial airline jobs here that pay $280,000 (U.S.) a year. But float-plane pilots are another breed entirely. Landing a plane in a busy harbour means dodging boats and towers and wires, through fog, smog and rain. Float-plane pilots are hard enough to find as it is, but in China they don’t exist. Zongshen and Harbour Air are looking at establishing a pilot-training operation on the B.C. coast.

Evans – who’s a pilot like the rest of the Harbour Air guys – doesn’t pretend to know whether this is going to work. “The business side of this, I can’t tell,” he says. “The advantage here is volume. You’ve got this body of potential customers just by sheer volume.”

Zuo is counting on that. But he’s not stopping here. He has already signed a deal with China Minsheng Investment Corp. – one of the largest investment holding companies in the country – to chase float-plane opportunities in Indonesia. There’s an ethnic-Chinese business elite there, he says, that would be willing to help them out.

He needs McDougall, too. Zuo bought half of Harbour Air to access its founder’s valuable knowhow on a permanent basis. So while McDougall might see this as his chance to exit the business, it’s clear Zuo – with his China-sized ambition – wants to keep McDougall as far away from retirement as possible, rather than watch him retreat to his second home in Santa Barbara or that lovely cabin in the woods (which remains off-grid but is now equipped with a helipad).

As he finishes up at the board meeting in Hefei, beneath a Chinese-style banner proclaiming the Zongshen-Harbour Air partnership, Zuo summarizes quickly.

“We’ll have Hefei, and this other location in Chongqing. These projects have government support. They’re taking some of the pain and subsidizing some of the costs. And now we have Indonesia. If we can focus on these three projects, it will be very lucrative,” he says.

He turns to McDougall. “You could be working for us for 10 years,” he says. “And it will be very lucrative for everyone involved.”

“As long as it’s fun,” McDougall shoots back. “And lucrative.”

“I promise you,” Zuo says. “It’s going to be a fun ride.”

 

Editor’s note: A Friday Report on Business magazine article on Harbour Air included an incorrect surname for the company's president. He is Peter Evans, not Peter Blake as published.

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