Business

China Eastern Airlines said it had no plan to merge with Shanghai Airlines, despite previous reports that the government might be considering a tie-up between the two.

“We don’t have a plan to merge with Shanghai Airlines because the aviation industry is suffering from stagnancy this year,” said Luo Zhuping, board secretary of China Eastern. But he added that the government may take action to encourage a merger.

“The potential merger is being discussed only at the government level at this point,” the Wall Street Journal said yesterday, citing China Eastern President Cao Jianxiong.

Cao, quoted by the journal, said that the government plans to first inject capital into China Eastern and then to merge it with Shanghai Airlines. The combined companies would then consider a potential stake sale to Singapore Airlines.

Cao could not be immediately reached for further comment.

Shanghai Airlines’ board secretary Xu Junmin said over the phone yesterday that he hadn’t received any notice, and had no comment on the talks.

“The two Shanghai companies are not likely to combine together unless there is impetus from the government,” said Li Lei, an analyst with CITIC China Securities Co. “The country’s airways are in its lean time, and the two firms probably will report a loss in profit this year and even next year.”

China Eastern, the country’s third largest airlines, fell 28.5 percent in net profit to reach 41.62 million yuan in the first six months due to the soaring fuel cost, according to the firm’s interim report.

“These aren’t easy talks for the two firms given their relationship,” Li said. “They competed more than they cooperated in the past. “

Yang Guoxiong, director of the State-owned assets supervision and administration commission of Shanghai municipal government, denied that the commission was involved in the deal in a press briefing last Wednesday, and said he was not in a position to comment on a listed company.

Shanghai Airlines is under the supervision of the commission.

As for restarting talks between China Eastern and Singapore Airlines, Luo said they had not yet considered resuming the talks.

Luo told China Daily this July that the company may continue discussing the issue with Singapore Airlines after the Olympics. The proposed deal worth $923 million failed on Aug 9 after the expiry date of the agreement had passed.

“Singapore Airlines may lose interest in China Eastern because of the latter’s continuing weak performance this year,” Li said, adding that it could be a different story if the authority was involved.

A shares of China Eastern fell 5.24 percent to close at 3.98 yuan yesterday.

(China Daily September 9, 2008)

China’s only budget airline Spring Airlines has abandoned a plan to charge passengers for check-in or carry-on baggage exceeding 5 kg, an airline spokesman said on Thursday.

Zhang Lei, spokesman for the Shanghai-based airline, said the company had abandoned its plan to slash its baggage limit from 15 kg to five kg because most passengers would not accept such a limit.

“We had such a plan to charge passengers for check-in or carry-on baggage exceeding 5 kg, and we contacted officials with the air transport authority. But now we have decided to give up the plan since most passengers will not accept it,” Zhang said.

Earlier in the day, the English language newspaper China Daily reported Spring Airlines had applied to the air transport authority to start charging passengers for check-in or carry-on baggage exceeding 5 kg.

The airline said such a plan was aimed to help the airline to save fuel, which accounted for about 50 percent of its operating costs, according to the daily.

Major Chinese airlines allow a standard 20-kg baggage allowance in accordance with Civil Aviation Administration of China regulations. Spring Airlines had already cut baggage allowance from 20 kg to 15 kg.

China’s private and state-owned airlines are feeling the pinch amid weakening demand and rising costs. Carriers are trying to find ways to keep costs down as they brace for an expected downturn in the aviation industry.

(Xinhua News Agency September 4, 2008)

Chen Liming, Former Chief Financial Officer of China Southern Air Holding Co, was sentenced to death, suspended for two years, for embezzlement, the Guangzhou Daily reported over the weekend, citing a court decision. Chen was also deprived of all his personal assets, the newspaper said.

Chen was convicted of embezzling 1.2 billion yuan (US$176 million) of company money that he invested in a trust, which later went bankrupt, the newspaper said.

(Shanghai Daily August 25, 2008)

Yunnan Airport Group Co is seeking strategic investors from both domestic and overseas markets to help finance its airports expansion plan.

Investors can boost the group’s registered capital to hold a maximum 40 percent stake and are required to pay in cash, the airport operator said.

The capital will be used for a new 18.4 billion yuan (US$2.69 billion) airport in Kunming City, capital of Yunnan, and other airports in the province, it said.

The state-run Yunnan Airport Group will keep a controlling stake of no less than 51 percent in the new airport. The operator was set up last year with registered capital of 5.77 billion yuan.

The new airport is a key project of China’s 11th Five-Year Plan and is positioned to be an international aviation hub.

It is expected to handle 38 million passengers and 1.3 million tons of goods by 2010, the statement said.

Hong Kong Airport Authority, the Australia-based Macquarie Group, operators of Singapore’s Changi Airport and Frankfurt Airport have shown interest in the project, according to China Business News.

China is to invest 450 billion yuan in expanding the number of civil airports to 244 by 2020.

(Shanghai Daily September 2, 2008)

The Civil Aviation Authority of Singapore (CAAS) signed a deal with its Hong Kong counterpart on Friday to expand mutual aircraft, engine and component maintenance.

Lim Kim Choon, chief of the Singapore’s civil aviation authority said in a statement, “The conclusion of this enhanced agreement…benefits both Singapore and Hong Kong’s aerospace industries by paving the way for new business opportunities and augmenting efficiency in regulation of aircraft maintenance.”

Norman Lo, Director-General of Hong Kong’s Civil Aviation Department said mutual recognition reduces duplication of approvals and auditing activities, maximizing the resource utilization of both regulators and industry partners.

Lo said the use of common airworthiness standards improves aircraft maintenance quality.

The pact allows maintenance companies from both sites to service aircraft registered in each other site without seeking additional approval from authorities there.

(Xinhua News Agency August 29, 2008)

No airline can afford to miss the China ride.

China’s fast-growing economy is making the country a shining star in the global aviation market. Since the country adopted the reforms and opening up policies in 1978, its air traffic has been increasing at double-digit rate each year to keep pace with the explosive growth in passenger and cargo throughput.

China’s air traffic has maintained an average annual growth rate of 18 percent since 1980, almost double the country’s GDP growth rate and three times the world’s average air traffic growth rate during the same period, according to figures from the Civil Aviation Administration of China (CAAC), the industry watchdog.

The Chinese airline industry transported 185 million passengers last year, up 15.9 percent year-on-year, compared with just 3.43 million passengers in 1980.

As the world’s top foreign direct investment destination, China has become the focus of manufacturers, retailers and bankers. More foreign investment means more travelers coming to China. The nature of the airline business is to follow that trend and provide people with access to regions where their businesses are growing.

Besides business travel, China is also one of the top draws in the leisure travel market. The country is expected to replace France as the world’s top tourism destination by 2014 according to the World Tourism Organization (WTO).

At the same time, the country itself is becoming a major source of tourists in the world. With their incomes rising, more and more Chinese are traveling, both within the country and going abroad. The WTO figures indicate China has already overtaken Japan as Asia’s largest source of outbound travelers and could become the world’s fourth largest source of outbound tourism by 2020.

China’s booming commercial aviation market also makes the country an important battlefield for global airplane manufacturers like Boeing and Airbus.

The country had only 140 airplanes in 1980, but it now has a fleet of over 1,000. It will remain the world’s largest commercial aircraft market outside the United States in the next 20 years, according to Boeing’s estimates.

The US aircraft maker forecasts China will need about 3,400 new airplanes, worth $340 billion, over the next two decades, and the country’s fleet will nearly quadruple to 4,460 by 2026. Airbus has similar forecasts that China, driven by double-digit economic growth, will need 100 to 150 aircraft every year in the next 20 years.

(China Daily August 29, 2008)

Foreign exchange gain became a major profit source for Chinese airlines in the first half of the year as they continue to be saddled with surging fuel costs, waning passenger demand and fierce competition.

But the country’s previously buoyant airline industry could face an even worse outlook in the remaining part of the year as analysts expect the pace of the Chinese yuan appreciation to significantly slow down.

China’s three largest airline groups reported an aggregate operating loss of 2.58 billion yuan ($377.41 million) in the first half of the year. But the renminbi appreciation against the US dollar yielded a foreign exchange gain of 6.45 billion yuan for the three carriers, up 125 percent over the same period last year. Renminbi appreciated by about 6 percent against the US dollar in the year’s first six months.

“The appreciation of renminbi, to a large extent, offset the surging fuel costs because a big chunk of Chinese airlines’ borrowing is in foreign currencies,” said Li Lei, an aviation analyst with CITIC China Securities.

Air China, the country’s national flag carrier, saw its net profit in the first half drop 21 percent year-on-year to 1.18 billion yuan. Fuel costs surged 32 percent year-on-year to 10.61 billion yuan. At the same time the yuan appreciation yielded a 1.92 billion yuan foreign exchange gain, up 122 percent over the same period of last year.

Shanghai-based China Eastern Airlines reported a 188.89 million yuan loss in the January-June period, compared with a loss of 383.95 million yuan in the same period of last year. Its fuel costs rose 22 percent to 8.57 billion yuan while foreign exchange gain surged 160 percent to 1.89 billion yuan.

Guangzhou-based China Southern Airlines reported a profit of 940 million yuan in the first six months, up 316 percent year-on-year. Its fuel costs rose 21 percent to 10.38 billion yuan. A major reason for China Southern’s profit growth is its huge foreign exchange gains of 2.64 billion yuan, up 108 percent year-on-year, otherwise the airline would have encountered losses in the period, said Song Weiya, an analyst with Greatwall Securities.

“2008 thus far has been an extraordinary year, with unprecedented challenges for China and for Air China,” said Kong Dong, Air China’s chairman.

Besides international factors such as soaring oil prices and an economic slowdown, Kong said, Chinese airlines had additional challenges of the earthquake in Sichuan province, a major snowstorm at the beginning of the year and surging inflation, all of which had an impact on traffic demand.

“This is only the beginning. High oil prices and global economic slowdown will continue to deeply affect the airline industry for the remaining part of the year,” Li said.

“Chinese airlines will not enjoy the same exchange gain in the second half of this year as the yuan will not appreciate so much in the following months,” Li said.

The negative effect of the domestic jet fuel price hike at the end of June will also be more prominent in the year’s second half, Li added.

The National Development and Reform Commission (NDRC) at the end of June raised the domestic jet fuel wholesale prices by 25 percent and retail prices by 23 percent. The NDRC allowed Chinese airlines to raise fuel surcharges on domestic flights by as much as 50 percent from July 1. The levy on journeys of over 800 km climbed from 100 yuan to 150 yuan and that on shorter flights rose from 60 yuan to 80 yuan.

But the fuel surcharge rise could not completely offset the soaring fuel prices while it could dampen an already weakening market demand.

Chinese airlines must seize the market opportunities, including a possible slight rebound of traffic after the Olympic Games, the golden week of the National Day holiday, outbound group travels from China to the United States and the weekend cross-Straits chartered flights to Taiwan, Li said.

(China Daily August 29, 2008)

Air China Ltd, the nation’s largest international carrier, reported a 21 percent drop in first-half profit and China Eastern Airlines Corp posted a loss after fuel prices doubled and natural disasters disrupted travel.

Air China’s net income slipped to 1.24 billion yuan (US$181.07 million) from 1.57 billion yuan a year earlier, it said in a Shanghai stock exchange statement yesterday. China Eastern, the nation’s third-biggest carrier, had a loss of 212 million yuan, it said in a separate statement. Neither company provided any further figures under international accounting standards.

Both airlines’ passenger numbers fell after snowstorms in February and an earthquake in May forced the cancellation of hundreds of flights and the first drop in China air travel since the 2003 SARS outbreak. Higher fuel prices and the global economic slowdown will also have an impact “over the coming several months or even longer,” Kong Dong, chairman of Air China, said in an e-mailed statement.

“There’s much more bad news ahead than good news,” said Kelvin Lau, an analyst at Daiwa Institute of Research in Hong Kong. “For the full year, a rebound in traffic demand in the fourth quarter won’t be enough to compensate the losses so far.”

Surging fuel prices and traffic disruptions have caused all five airlines listed in Shanghai to plunge more than 70 percent this year. The country’s big three airlines have also all dropped more than 66 percent in Hong Kong trading.

The decline has helped cause Air China to plunge from first to fourth among the world’s biggest carriers by market value sine June. Singapore Airlines Ltd, which has tried to buy a stake in China Eastern, is now top of the list, ahead of Southwest Airlines Co and Lufthansa AG, Bloomberg News said.

The price of fuel doubled in the year ended June in Singapore trading and hit a record US$181.85 a barrel on July 3. It has since slid 26 percent in line with falling oil prices. 

The yuan appreciated 6.6 percent against the United States dollar in the first half, easing the burden of higher fuel bills, by cutting the value of the airlines’ dollar-denominated debts. China Southern Airlines Co, the nation’s biggest carrier, posted a first-half profit of 847 million yuan after making a 2.64 billion yuan currency gain.

Air China is the most affected by rising fuel costs among Chinese carriers, as 45 percent of its passenger traffic, as measured by revenue-kilometers, is on international flights, including services to Hong Kong and Macau. That compares with 37 percent for China Eastern and 17 percent for China Southern.

Chinese airlines pay market prices for fuel used on overseas flights and subsidized rates for domestic trips.

(Shanghai Daily August 27, 2008)

Chen Liming, Former Chief Financial Officer of China Southern Air Holding Co, was sentenced to death, suspended for two years, for embezzlement, the Guangzhou Daily reported over the weekend, citing a court decision. Chen was also deprived of all his personal assets, the newspaper said.

Chen was convicted of embezzling 1.2 billion yuan (US$176 million) of company money that he invested in a trust, which later went bankrupt, the newspaper said.

(Shanghai Daily August 25, 2008)

Shanghai Airlines flew into the black in the first half of this year on rising traffic and a government subsidy.

Its net income was 23.41 million yuan (3.41 million U.S. dollars), or 0.022 yuan a share, in the six months against a loss of 134.51 million yuan a year earlier. Its revenue grew 26 percent to 7.03 billion yuan, the carrier said in a statement to the Shanghai Stock Exchange yesterday.

It attributed the growth to booming traffic during the period. The Shanghai-based carrier flew 4.88 million passengers in the first half, a rise of 14.07 percent from a year earlier, and it carried 8.9 percent more cargo at 1.66 million tons.

“The carrier’s profit is better than our expectations in the first half, but its load factor on international routes was only 60 percent, much lower than the average,” said Tao Wei, an analyst with China International Capital Co Ltd.

Its overall load factor rose to 71.42 percent on average, versus 70.31 percent in the year earlier, it added.

“Global crude prices retreated recently, but Shanghai Airlines hardly gained from the drop as its network mainly covers domestic routes. We expect pressure on the airline from rising costs will further increase in the second half of this year,” Tao said.

The carrier also started flying on eight new routes in the first six months, including chartered flights from Shanghai Pudong International Airport to Songshan Airport in Taiwan.

“We enhanced the profitability of routes and improved utilization of all types of aircraft, which led to a positive result,” the firm said.

Fan Hongxi, president of the airline, has said soaring fuel costs may prevent it from meeting its earnings goal of 200 million yuan this year.

(Shanghai Daily August 20, 2008)