Shareholders in Singapore Airlines (SIA) breathed a sigh of relief early in January when the carrier announced that it had withdrawn from discussions to buy shares in Taiwan's China Airlines (CAL).
As SIA's share price rose on the news, CAL's fell on concerns that long-running plans for a badly-needed privatisation would be put off yet again. Official reasons given for the failure of the talks were vague, but analysts say it came down to a matter of control. SIA wanted a stake large enough to exert substantial authority over the airline, while the main shareholder, China Aviation Development Foundation (CADF), was unwilling to cede too much to a foreign concern.
While the CADF says the failure of the SIA talks will not derail its plans to sell off a stake in CAL, the credibility of those plans is in the balance. CADF is closely linked to the Taiwanese Government, and many within it are opposed to a foreign airline buyer. Another Taiwanese institution, the China Development Bank, had publicly opposed talks with SIA, and has since said that it wants to lead a group itself buy a stake in CAL.
Investors are unlikely to be reassured at the news, given that the bank is an arm of Taiwan's ruling Nationalist Party. The main point of the sale has been to force real change at the airline, traditionally run by ex-air force cronies.
Political meddling has repeatedly delayed previous attempts at a share sale. Talks were revived earlier this year, after an Airbus A300 crash at Taipei that killed 202 and led to major change within the airline and within the government.
CADF says no new talks are being held on the share sale, but says it is about to select a financial advisor to assist. For SIA's part, the collapse of talks with CAL are the latest for the city state's flag carrier in its efforts to expand overseas. It had tried to set up an airline in India with the Tata group but was blocked by the Indian Government. It has also been talking about buying shares in Thai Airways and South African Airways, but deals have yet to materialise. It is said to be moving steadily toward a stake in partner Ansett Australia, however.
SIA's plan to buy shares in CAL had raised eyebrows, from the start given the Taiwanese carrier's battered reputation. Some analysts speculate that the talks were, in reality, being used as cover for an inter-government technical services agreement under which SIA would help CAL improve flight safety.
A top CADF executive rejects such claims, however. "I don't think Singapore Airlines would do anything just for the benefit of China Airlines," he says. "They do things for the benefit of Singapore Airlines."
Source: Airline Business
