Air China gets 1.5b yuan capital injection

08:27, January 19, 2010      

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Air China Ltd, the nation's flag carrier, inched a step closer to its goal of finalizing an air cargo joint venture with Cathay Pacific Airways by the end of June after the government approved a 1.5 billion-yuan capital injection into the airline.

The Beijing-based airline, also the nation's largest international carrier, will receive the funds from its controlling shareholder China National Aviation Holding Co.

Air China will use the capital to acquire a minority interest in its cargo unit, Air China Cargo, the airline said in a statement on Saturday. This makes it the third mainland carrier to receive a capital injection from the government.

China Eastern Airlines received 9 billion yuan while China Southern Airlines received 3 billion yuan last year.

Launched in 2003, Air China Cargo initially had three shareholders, including Air China with a 51 percent stake, CITIC Pacific Ltd with a 25 percent stake and Capital Airports Holding Co with a 24 percent share.

The carrier operates four Boeing 747-200 freighters and eight B747-400 planes, and has since become a wholly owned unit of Air China after the airline bought out CITIC Pacific in January 2008 and Capital Airports in April 2009.

With these acquisitions now completed, the 1.5-billion-yuan injection will be used to replenish Air China's working capital, the airline said.

"Air China is steadily moving forward on a cargo joint venture with Cathay Pacific. The air cargo market is expected to improve this year as demand from the US and Europe recovers. There is no better time than this to start the joint venture," said Li Lei, an aviation analyst with CITIC China Securities.

Air China has been negotiating with Cathay Pacific to set up the venture in Shanghai since 2006. It is expected to begin operation by June 30, Huang Bin, Air China's board secretary, said in November.

Earlier media reports have said Air China will have a controlling 51 percent stake in the joint venture, while Cathay Pacific will hold a 49 percent stake.

Despite the sluggish international air cargo market, the joint venture will benefit from Shanghai's expanding cargo demand over the mid- to long-term, Li Lei said.

Shanghai Pudong International Airport currently handles over 60 percent of China's international air cargo and is the world's fastest-growing airport for cargo handling. Foreign carriers control over 70 percent of the international cargo market in Shanghai.

Li Jiaxiang, director of the Civil Aviation Administration of China (CAAC), said last week that the government would encourage air cargo industry growth and aims to create one of the world's top five cargo carriers by 2030.

Chinese airlines posted a total net profit of 212 billion yuan last year, a huge improvement over a record 28 billion yuan loss in 2008, the CAAC said.

China Eastern said on Saturday that it expects to post an annual net income for last year compared with a net loss for 2008.

Shares of Air China jumped 4.6 percent to close at 11.09 yuan in Shanghai yesterday, the highest close since June 2008. China Eastern added 5.1 percent to 6.65 yuan and China Southern climbed 4 percent to 6.44 yuan.

Source: China Daily
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