Car unit pushes AviChina losses to 1b yuan

PUBLISHED : Saturday, 12 April, 2008, 12:00am
UPDATED : Saturday, 12 April, 2008, 12:00am

AviChina Industry & Technology posted a threefold increase in losses to 1.03 billion yuan (HK$1.15 billion) last year due to a bigger deficit at its car division and decline in margins at its helicopter unit.

The losses translate to 22.1 fen per share for shareholders, compared with 7.1 fen in the previous year when the company reported a loss of 331.08 million yuan.

The board recommended no final dividend for the year.

The aviation segment saw a 20.3 per cent jump in sales to 5.3 billion yuan after it sold 120 helicopters, up from 96 in 2006. The increase in delivery of fuselages for EC-120 helicopters contributed to the growth.

Gross margin in the helicopter business fell 2.2 percentage points to 12.83 per cent last year as the company kept selling prices unchanged even as raw material prices rose.

Sales of cars decreased 11.6 per cent to 11.2 billion yuan. Operating losses rose to 852.8 million yuan from 651 million yuan due to severe competition.

'The company's strength lies in aircraft manufacturing. Its [car] brands, from Hafei to Changhe, have recorded bad sales these past few years because competitors, such as Changan and Wuling, boosted sales aggressively,' said car industry analyst Matthew Kong of Fitch Ratings.

The company sold 291,694 vehicles last year, down 15.29 per cent from 2006, compared with a 22.2 per cent increase in volume for the overall market in China. Industry experts expected the country to sell 10 million vehicles this year from 8.8 million last year.

AviChina runs two vehicle units - Hafei Automobile and Jiangxi Changhe-Suzuki - which make minivans and trucks as well as sedans.

The company is in talks with the country's third-largest carmaker, Dongfeng Motor Group, on setting up a 50-50 joint venture into which AviChina will inject its car assets as a way of reviving its car business.

'It would be good for AviChina to hand over its car business to Dongfeng because AviChina is not strong at vehicle manufacturing but Dongfeng is,' Mr Kong said.

AviChina is pressing hard to boost aviation income. It plans to invest 100 million yuan in a joint venture to make Airbus aircraft in Tianjin. Hafei Aviation and Jiangxi Hongdu, its two subsidiaries, have entered into a joint-venture agreement to set up a final assembly line for the A320 series aircraft.

Hafei Aviation and Airbus will also set up a joint-venture manufacturing centre to make composite parts and components for A350XWB wide-body jets. Jiangxi Hongdu, on the other hand, signed a subcontracting agreement with US company Goodrich to make engine parts for the new Boeing 787 aircraft until 2021.

Margin erosion

AviChina saw margins drop at its helicopter unit as input prices rose

The aviation segment's sales reached 5.3 billion yuan, a rise of: 20.3%