It is a big ask. China Eastern Airlines, the most indebted of China’s big three airlines, aims to raise at least RMB15 billion ($2.1 billion) for new planes and training to help it compete with Air China and Cathay Pacific.

China Eastern Chairman Li Fenghua said in an interview, ‘If we can get more, it’ll be even better.’

Li plans to reach his target by reviving the sale of a stake to Singapore Airlines, by tapping capital markets and through subsidies from the government, which owns part of the carrier. It all seems a trifle difficult to envisage.

China Eastern’s minority shareholders vetoed a tie-up with Singapore Air in January after the parent of Air China pledged to make a higher offer.

But Jack Xu, an analyst at Sinopac Securities, said, ‘The government won’t sit and watch its own company go bankrupt. China Eastern will have an opportunity to resubmit the Singapore deal this year.’

He rates the carrier ‘outperform’ which seems a tad optimistic given the recorded losses
Shanghai-based China Eastern still aims to raise $1.5 billion selling shares to Singapore Air, Temasek Holdings, the city-state’s sovereign wealth fund, and to its own state-controlled parent, China Eastern Air Holding.

China Eastern Chairman Li Fenghua, seen in this illustration said, ‘There’s no change in our plan to tie up with Singapore Airlines.’

Chew Choon Seng, chief executive officer of Singapore Airlines, said the two carriers are currently discussing commercial cooperation such as cross-selling tickets rather than an equity link. He wisely declined to say whether a tie-up is still being actively pursued.

China Eastern will spend 80% of the RMB15 billion on aircraft, with most of the rest going toward staff training.

The airline plans to add 17 Airbus SAS and two Boeing aircraft this year. It added 20 aircraft in 2007, expanding its fleet to 223. China Southern added 23 aircraft last year and Air China got 29.

The carrier filled 73.6% of its available seats in 2007. Passenger numbers rose 11% to 39.2 million, while cargo volume climbed 6.7% to 939,700 metric tons. This year, freight may jump 14% to 1.07 million tons.
Source: Bloomberg

Air China may seek other allies to exploit Shanghai as an international hub if its preferred partner, China Eastern Airlines, won’t sell a stake to Air China’s parent. And China Eastern has said loud and clear that it does not want to

The suggestion is that Air China would consider tying up with China Eastern’s hometown rival, Shanghai Airlines, or Hong Kong-based Cathay Pacific Airways, with which Air China has significant cross-shareholdings.

Kong Dong, the company’s acting chairman, said Air China plans to set up a subsidiary airline in Shanghai, China’s commercial center and part of the airport shown in our illustration, whether or not it finds a partner.

That is the key to the whole situation. China Airlines is strong in Beijing. But it is not strong in Shanghai where China Eastern rules the roost.

Yet Air China is the strongest and most profitable of China’s airlines and dreams of becoming a national supercarrier. To do this it need Shanghai.

If it gets Shanghai, no matter by what means, then China Eastern is dimished and the China airline scene becomes one monster — Air China — and a lot of satrapies, China Eastern, China Southern Airlines and others.

Air China’s parent, China National Aviation (CNAC), won’t reduce its offer price for up to 30% of China Eastern, even after a recent slide in the Shanghai carrier’s share price. Kong Dong states he will stick with the earlier offer

Which leaves Singapore Airlines — and its parent company, Temasek Holdings — out in the cold.

But, if Air China gets its way, it dominates China aviation and this may not be the best event ever for the traveller. What China needs, perhaps more than anything, is serious competition among the interior airlines to raise the standard of service. Especially if there is any serious hope of competing internationally for non-Chinese passengers.
Source: CargoNews Asia

New readers start here. Air China wants to buy China Eastern. China Eastern considers this a fate worse than death and if it is going to be sorted — and by damn it needs it — than Singapore Airlines would be the airline of choice. (The fact that Air China and China Eastern are both effectively government owned shows that the China government uses an unique for of democracy in running its holdings.)

Air China Acting Chairman Kong Dong said Friday that China Air now plans to introduce Cathay Pacific Airways as its partner in its bid for China Eastern Airlines to help improve CEA’s management.

Kong Dong admitted that Singapore Airlines, CEA’s preferred cooperative partner, is among the world’s best carriers but said, ‘Cathay Pacific also possesses many advantages.’ Yes it does. As in already possessing some of the action by having shares in China Airlines.

CX Chairman Christopher Pratt commented last week that the Hong Kong-based carrier will support CA’s bid for CEA but warned that ‘the result won’t come out soon.’

Kong Dong said CA will not propose a new bid despite CEA’s rejection but will elaborate on its current offer if CEA is willing to accept it. He also said that the State-owned Assets Supervision and Administration Commission of the State Council, the controlling stakeholder of China’s state-owned airlines, will not interfere with CA’s bid.

SASAC Vice Minister Wang Ruixiang said last week that the Chinese government will facilitate dialog between state-owned airlines but ‘it won’t force them to merge if they hold different views on it.’

This story has legs and will run. However, the harsh truth is that China Eastern is not remotely up to international standards in inflight service and that is where the battle will be fought. China Air is better, but not by a large margin.

Could SIA turn China Eastern around and get the people in cabin service to understand that passengers are not just unwonted interruptions? One doubts it. But, plainly, with open skies the new formula Air China and China Eastern have got to lift their game or they will be swamped.
Source: ATW Online

Cathay Pacific Airways, Hong Kong’s largest airline, posted a better-than-expected 83% gain in second-half profit after flying more passengers to China and raising fares to cover fuel costs.

Sales rose 21% which suggests that much of the extra profit came from the fuel surcharge.

The carrier boosted sales in Hong Kong and China 32% last year after buying Hong Kong Dragon Airlines to add more flights in China

Pauline Dan, who helps manage $2.5 billion, including Cathay Pacific shares, at Manulife Asset Management, said, ‘The growth was strong last year because of surging travel demand and higher ticket prices. This year ‘will not be spectacular if oil prices continue to stay at high levels.’

For the full year, the airline paid an average of $91 a barrel for fuel, 6.5% more than a year earlier. The average price of jet fuel traded in Singapore rose 7.7% last year.

Cathay Pacific charged customer 20% more than a year earlier while, at the same time, saving from fuel hedging. Hedging allows airlines to lock in future fuel prices to protect against possible increases.

Cathay Pacific and Dragonair boosted passenger numbers 4.3% last year to 23.3 million. The airlines fly to about 20 mainland cities, including Beijing, Shanghai and Tianjin.
Source: Bloomberg

The parent company of Air China used a newspaper advertisement to plead with the directors of China Eastern to review its rejection of a proposed alliance between the two carriers.

The advertisement was placed in the South China Morning Post in Hong Kong. (This is not a newspaper which has traditionally given full approval to the actions of the government of China. In the advertisement China National Aviation Corp (CNAC), parent of flagship carrier Air China, insisted its bid was sincere.

The advertisement said, ‘CNAC has been highly sincere in seeking a strategic partnership with China Eastern Airlines.
‘CNAC hopes that the board of directors of China Eastern Airlines will seriously review and give full consideration to the proposal.’

CNAC called on China Eastern to hold a meeting as soon as possible to discuss the details.

China Eastern, the country’s third largest carrier, has once again rejected the alliance and said the bid ‘lacks sincerity, planning and mutual trust and it would be hard to create a basis for cooperation’.

China Eastern added it would continue seeking strategic investors to strengthen its core business which means there may just be a glimmer of hope for the deadlocked plan to tie-in with Singapore Airlines (SIA).

In theory, at least, SIA and Temasek Holdings, Singapore’s state-linked investment firm, signed a preliminary deal in September to take a 24% stake in China Eastern for $923 million.

Minority shareholders rejected the bid after CNAC proposed to buy 2.985 billion new Hong Kong listed shares in China Eastern. China Eastern will receive at least US$1.9 billion US dollars in cash under CNAC’s proposal.

CNAC also suggested the two carriers integrate their cargo business to set up a joint venture and cooperate in codesharing, optimisation of route networks, maintenance and ground service.

What was not said by any party involved was why it was so important. And, in a sense it is simplicity itself. China Eastern has Shanghai sewn up. Air China does not; it has Beijing. If Air China can get a slice of China Eastern then it has the two main points of entry into the country covered. At the same time, Cathay Pacific has a strong interest in Air China which would be transferred to the new alliance.

A footnote: the thought appears to be that SIA would make a massive difference to the inflight service on China Eastern which, in truth, needs all the help it can get.

But Air China has for some time had some of its cabin crew under the training of Cathay Pacific. If there is a difference, it is not noticeable to the eye of a cynical passenger. Eventually it will all settle down and the airlines of China will realize that if they are to do battle in an itnernational sphere then the cabin service has to be up to that of other, competing airlines. At the moment it is not.
Source: AFP