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Aviation Regrouping Brings a New Round of Competition
October 11, 2002 marked a milestone in China's aviation industry development, not only for the establishment of six aviation companies, but also the listing of Shanghai Airlines Co,.Ltd at Shanghai Stock Exchange.

Then what concerns the presidents of the three newly founded air companies (Beijing-based Air China, Shanghai-based China Eastern Airlines and Guangzhou-based China Southern Airlines), are not only the result of the local company's listing, but more important, the "menace" may have imposed by local companies who have been struggling for survival among state air giants.

Inauguration of six companies, a big step in the national's aviation industry regrouping, has exerted great pressure on local air companies, and the country's four major ones, led by Hainan Airlines, are going all out to contend with the national giants.

"Local team" difficult to hold on

In July, 2001, six local airlines as from Shanghai, Shandong, Shenzhen, Sichuan, Wuhan as well as the China Postal Airlines joined hands in setting up the "China Zhongtian Aviation Corporation Group", kicking off regrouping of local companies to compete with the aforesaid three groups.

However, with the regrouping deepened the "Zhongtian Group" was soon landed in difficulties when Eastern Airlines "merged" with Wuhan Airlines, Southern Airlines became shareholder of Sichuan and Postal airlines, and Air China remained a big holder of Shenzhen Airlines.

While the Hainan Airlines achieved much from capital operation. In 2000 it merged with Shaanxi-based Chang'an Airlines and increased investment for the latter this year. In February it controlled 51 percent share of Xinhua Airlines, targeting at Air China directly. In July 2002, it controlled 89.06 percent share of Shanxi Airline. Now, with 15 billion yuan assets Hainan Airline has set up a network covering 50 cities across the nation and planted firmly the fourth place in China's aviation industry.

"We are not much affected by the establishment of the six companies", Shandong Airline told reporter, saying they would rather believe the giants should compete with foreign airlines.

"Our company will not be hit since it is a shareholder system", Hainan Airlines said, "China's market is immense and the competition would not be fierce as seen in color TVs. America has 200 million people and more than 600,000 crafts including private ones, but China has only over 800 civil planes for its 1 billion people. There will be no monopoly with airline companies competing and cooperating with each other".

Dismal financing prospects

"Existence of local airlines can only depends on powerful capital injection", said an investment bank expert who has long been concerned with China's aviation regrouping.

"The declining profits of Shandong Airlines showed that it has lost capability of refinancing on the capital market", the expert said, adding that financing prospects are also gloomy for the newly established and listed three companies, not to say those weak local ones.

Little possibility for essential regrouping steps in short time

"Establishment of the six companies is only the first step of China's aviation regrouping", an Air China chief told the press, and there will be no great change on the current pattern in short time with airlines keeping their own name and symbols.

"Symbol changing, staff cutting and aircraft exchanging can not be done overnight, and the regrouping plan has not been finalized yet", an expert close to the regrouping revealed.

The unpredictable "transitional period" will be the last time left for local companies to sharpen their competitive edge through their own regrouping, expert pointed out.

(People's Daily October 17, 2002)

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