China may Pump Capital into 3 State-owned Airways

BEIJING, Jul 29, 2009 (SinoCast Daily Business Beat via COMTEX) -- CNLVF | Quote | Chart | News | PowerRating -- Sources said that China would likely infuse CNY 1.5 billion, CNY 1.5 billion, and nearly CNY 100 million into three state-owned aviation giants, China National Aviation Holding Co. (CNAH), China Southern Air Holding Co., and China Eastern Air Holding Co.

Presently, the State-owned Assets Supervision and Administration Commission (SASAC) and related groups are talking about the capital injection.

Such a high assets-liabilities ratio results in too much financial cost pressure, so the three airways actively apply for state subsidies. In November 2008, the SASAC agreed to separately pump CNY 3 billion into China Southern Air Holding and China Eastern Air Holding, and one month later, China Eastern Air Holding gained an additional injection of CNY 4 billion.

Last month, the two groups were allowed to infuse the capital they got from the SASAC into their listed arms, China Eastern Airlines (SEHK: 0670; SHSE: 600115) and China Southern Airlines (SEHK: 1055; SHSE: 600029), via private placement.

China's aviation market has warmed up, and more profits are expected to be reaped in the third quarter of 2009, a traditional season of mass air transportation.

In June 2009, more surplus international transport capacity was transferred to the domestic market, because of the influenza A virus subtype H1N1, also known as A/H1N1. Air China (SHSE: 601111; SEHK: 0753) and China Eastern Airlines separately hiked 21% and 28% from a year ago in terms of domestic passenger transport capacity in the first half, while total international transport capacity sagged 9% and 19%, respectively.

China Eastern Airlines witnessed a 37.5% growth in total domestic passenger transport capacity in June alone. On the contrary, its transport capacity in overseas markets slipped 14.29% year over year. However, the Chinese aviation market had to be confronted with a price war along with the surging transport capacity.

In particular, domestic air carriers are expected to further relieve their newly-added transport capacity pressure, when the summer tourist season comes in July and August. And the country's macro-economic recovery will further drive the aviation industry.

But Air China, China Eastern Airlines, and China Southern Airlines will all be cautious of expansion in the third quarter of this year, in spite of most analysts' optimistic estimates, said people with the direct knowledge of the matter.

The National Development and Reform Commission (NDRC), China's macro-economy regulator, will lower aviation kerosene factory prices by CNY 280 per ton from now on, which is predicted to help domestic civil aviation companies save costs of about CNY 2 billion.

Presently, domestic aviation companies have to spend too much buying aviation kerosene, and the money the nation's top three airways expend on aviation kerosene purchase accounts for over 40% of their total costs.

(USD 1 = CNY 6.83)

Source: www.cnstock.com (July 29, 2009)

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