Regrouping Civil Aviation Industry Aims to Fly High

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Last updated at: (Beijing Time) Saturday, October 12, 2002

Regrouping Civil Aviation Industry Aims to Fly High

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The three new aviation groups, Beijing-based Air China, Shanghai-based China Eastern Airlines and Guangzhou-based China Southern Airlines, are due to be established Friday afternoon in Beijing, a prelude to the reform of the nation's civil aviation industry.

According to plan, each of these three groups is expected to have assets of 50 billion yuan (US$6 billion) and a fleet of 200 aeroplanes.

Air China now has total assets worth 57.3 billion yuan (6.9 billion US dollars) and operates 307 air routes with 118 planes.

China Eastern Airlines has total assets of 47.3 billion yuan (5.7 billion dollars) and 386 air routes with 142 planes.

China Southern Airlines has total assets of 50.1 billion yuan (6 billion dollars) and 666 air routes with 180 planes.

The three airline groups also hold the shares of 14 air transport companies.

In the meantime, China Aviation Fuel Corporation, China TravelSky Holding Company and China Aviation Supplies Import and Export Group Corporation were set up Friday.

"From today on, CAAC's duty will be transformed into maintaining a fair market environment and protecting consumers' fundamental interests," Gao Hongfeng, vice-minister of CAAC, told a news conference.

In other words, as CAAC sources later explained, the CAAC will not be responsible for managing the assets of those airlines after the consolidation. The duty is being passed on to a special State-owned enterprises regulation department under the State Council.

Gao said CAAC will oversee the industry using related laws and regulations, and will not rely on administrative measures.

This is the second biggest innovation in China's aviation industry since the airlines were peeled off from the military administration in the late 1980s.

Though turning military regulation into civil helped the industry achieve apparent progress over the past decade, Gao said that the structure which combined the role of assets-owner and industry regulator into one administration did not suit China's fast developing market economy any longer.

"The duel roles often created contradictions," Gao said.

The merger plan was first announced in 2001, and after one year of preparation the three new aviation groups took shape.

CAAC insisted that under the new structure the fleet and asset scales of those airlines could be enlarged, and their operation costs cut.

The presidencies of the three aviation groups were assumed by the leaders of the three core airlines, and all of them said they believe that the consolidation process will be time-consuming.

Wang Kaiyuan, president of the China National Aviation Holding Company, said his group plans to integrate its three airlines together within three years.

"We hope the financial structures can be integrated by the end of next year, and that we can transform into a stock company within three years," Wang said.

Ye Yigan, president of the China Eastern Air Holding Company, and Yan Zhiqing, president of the China Southern Air Holding Company, both said they should spend some time to optimize the operation structure of their new groups.

Based on their overseas listed companies, China Eastern Airlines and China Southern Airlines, the two presidents plan to inject the assets of other airlines in their groups into the listed companies.

All three airline leaders said that the new companies expect to invite strategic partners from both home and abroad.

Aviation analysts have adopted cautious optimism about the industry merger. Most of them believe its potential depends largely on the handling of the merger process.

Liu Shijin, a researcher with the Development Research Centre of the State Council, said the companies that truly successfully integrate their fleet and assets sources and adopt advanced management systems will benefit most from the reform.

"If they are just formally combined and without digestion, those companies will see no real progress," he said.

Liu Jipeng, a professor with the Capital University of Economics and Business, believes that the consolidation will help create a fair market environment for all domestic airlines.

"It's good news for local airlines. Big State-owned airlines will not be able to use their special relationship with CAAC to get advantages any more," he said.

All Problems Solved?

The reorganization is a key step toward survival and development. According to the government's first tentative plan, reorganization of CAAC should be conducted only after a reasonable integration of the internal resources of various group companies.

But judged from the present situation, the idea of "integration first, and reorganization later" has been upset, while the use of the method of "putting up the brass plate first, conducting integration later" has become a must. This is not only the wish of the government department, but all the more of the market.

Outsiders have all along been analyzing the question as to what after all is the biggest obstacle to the government department's delayed decision to adopt the reorganization plans of various companies. As a matter of fact, people with discerning eyes can get the answer at a glance. For example, the problem of how to handle personnel and debts in the course of reorganization.

Although these contradictions "are alter all unavoidable", the focal problem should be to clear up the questions: to what extent can the management of the aviation company and the operation of the market be improved after the reorganization of the CAAC, and is it profitable or not profitable?

US Boeing Company said in a report that the Chinese aviation companies are expecting to win greater domestic market share and strengthen their competitiveness on the international market, they, however, are known for their low ticket price and poor service. Although these companies currently are the only choice for Chinese domestic passengers, they must try to dispel people's worries about service and flying safety.

In a sense, Chinese aviation companies already have the necessary hardware for success in their businesses. Preliminary estimate shows that these airliners now have well over 500 passenger planes, thanks to economic growth and increase in income, it is estimated that by the year 2020, China will have 2,200 passenger planes, representing 7 percent of the world total by then. With the aviation groups coming into operation, the airliners will definitely undergo further growth in strength, however, service and management will definitely be a new round of thorny problems, especially domestic flights.

The problem of the aviation industry, actually a problem of the government, depends, to a great extent, on the actions taken by the government and department in charge, that is the need to establish the status of the defender of market competition order and the supervisor of enterprise behavior in competition. The best way to expand Chinese civil aviation is that the government goes all out to let free competition decide on the victor and the defeated.

The fundamental problem facing Chinese civil aviation is not of its small scale, but of its poor management and too much government intervention. Without settling this problem, only temporary, not permanent, problems can be resolved in the reorganization, and the result of reorganization would not be too great.

By People's Daily Online

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