NICHOLAS IONIDES / SINGAPORE
Hong Kong-based group plans Air China stake and cargo joint venture in a bid to gain ground in China
Hong Kong conglomerate CITIC Pacific is seeking a major stake in Chinese flag carrier Air China as part of a plan to expand its aviation holdings into mainland China.
CITIC, which is publicly traded in Hong Kong but controlled by Beijing-based interests, recently began discussing a cargo airline joint venture with Air China. Managing director Henry Fan says CITIC is seeking a direct stake of at least 25%, the limit for individual foreign ownership in a Chinese carrier. Although Hong Kong is under Chinese rule, companies registered there are still regarded as foreign by Chinese regulators.
New Chinese government regulations introduced on 1 August allow up to 49% foreign ownership of Chinese airlines - but this covers stakes held by multiple foreign groups. "We are hoping to participate in the restructured Air China, not only as equity investors but involving management as well if possible," Fan says. "If rules are relaxed in future or if we are able to obtain permission we would like to acquire more than 25% if more equity is available for sale."
China's aviation sector is undergoing a major shake-up on government orders that will see 10 state-controlled airlines merged into three groups under the Air China, China Eastern Airlines and China Southern Airlines banners. Mergers are also taking place among second-tier airlines, while the Civil Aviation Administration of China is to give up industry ownership and focus on a regulatory role.
Air China will expand by merging with Beijing's China National Aviation (CNAC), which owns Zhejiang Airlines, and by buying China Southwest Airlines. Air China is also seeking a Hong Kong stock-exchange listing, and many expect it to do so by injecting its assets into CNAC's Hong Kong-listed unit of the same name.
CITIC controls over 25% of Hong Kong's aviation industry via a sizeable minority stake in Dragonair, as well as in main Hong Kong airline Cathay Pacific Airways and Hong Kong Air Cargo Terminals. It wants to take advantage of the restructuring of the Chinese aviation market by taking equity stakes in the sector.
Recently it has been in talks with Air China, CNAC and the parent company of Beijing Airport on establishing a new cargo airline. Based in Beijing, it would take over the operation of Air China's four-strong Boeing 747-200 freighter fleet. A deal is expected by the end of the year.
Fan says the cargo venture talks are separate from CITIC's interest in a direct stake in Air China.
Source: Flight International
