China 2 Aviation Front-runners Vie for Sinotrans

Although there is no substantial progress in the tie-up between Sinotrans and Air China, the two aviation front-runners both expect to form a long-term partnership with Sinotrans in airfreight and even the capital increment.

Presently, China Eastern Airlines controls an airfreight subsidiary China Cargo Airlines Ltd. Sinotrans, through its Shanghai-listed arm Air Transportation Development Co., Ltd. (SHSE: 600270), has founded Grandstar Cargo International Airlines Co., Ltd. with Korean Air Line Co., Ltd.

Due to the global financial turmoil, Grandstar Cargo International Airlines did not made an ideal performance in recent two years. In the first three quarters of 2009, Grandstar Cargo International Airlines lost about CNY 61.84 million from its investment in this airfreight JV.

Sinotrans is reported to centralize its preliminary cooperation with Air China or China Eastern Airlines in utilization of their airfreight agency, ground network resources, and airfreight carrying capacity. In addition, the freight agent wants to invest more in the ground network building, while Grandstar Cargo International Airlines is set to allure suitable strategic investors.

As of the 2008-end, China had had nine airfreight operators with 70 airplanes, but their operation was staggering amid the economic recession globally. In order to solve this problem, the Civil Aviation Administration of China (CAAC) lately decided to encourage the merger and reorganization of domestic airfreight companies as well as give them an allowance.

As a matter of fact, the reorganization undercurrent of domestic airfreight companies has emerged. For instance, Air China is always in negotiations with the Hong Kong counterpart Cathay Pacific Airways Ltd. (SEHK: 0293) about establishment of an airfreight JV based on Air China Cargo Co., Ltd.

Both parties have reached a preliminary record now, and the JV is expected to be inaugurated next spring, said people with the direct knowledge of the matter.

In addition, the State-owned Assets Supervision and Administration Commission (SASAC) has an intention of enabling China Eastern Airlines to participate in regrouping of the Sino-Singaporean airfreight JV named Great Wall Airlines. But an insider said frankly that no large-scale assets acquisition would be made before the merger between the air carrier and Shanghai Airlines Co., Ltd. (SHSE: 600591).

The country once advised three aviation groups to consolidate their airfreight businesses, so as to ride out the world's financial crisis, but several paid not too much interest in this suggestion.

(USD 1= CNY 6.83)

Source: dycj.ynet.com (November 19, 2009)

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