CAH, which holds 60 percent in thejoint venture with SATS controllingthe remaining 40 percent, has becomea leading airport group in MainlandChina by taking over several domesticairports.
In line with CAH’s strategy to makeBGS a leading provider of groundhandling services in China, the groundhandler meanwhile has set up facilitiesat airports in Chongqing, Hubei,Guizhou, Tianjin, Jiangxi, Jilin as wellas Inner Mongolia and Heilongjiang.
From the start in 1995, the companyhas been providing ground handingservices to foreign and domestic carriers,covering passenger, cargo, ramp,line maintenance as well as ticket salesservices. Its current client base includessome 30 airlines.
BGS director and general manager,Han Wei, says he expects a 400,000tonnes throughput for 2006, up from356,000 tonnes in 2005. He also predictsan average annual growth rate of35 percent, which by 2010 would bringthe throughput to 1,000,000 tonnes.
Although BGS is currently focusedon consolidating operations at the eightairports in China, Han says he is lookingat further international expansion,possibly with an international partner,which he adds, would not necessarilybe his current Singapore joint venturepartner. He stresses though that thelink with SATS is strong and has beenbeneficial for BGS.
The expansion plans come in threestages, explains Han. Firstly, startingthis year, BGS will finalise the set upof its own operations in passenger andcargo handling plus line maintenanceat the eight earlier-mentioned airportsin China.
This will be followed by startinghandling operations at other airports inWestern and Southern China,while under the third phase,Han wants to establish BGSground handling companiesin a number of SoutheastAsian countries.
"We are very cautious withall these expansion plans," hesays, acknowledging that thecompany, despite its link-upwith SATS, at the momentlacks international experience.Other hurdles includea language problem, a differentcultural and politicalenvironment as well as legalaspects, which need to be addressedbefore the companywill move overseas.
For the first and second phase of theexpansion Han is ambiguous about therole that joint venture partner SATScould play in these developments. Hepoints out that the authorities of the localairports where BGS wants to expandare also interested in participating ina joint venture, which could influencethe current shareholding.
It is the international, read regional,expansion in Southeast Asia where Hansees distinct advantages in co-operatingwith an experienced operator suchas SATS, although he stresses that heremains open to co-operation withother international companies. "Thebottom line is that we want to play abigger and leading role in the futureexpansion in the region. And thiscould be with another strong partnerin this industry," he says, adding thatapart from an international groundhandler, a future partner could also be "a carrier which has an influence in an airline alliance."
According to Han, both BGS shareholdersCapital Airport Holding andSATS understand the situation andhave agreed that for strategic reasonsand the benefit of BGS’ future, anadditional shareholder may join theventure.
As for the expansion plans inSoutheast Asia, Han is acutely awarethat several countries in the regionstill adhere to protectionist policies inground handling operations, making itpotentially difficult for third parties toset up shop in those countries.
"Actually, our main focus will be ondeveloped countries where the governmentsare eager to attract foreigndevelopment investments. We alsobelieve that it will be easier to set upjoint ventures in these countries, becausepart of the cultural background isdetermined by relatively large Chinesecommunities," he says.
The first phase of the expansion, theset up of ground handling operationsat eight domestic airports has beenrelatively simple as BGS mostly followedwhere its Chinese shareholder CAHexpanded. However, the second phase,which will involve two, possibly threedomestic and international airports ineastern China, will see BGS carrying outthe job on its own. Which airports areon BGS’ wish list is still under discussion,so Han declines to identify thepotential candidates.
He points out that, despite a growingtrend among manufacturers to moveproduction plants to the central andwestern part of the country, the airportdevelopment is still very much concentratedalong China’s eastern seaboard. "May be it is time to consider developingcargo and passenger handling facilitiesat airports in central and westernChina," he says, "but for the time being we’d like to focus on the traditional manufacturing areas and these are still in the eastern parts of China."
Moreover, he pointsout that, from a commercialpoint of view, onlythe throughput figuresof China’s main gateways,Shanghai, Beijing,Guangzhou and Shenzhen,are sufficiently attractivefor a ground handler. At allother locations the cargovolumes hardly justify themajor investments that areneeded for modern andfully-equipped terminalsand the related infrastructures.