Despite the tough times hitting Asia, Thai Airways and China Airlines are both talking privatisation. Recognising the attraction of currency spreads for foreign investors, Thailand and South Korea are also pondering whether to relax foreign investment limits for airlines.
The pressure to privatise Thai Airways comes from the International Monetary Fund's insistence that Bangkok sell 15 state enterprises as a condition of its US$17.2 billion rescue package. In response, Thai's board has released a plan to start privatising the airline with a mid-year offering of some 20 per cent. Half of these shares would be sold publicly and half privately. Additional offerings would eventually reduce the government's existing 93 per cent stake to under 50 per cent.
Some of these shares would come from unallocated stock. But the plan still faces a tough fight, because it requires approval from the cabinet and the finance and transport ministries. Two previous privatisation plans stalled, partly because of disputes between the finance ministry, which controls the shares, and the transport and communications ministry, which regulates the airline.
Hints of that struggle are evident in current reports on Thai's fourth quarter results. The transport ministry claims the airline had an operating profit of US$6.5 million. But, they say, new accounting methods imposed by the finance ministry forced the airline to report unrealised foreign exchange losses. These turned the net result into a $580 million loss. Some analysts suggest the finance ministry did this to postpone any share offering.
The planned privatisation of Taiwan's China Airlines, meanwhile, follows public reaction to a crash on 16 February that killed 202 people in Taiwan's worst air disaster. China Airlines dismissed a number of top executives and received a number of 'honorary' resignations in March, following the A300-600R crash at Taipei. Regulators and government officials have now called for CAL to be either disbanded or to be sold to make it more commercially responsive.
Taiwan's prime minister Vincent Siew rejected calls for a immediate sell-off because of depressed stock prices. But he outlined his plan to tighten government control over the foundation that owns 71 per cent of CAL's shares, and then gradually reduce that share below 50 per cent as market conditions permit.
The non-profit foundation that controls CAL is not part of the government, but the state exerts considerable influence. Foundation officials have criticised the government for impeding their efforts to sell shares, a move that would have reduced government control.
Ironically, only six months ago Taipei packed the foundation's board to thwart a planned share offering. The government feared a mainland Chinese airline might buy the shares.
Throughout Asia some foreign investors are exploiting forex spreads to boost their Asian stakes at bargain prices. Airborne Express, a US cargo carrier, recently lifted its stake in a Thai cargo venture from 5 per cent to the legal maximum of 49 per cent. Bruce Grout, Airborne's vice president and general manager for Asia, says, 'It cost us virtually nothing'.
Seizing on this interest, Thai Airways has recommended that Bangkok raise the airline's foreign ownership limit from 10 to 30 per cent.
Source: Airline Business
