The sale of stakes in three of Taiwan's larger domestic airlines in less than a month appears to be linked to Taipei's plan to open international routes to these airlines.
EVA Air paid $13 million for 20 per cent of Great China Airlines and $18 million for 32 per cent of Makung Airlines. And in a separate $288 million deal, a mix of local and US investors acquired 56 per cent of Taiwan's largest domestic carrier, Far Eastern Air Transport. This leaves China Airlines, which has long owned part of Far Eastern, as its largest shareholder with 19 per cent.
The Far Eastern sale represents a changing of the guard. China Development Corporation and American International Group, parent of ILFC, take over with plans to expand Far Eastern into regional markets.
EVA justifies its Great China and Makung investments in terms of domestic feed. 'We believe this will greatly benefit connections with our international network,' EVA says. But its real reasons, as with the takeover of Far Eastern, appear to stem from changes in Taiwan's aviation policy.
When Taipei first adopted a multiple designation policy four years ago, it segregated carriers into categories A and B, with the latter limited to domestic routes until they met certain operational requirements. Last year the government seemingly upset that system by granting EVA authority on the most lucrative domestic route, Taipei- Kaohsiung, as demand was rapidly outstripping supply.
But the B carriers protested on the grounds that EVA should not be granted internal routes when they were deprived external routes. The government agreed to review its grading system and announced in January that it would scrap it. Category B airlines can now be considered for new international routes.
EVA appears to hope its stakes in Great China and Makung will buy some assurance of non-competition, as China Airlines seems to enjoy from its stake in Far Eastern. These stakes may also solve a problem the new policy could create. With diplomatic isolation restricting air links, officials privately believe consolidation could avoid the dilemma of too many carriers chasing too few routes.
The deals leave TransAsia, which claims a third of the domestic market, as the only wild card. But the carrier says it is only looking for niche markets in southeast Asia.
The deals leave TransAsia, which claims a third of the domestic market, as the only wild card. But the carrier says it is only looking for niche markets in southeast Asia.
Source: Airline Business
