In a clear response to adversity, Asia's weaker airlines are offering equity to stronger carriers and nearly everyone is scrambling for a position in one of the global groups.
Philippine Airlines (PAL) is anxiously seeking a white knight. As the 20 November restructuring deadline drew near, Cathay Pacific appeared to be PAL's most likely rescuer. PAL needs 9 billion pesos (US$200 million) in new capital, with five billion pesos coming from new investors.
At presstime Cathay had been conducting a due diligence review since early October, and, according to Manila sources, was close to a deal. This would see Lucio Tan, PAL's chairman and majority owner, sell 40% of PAL's shares to Cathay, the maximum allowed for foreign owners. Cathay would bring in a Philippine company with which it already does business, to buy the remaining shares needed for majority control, leaving Tan to step back to a minority position.
Singapore Airlines (SIA), which has been mentioned as a PAL suitor, has its eyes on at least two other parts of Asia. Dr Cheong Kong, chief executive, has confirmed that SIA will bid for a stake in Thai Airways when Bangkok invites offers. Michael Tan, SIA's executive vice-president, also disclosed that his airline is interested in up to 25% of Taiwan's China Airlines, rather than in the 5-10% mentioned in the memorandum of understanding signed in August.
Unlike the Philippines and Thailand, Taiwan has escaped Asia's financial crisis relatively unscathed. But China Airlines (CAL) itself is suffering the notoriety of a poor safety record. CAL has forecast a record loss this year of NT$840 million (US$25 million). In an effort to raise capital and satisfy Taipei's desire for new CAL management, directors of the China Aviation Development Foundation, which owns 71% of CAL's shares, agreed in late October to reduce the foundation's share holding to less than 35%. Singapore is talking about a revised bilateral with Taiwan that would allow SIA more fifth freedoms between Taipei and the USA.
SIA's bid for a stake in Thai Airways will be helped by Cathay's joining of the oneworld alliance and Qantas and BA's shifting of their sights to Hong Kong. Before this, Qantas and British Airways had both been interested in buying into Thai as a response to growing competition from the SIA-Air New Zealand-Ansett alliance.
The scramble by Asian carriers for non-equity alliances is also accelerating. Aside from the new Japan Airlines-Cathay Pacific codeshare, the focus is global. All Nippon Airways and United Airlines have launched the first Japan-USA codeshare as a prelude to ANA joining Star next year and Taiwan's EVA wants to join a global group. SIA keeps adding alliances with individual Star members, with SAS the latest. An SIA accord with United Airlines is also imminent.
Source: Airline Business
