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The long-awaited cargo joint venture between China Southern Airlines and Air France is closer to becoming a reality after the carriers entered into a framework agreement yesterday.
The joint venture, to be called AE Cargo, will be the second air cargo joint venture between a European and  mainland carrier after Jade International, a joint venture between Shenzhen Airlines and Lufthansa.
To take advantage of Air France's expertise in the international cargo market, the chief executive of AE Cargo will be appointed by the French flag carrier even though it only owns 25 per cent of the company.
'We have to liberalise our mindset and adapt to foreign expertise,' China Southern chairman Liu Shaoyong said on the sidelines of the International Air Transport Association annual meeting in Istanbul. China Southern will own the balance of the joint venture.
Mr Liu hinted that the co-operation between Air France and China Southern would go beyond the  cargo venture. 'There will be a sequel,' he said without further elaboration, adding to speculation Air France will take a direct stake in China Southern.
The main obstacle to any foreign acquisition in the carrier is that it may  dilute the government's  stake  to below the required 50 per cent.
A way out would be a capital injection by Beijing into the carrier as requested by Mr Liu at the National People Congress in March. Mr Liu said he had not received  an official decision  so far.
AE Cargo,  which stands for Asia-Europe Cargo, will be based in either Guangzhou, Shanghai or Shenzhen. Although China Southern has air cargo operations at Shenzhen Airport, Mr Liu said the company had to evaluate the terms and conditions offered by different airports.
The cargo airline  will have a fleet of 10 aircraft in two years, comprising Boeing 747Fs,  777F and Airbus 300  freighters. China Southern will contribute the 10 freighters and capital,  while Air France will provide capital and expertise.  Europe and the United States are its target markets.
Despite  high oil prices and stiff competition in mainland cargo markets, Mr Liu is positive about the investment. 'It is a shame that only 24 per cent of international cargo is carried by home-grown carriers, and I am positive about the cargo market in the long run,' he said. 'You have to build a boat during drought not during rainy days.'



China Southern, Air France  seal cargo deal