As the global economic crisis has plunged the aviation industry into turmoil, China’s aviation watchdog, the Civil Aviation Administration of China (CAAC), has stopped accepting applications for new airlines until 2010. Approval for airlines to set up new units has also been tightened as CAAC moves to beef up the industry’s efficiency and safety, while stressing that it will treat cargoand regional units exceptionally.
CAAC has released a new set of rules entitled ‘Opinion on the Management of Establishment of Branches by Airlines’, outlining, among others, how airlines dealing with freight can set up a new branch, in a bid to prevent rapid overheating and expansion of the country’s airline companies.
“Airlines that have set up a company or branch solely dealing with freight can add one or two branches, while those that possess five companies or branches must not set up new operational bases,” CAAC said. “Operational bases of airlines that have operated for over three years andaccount for a 10 per cent share of their market may be turned into a branch.”And despite the impact of the globalfinancial crisis on global import andexport trade, domestic private Chineseenterprises have been continuing withtheir original enthusiasm to enter the aircargo industry or proceeding with theirexpansion plans. And the latest suchexpansion involved Air China increasingits stake in a cargo venture.
Air China
Air China recently agreed to expand its stake in a cargo venture to 100 per cent on anticipation of growing cargo business in China. The Beijing-based carrier will pay 718 million yuan (US$105 million) to Capital Airports Holding Company, the parent of Beijing Capital International Airport Co, for the 24 per cent stake it does not already own in International Cargo Transport Ltd of China, which operates the cargo airline, Air China Cargo.
International Cargo Transport Ltd. has total assets of 3.5 billion yuan and a registered capital of 2.2 billion yuan. The venture has a fleet of 4 Boeing 747- 200 freighters, 8 Boeing 747-400 combi aircraft, and 60 aircraft that have enough capacity for bellyhold cargo such as the Boeing 747, 767 and Airbus 340.
In a statement to the Shanghai Stock Exchange, Air China said it plans to inject more resources into the venture as part of its strategic measures to boost investments in the air cargo industry.
Air China Cargo recently received the first of three B747-400 Boeing Converted Freighters, converted from an Air China 747-400 Combi, from Chinabased Taikoo Aircraft Engineering Co (TAECO).
Changlong & Shunfeng Aviation
The CAAC also approved two other projects involving the formation of two new air cargo carriers – Changlong International Air Cargo Service Co., Ltd and Shunfeng Aviation Limited.
Changlong International Air Cargo Service Co., Ltd was given approval to set up an air cargo airline venture with a registered capital of 200 million yuan. Huixiang Shiye Investment Company controls 51 per cent in the venture with an investment of 102 million yuan, while Haofu Group Ltd has invested 48 million yuan for a 24 per cent stake. Asia Yingsheng Investment Co., Ltd invested 30 million yuan for 15 per cent and Caufield Investment Company 20 million yuan for a 10 per cent stake.
In the second venture, S.F. Express Company became the first private ex-press delivery company to enter into the air cargo industry by investing 25 million yuan for a 25 per cent stake in Shunfeng Aviation Limited, which has a 100 million yuan registered capital. Shenzhen Taihai Investment Company has taken the majority 75 per cent stake with an investment of 75 million yuan.
Galaxy International Airlines
Another joint venture, Galaxy International Airlines, based at Tianjin Binhai International Airport was established between Korean Air, Sinotrans Air Transportation Development Co Ltd (Sinotrans Air) and two other parties last year.
With a registered capital of $65 million, Sinotrans Air spent $33.2 million on a 51 per cent stake in the joint venture while Korean Air spent $16.3 million for a 25 per cent stake. Hana Capital Co Ltd. holds 13 per cent stake and Shinhan Capital Co Ltd has an 11 per cent stake.
Galaxy International offers, among others, domestic and international cargo and mail transport, operating three leased aircraft, one B747-400 freighter and two A300-600Rs.
China Eastern
Another widely publicised joint venture, which finally was derailed, involved China Eastern and two Singapore companies. China Eastern says that it entered into a non-binding agreement with Singapore Airlines Limited (SIA) and Lentor Investments Pte. Ltd (Temasek) agreeing to allow them to subscribe for a 25 per cent and 13 per cent stake respectively in its new H shares.
The aggregate investment by the two companies was valued at US$923.3 million. However, on January 8, 2008 China Eastern’s shareholders voted down the acquisition, and the subscription deal expired on August 9, 2008.
Shanghai Airlines
Another venture that has been widely speculated – and often denied by the involved parties – involves the acquisition of a stake by China Eastern Airlines Corporation in Shanghai Airlines.
Local media say that the Shanghai municipal government has approved a plan to transfer a 60 per cent stake it owns in Shanghai Airlines to China Eastern Airlines. The report cited unnamed sources and didn’t specify whether it was referring to China Eastern’s parent company or the listed unit. But nothing has transpired so far.
Wuhan Uni-top Airlines
Wuhan Uni-top Airlines, a joint venture between Shenzhen Municipal Uni-top Industry and Shenzhen Daotong Industry, was probably the last joint venture to be approved by CAAC before it stopped all new airline applications until 2010.
The joint venture, which is to become the first intercity air cargo service provider, has a start up capital of 150 million yuan. Wuhan Uni-top Airlines is operating out of Wuhan’s Tianhe Airport. The carrier is engaged in international and domestic air cargo transport operations and related agency services. In its first year of operation, the airline will lease two Boeing 747-300s and a single Boeing747-400.
