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Air China crash unlikely to stop privatization

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Air China flies B747aircraft on international routes such as Beijing-London  

By Geoff Hiscock
CNN Asia Business Editor

(CNN) -- Air China's devastating first crash in South Korea Monday is unlikely to stop the Chinese flag carrier's progress towards an expected privatisation next year, aviation business analysts say.

Air China is the last of China's "three pillars" of aviation to be listed.

The other two big airlines, China Southern and China Eastern, have both listed on the Hong Kong and New York stock exchanges since 1997.

One Hong Kong-based aviation industry analyst told CNN Monday that China Southern, the country's biggest carrier, had also had an accident ahead of its listing.

"So long as there is not a rash of incidents, the financial impact (for Air China) is not there," the analyst, who declined to be identified, said.

Air China, which has a fleet of 69 aircraft, has extensive fleet upgrade plans, with 12 Boeing 777 long-range passenger jets on order, as well as 35 Boeing 737-800 aircraft for its regional operations.

High growth rate

That reflects the high growth rates for airline travel in China. Although international operations for Chinese carriers, including Air China, were affected by the downturn after the September 11 terror attacks in the U.S., internally China's industry was much less affected.

On the regulatory front, the crash comes at a time of massive change for China's aviation industry.

Under plans first announced in August 2000 and reaffirmed by China's State Council in February this year, Air China, China Southern and China Eastern will each consolidate various second-tier carriers into their operations.

The big three control about 80 percent of the Chinese internal market. Smaller regional carriers such as China Northern, China Northwest, China Southwest, Yunnan Airlines and Great Wall Airlines will merge with one of the big three under a program designed to lift the industry's performance.

According to the Sydney-based Center for Asia Pacific Aviation, which reviewed China's aviation industry in its February monthly analysis, the reform and merger process flows from the increased competition China faces in the wake of its entry to the World Trade Organization in December 2001.

'Broadly sound'

The center described the proposed merger structure as "broadly sound".

But while it said Beijing "must persist with its goal of airline consolidation", it expected that commercial compromises would have to be made by the central government and the industry regulator/operator, the CAAC (Civil Aviation Administration of China).

"The major carriers are heavily debt-laden and unwilling to absorb the impact of additional debt which comes with several of the merger candidates," the center noted in February.

The timetable for Air China's privatization and listing remains unclear, other than 2003 being the likely year.

The airline was scheduled to follow the listings of China Southern and China Eastern, but the Asian financial crisis of 1997-98 put that plan on hold.

An analyst told CNN that by 2003 Air China would have the profit figures to warrant a listing. He said that no revenue figures were available for the airline.

China Southern and China Eastern have annual revenues of about $1.9 billion and $1.4 billion respectively.


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