China Airlines may have replaced the national flag on its aircraft tail with a plum blossom, but it is still struggling to disentangle itself from government interference.
The reins of power controlling China Airlines are firmly back in the grip of Taiwan's ministry of transport and communications, after the ministry won control of the foundation that owns 71 percent of the carrier in August. That control allows the ministry to oversee any proposed sale of CAL shares by the China Aviation Development Foundation. The ministry's insistence on gaining this control stymied the foundation's efforts to offer shares earlier in 1997.
The government is doing its best to ensure that the foundation is on its side by selecting who fills its senior positions. At the government's request, the foundation's nine-member board is now made up of the civil aviation authority's director, the government auditor and three other retired individuals suggested by the government.
The foundation's reconstituted board was due to decide in mid-November whether to allow a proposed sale, says Peter Shih, foundation secretary, who would handle any future share offering.
If approved, CAL's shares would be sold through a private placement designed to form a strategic partnership, preferably with a foreign airline, says Shih. If the foundation sticks to earlier plans, it will offer an initial 8.3 percent, followed by a second offering of the same amount for a total 16.6 percent of the airline's shares, reducing the foundation's ownership of CAL to 54 percent. The remaining shares are in public hands.
The government may be wielding its power over China Airlines in general but the airline refuses to back down over an aircraft dispute. CAL agreed to lease four McDonnell Douglas MD-11s and six Boeing B747s from the government 10 years ago under 19 and a half year leases with a set interest rate subject to a three-yearly review. Taiwan's legislature, however, recently decided to boost the current interest rate to 7.2 percent, even though the current 5.4 percent rate was due to last until October 1999.
Tsay Jaw-yang, Taiwan's minister for transportation and communications, has threatened to cancel the leases unless CAL pays the higher rate but the airline has steadfastly refused.'We have a contract and we will pay interest according to that contract,' says a CAL spokesman.
A face-saving solution may be close at hand, however. China Airlines wants to use financial muscle to free itself from the lease agreements by discussing possible terms to buy the aircraft either before or at the end of each lease. China Airlines already owns three of the ten aircraft. 'I think we will buy them one by one,' predicts the spokesman, 'so it can be settled'.
David Knibb
Source: Airline Business
