Certainly some of the more exciting air cargo news out of China for some time –according to reports first carried by China’s state media the People’s Daily and Xinhua news agency, China’s three largest cargo carriers will merge to form Asia’s largest cargo carrier.
The reports, quoting Zhou Laizhen, the deputy administrator at the Civil Aviation Administration of China (CAAC), said Air China Cargo, China Cargo Airlines and China Southern Cargo will merge. No timeline or financial information was given, but the fact the report cited a specific CAAC official tends to give quite high credence to it.
Of the effected parties the only response came from Air China Cargo’s Titus Diu who said he was unaware of the development, while no comment emerged from the other two.
It is a perplexing move and one wonders how it would be structured, in part because two out of the three cargo carriers are already joint ventures and one of the players is not only not a mainland carrier, but is also not a state-owned entity.
Air China Cargo is a joint venture between Air China Limited and Cathay Pacific Airways Limited while China Cargo Airlines on the other hand is a venture between China Eastern and China Ocean Shipping Company (COSCO) and China Southern Cargo is part of China Southern Airlines.
It’s the kind of thing that generates juicy speculation in normal circumstances, but because the news is out of China, it also generates far more questions than answers. It would surely be an extremely complex fusion of three very distinct entities, and if it were to come to fruition would create one very large air cargo carrier. Adding up the freighters would make it easily the carrier with the largest maindeck capacity in the world. And what would become of the significant volumes of belly cargo?
Air China Cargo for its part has three B747-400Fs, six B777Fs and two more to be delivered this year for a total of 11 freighters, while China Cargo Airlines operates a fleet of two B747- 400ERFs, two B747-400Fs, two B757-200Fs and six B777Fs for a total of 12 freighters.
China Southern Cargo on the other hand, has a fleet of 12 B777Fs (by end-July) and two B747-400Fs for a total of 14. All told that amounts to a significant maindeck capacity from a whopping 35 freighters! But, subsequently the CAAS has come out officially denying the remarks attributed to it’s deputy administrator, telling local reporters that the organisation had no control over the merger of state-owned enterprises. That responsibility would fall to the State-owned Assets Supervision and Administration Commission, a spokeswoman said. It’s not the first time this type of rumour made the rounds, as previously similar speculation circulated regarding plans to merge the various state-owned ocean shipping companies into one, with nothing ever actually coming together.
In a research note, analysts from investment bank Jefferies said: “The aviation industry consolidation focuses on air cargo rather than the passenger business. We believe the Chinese government is aiming to raise the international competitiveness of Chinese companies in fragmented industries such as shipping, rather than creating domestic oligopolies and monopolies.”
There would surely be winners and losers in a merger such as this – with Cathay Pacific probably taking the biggest drubbing, as it would lose its key access into the China market. China Southern and then probably Air China – both with quite successful cargo businesses would probably be next in line, with China Eastern likely being the biggest winner in such a merger as it has the weakest cargo business of the group.
It will be interesting to see the final outcome and I’m sure the entire industry is keeping its eyes peeled for news out of China over the coming weeks.