Soros-backed airline hit by price competition

PUBLISHED : Tuesday, 14 April, 1998, 12:00am
UPDATED : Tuesday, 14 April, 1998, 12:00am

Hainan Airlines, 25 per cent owned by US billionaire George Soros, yesterday said its after-tax profits fell last year amid intensifying price competition in the mainland's airline industry.

Chairman Chen Feng said after-tax profits for last year were 130 million yuan (about HK$121.01 million), down from 131.653 million the previous year.

He said turnover rose to 1.18 billion yuan, up from 914.629 million in 1996.

Mr Chen said the carrier was pushing ahead with its plan to raise about 800 million yuan to 900 million yuan from an issue of A shares before the end of this year.

It was the first mainland airline to receive foreign investment, US$25 million from Mr Soros' American Aviation LDC, and listed 71 million B shares on the Shanghai stock market last July.

Mr Chen said he had applied to Beijing to issue 250 million A shares at a price of about 4.5 yuan each and expected approval for 150-200 million shares, with a listing likely in August.

Of the country's airlines, only China Eastern has issued A shares, together with H shares. China Southern has also issued H shares.

Mr Chen said he would use the money from the issue towards a training and maintenance centre, costing 200 million yuan to 300 million yuan, at Haikou's Meilan airport, due to open next year, as well as to purchase seven Boeing 737s and three B767s.

With the new aircraft, the carrier aims to become the fifth- or sixth-largest mainland airline by 2000, up from its present 10th place.

He praised the role taken by Mr Soros' company, saying it had great vision to sink $25 million into a small aviation firm in a remote province and had been helpful and supportive. He said the value of Mr Soros' stake had doubled in three years to $50 million.

The airline flies to more than 30 cities, all on the mainland.

Mr Chen said it hoped to fly international routes to destinations in the region.

Mr Chen said mainland airlines this year would lose at least five billion yuan as a result of price deregulation since the end of last year.

'Worst hit are the big state-owned airlines that are badly run, while the smaller carriers like us, more flexible and with lower production costs, are enduring the bloody competition more easily.' The losses were so heavy the authorities would be forced to re-impose price regulation and set minimum prices soon, he said.