Beijing-based Air China, which raised $1.1 billion in a dual listing in Hong Kong and London in December, 2004, now has a market capitalization of $37.4 billion, higher than that of British Airways, Southwest Airlines and Singapore Airlines combined.

Air China had just a minimal presence in Shanghai which is China’s busiest airport in terms of capacity and will probably overtake Hong Kong as the biggest aviation hub in Asia within the next decade.

Now Air China will buy up to 30% of China Eastern. Not a great catch. The poorly managed, Shanghai-based airline hasn’t made a profit since 2003 and has been near bankruptcy.

Where Air China will hit a major problem is on international flights — especially to and from the United States. Passengers judge airlines by their inflight service and Chinese airlines, internationally, are simply not in the race.

Passengers chose their service of nationality, language, quality of service and sometimes on price. The major Chinese airlines fail on all of these.

Air China may well have won an interesting battle. But it is far from winning the war.
Source: Business Week

Some aircraft do not take off this fast. China’s civil aviation traffic soared 16% to 185 million passengers last year, triggering government plans for curbs on industry growth to ensure safety.

The China Daily newspaper quoted state aviation chief Li Jiaxiang as saying the booming sector was growing too fast, raising safety risks, and needs to be brought under control.

Volume is projected to surge another 14% in 2008 to 210 million passengers, the paper said, citing figures from the General Administration of Civil Aviation.

Li Jiaxiang said, ‘The structure is outstandingly imbalanced, safety risks continue to rise and economic returns remain low.’

Curbs will include ‘tighter restrictions on new airlines entering the market’ and controls on the numbers of aircraft that airlines can purchase.
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It cited official figures saying that, despite the growth, there had been no major aviation accidents in China for 37 months, a record for the industry.

Li Jiaxiang said that under the new measures aimed at maintaining that record, airlines that have difficulty supplying required numbers of cockpit crew would not be allowed to import new aircraft or open new routes.

The government also placed a ban on new airline applications until 2010 and would more closely scrutinize investors, plane ownership and pilot quality.

Li Jiaxiang, named head of the aviation authority last month, is widely known to oppose foreign airlines gaining greater access to China’s skies. He believes domestic airlines also would be encouraged to open more long-distance international routes to raise their overseas market share.
Source: China Post

There are simply not enough pilots in China. The government, very intelligently, has frozen out about two dozen new airlines simply because there are not the pilots to go around.

Now, Sichuan Airlines has hired 12 pilots from Taiwan. This is the second batch from the island province. Our illustration sees some of them accepting their wings.

The same airline recruited eight pilots on three- to six-year contracts two year ago, becoming the first mainland carrier to employ Taiwan pilots.

Taiwan pilots are flying to and from Nanjing, Xi’an, Shanghai, Guangzhou and Shenzhen.

According to the General Administration of Civil Aviation of China (CAAC) the air transport industry has been growing at an annual rate of 16%,

In 2006, the authorities estimated that the country would need 9,100 more pilots by 2010 to fly the new Boeing and Airbus planes being added to Chinese carriers’ fleets at the rate of 100-150 a year.

The gap between the demand and supply of pilots is likely to be 2,000 by 2010.

China can now produce 1,400 new pilots a year, including the 400-odd that come out of China Civil Aviation Flight College (whose alumni include 90% of the country’s 11,000 pilots.)

The rest were trained by airlines, which prepare students in theories in aviation colleges and universities at home, and send them abroad for flight lessons.

Dearth of pilots is a problem common to all mainland airlines, from the big three — Air China, China Eastern and China Southern — to the private ones. To overcome the problem, they have sought the help of domestic aviation colleges and universities, as well as foreign flight schools.

Professor Li Xiaojin of the Tianjin-based Civil Aviation University of China says at least four carriers — Shenzhen Airlines, Shanghai Airlines, China Southern and China Eastern — have adopted this strategy to get enough pilots for their fleets.

CAAC’s Flight Standard Department official Yang Hu put it very neatly. He said, ‘The problem is that no matter how many pilots are trained every year, each new plane that is delivered needs five pilots and five first officers to ensure a smooth operation.’

Fresh flight school graduates can be employed as first officers for the first six to seven years after, and only after that can they become full-fledged pilots.

But the airlines buying the new Airbuses and Boeings cannot wait that long.

Airbus alone is expected to deliver 372 planes to Chinese airlines from December 2007 to 2012. Boeing is expected to supply another 335 aircraft.

So far, 491 overseas pilots have got their licenses from CAAC to work for Chinese airlines. Some experts say the shortage of pilots won’t last long. The country could have more than enough pilots as early as in five years. This seems grossly over-optimistic. And no suggestion is made as to what should be done during those five years.
Source: China Daily

We will know the result tomorrow but the Air China/SIA/China Eastern/Cathay Pacific nonsense has got itself into a fine mess.

Air China has once again said will bid for domestic rival China Eastern Airlines, in which it holds a significant stake, if CEA’s minority shareholders reject a proposed US$917m investment by Singapore Airlines and its parent Temasek at a shareholder meeting tomorrow, Tuesday.

China National Aviation Corp, which owns 12% of CEA’s Hong Kong-listed shares, said it could not accept the proposed SIA investment unless the price was raised. Which could be true or it might be that it just wants to scupper the deal. Which is a brave move considering the investment has already been approved by the central government.

SIA on Thursday repeated a statement it made on Wednesday that the price of HK$3.80 per share it intended to pay for 24% China Eastern Airways was fair and the ‘maximum justified on the business fundamentals’.

Which really is iambic bull. The price is what someone is willing to pay. Not what someone hopes to get away with.

Citigroup analyst Ally Ma believes that minority investors will reject the SIA proposal and that CNAC is preparing to counterbid for CEA which will be considerably higher.

CNAC on Thursday denied it had been told by the central government not to oppose the deal and said it thought the government would not issue such instructions.

However, an unnamed source — always the best kind, think Deep Throat — reports the State-owned Assets Supervision and Administration Commission (Sasac) had been working behind the scenes to ensure that shareholders did not oppose the SIA investment.

CNAC, which holds about 52% of Air China, and CEA’s parent company with nearly 60%, are both wholly owned by Sasac, which holds all government stakes in the country’s large non-financial state-owned enterprises.

Air China and Cathay Pacific have a complicated cross-shareholding arrangement under which they own 17.6% in each other.

There is a story that the Chinese government is pressuring other shareholders in China Eastern Airlines to approve an investment by Singapore Airlines which will make Air China, which is state-owned, look a bit silly.

CEA shareholders include UBS, Citadel Investment Group, Deutsche Bank, and a number of Chinese and joint venture mutual funds. Air China holds 12% of the Hong Kong-listed shares. The company is also listed in Shanghai.

Management at China National Aviation Corporation, Air China’s parent company, keeps repeating the offer for a combined 24% stake did not reflect fair value. And, given the state of aviation in China, it may well be right.

Tomorrow the proposed deal must be approved by China Eastern’s minority shareholders. It could be blocked if holders of more than two-thirds of voting rights represented are against it.

Analysts said the chances of shareholders rejecting the proposal are growing. Why accept a deal when someone is very likely to offer you more?

One way around this would be to abstain from voting. We will know tomorrow, Tuesday.
Source: Financial Times

The Singapore Airlines bid to buy a 24% stake in China Eastern Airlines is turning out to be as good as an episode of Law and Order.

China National Aviation Holding, the parent company of flag carrier Air China, has said in a statement the US$923.8 million offer by Singapore Airlines and its parent, the government investment arm Temasek Holdings, did not ‘reflect the fair value of China Eastern.’ That is about $3.80 a share.

China Eastern, China’s third-biggest carrier, is listed in Hongkong and it is trading at about 3% more than the Singapore offer which seems pretty close.

Singapore Airlines said the offer was ‘fair and mutually agreed by all parties.’

Speaking for SIA Stephen Forshaw said, ‘It is the maximum justified on the business fundamentals.’ Which makes sense although you have to think of the sentence for a bit if you are not a financial trader.

Take it that China National Aviation Holding, which holds a 12.07% stake in China Eastern will vote against the deal on January 8.

Air China, together with Cathay Pacific Airways, made a higher bid in September last year but the government told it to takes its marbles and play elsewhere. ir China said at the time it would not bid for China Eastern shares for three months.

Neat.

Three months have passed and it is at least theoretically possible it is back in the hunt.

Morgan Stanley noted that any offer by China National Aviation Holding would still need to first gain approval from China’s regulator, which had already approved the Singapore Airlines joint bid.

China National Aviation said it reserves the right to make further proposals for China Eastern ‘which are more in the interests of all shareholders.’

So Air China might make another bid with Cathay Pacific and the future head of the goverment body in China is the current head of Air China

Airlines live in interesting times.
Source: International Herald Tribune