Air China

Air China plans cargo venture with Cathay

PUBLISHED : Wednesday, 21 March, 2007, 12:00am
UPDATED : Wednesday, 21 March, 2007, 12:00am


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Air China will set up an air cargo joint venture with Cathay Pacific Airways in Shanghai by the end of this year to increase its market share in the lucrative market, chairman Li Jiaxiang said yesterday.

'The top priority this year is to get the venture with Cathay done,' Mr Li said. The application for the joint venture would be submitted in the first half and incorporation could be completed in the second half.

Air China, whose shares fell yesterday after the company reported a less than expected 11.7 per cent gain in net profit to 2.69 billion yuan, on Monday said that its cargo yield fell by 6.8 per cent last year.

The company attributed the decline to competition from domestic and international carriers. The shares, which fell as much as 4.2 per cent, closed down 3.37 per cent at HK$5.74.

'The general picture for the Asia cargo market is weak and [Air China's] cargo unit will be under pressure this year,' said Karen Chan, transport analyst for Credit Suisse First Boston.

Mr Li ruled out merging Air China's cargo unit with China Eastern Airlines in the near term.

China Eastern's China Cargo Airlines and Air China Cargo Airlines, the biggest domestic operators in the market, can handle less then 30 per cent of international shipments in and out of the country, leading to industry calls for a merger between the two to counter foreign competitors.

Air China wants to make use of the venture with Cathay to capitalise on networking between Hong Kong, Shanghai and Beijing and attract more cargo through Beijing.

'We want to increase the transshipment volume in Beijing by one-third,' said Air China president Cai Jianjiang.

The joint venture may need a waiver from the State Council or have more than one foreign shareholder, as under present regulations foreign interest in an aviation joint venture cannot exceed 49 per cent and a single foreign entity cannot hold more than 25 per cent. Mr Li did not deny a news report in January that the central government proposed to inject capital into Air China's parent company and other state-owned major carriers.

'I have not yet received the formal letter. I cannot say so until the money is received,' he said, adding the capital injection would be only to the parent, not the listed entity.