Capital Key for China Southern in Race for Allies
By Alman Loong, The Standard | Jun. 06, 2007
China Southern Airlines, the largest airline in the mainland by fleet size, will consider bringing in a strategic investor if the carrier obtains a government capital injection.
"We hope to be selected by the State Council as one of the enterprises to join the capital budgetary system," chairman Liu Shaoyong said after the annual meeting of the International Aviation Transport Association on June 5.
The State Council has said it will try to establish a budgetary system under which state-owned enterprises are required to help replenish the capital of underfunded state enterprises or finance their exit from competitive sectors.
"If we obtain a government capital injection, we will consider bringing in a strategic investor," Liu said, adding the airline had not held talks with overseas investors on share sales.
Meanwhile, Air France said it has no plans to invest either in China Southern's passenger business or in Hainan Airlines, the fourth-largest airline in the mainland. The largest European airline by sales is joining United States' Northwest Airlines in talks with China Southern to set up a cargo joint venture, said Hans W de Roos, senior vice president of alliances at Air France-KLM.
China Southern is expected to take a 51 percent stake, while Air France and Northwest will have the remainder.
Foreign investors are eager to enter the newly opened aviation market.
"China and India are the industry stars in 2010, while Asia-Pacific will be the single largest market," said Giovanni Bisignani, IATA director-general and chief executive.
China Southern shares have almost trebled from August 2006, thanks to the speculation about investors.
In a recent research report, Merrill Lynch said Emirates and Air France-KLM are the most likely suitors.
"The Guangzhou-based airline is maintaining a 20 percent share in the home market amid fierce competition," Liu said.
China Southern is planning to add more international routes under the new air agreement between Beijing and Washington. It has said it plans to increase its freighter fleet to 14 from two by 2011. Liu said the company will have its first A380 by 2009.
Shenzhen Airlines has teamed up with Lufthansa to form Shenzhen-based Jade Cargo Airlines, which operates two Boeing 747s and plans to expand the fleet to six aircraft by January 2008.