Air China Ltd, the world's largest airline by market value, plans to borrow at least US$750 million this month to expand its fleet as travel demand rises in the world's second-biggest aviation market.
The carrier plans to add about 24 planes this year, Air China spokeswoman Rao Xinyu said yesterday. The planes are part of government orders put to Airbus SAS and Boeing Co earlier, she said.
"We will seek more financing later this year to fund the fleet expansion," Rao said, without elaborating on a timeframe.
Chinese airlines are expanding their fleet as the country's economic growth makes air travel affordable for more people. Chinese carriers will probably boost passenger numbers by 14 percent this year, helped by demand for flights to attend the Beijing Olympic Games in August, according to the General Administration of Civil Aviation.
"You will see a continuation of trends in expansion as long as the ability to debt-finance is there," said Howard Wang, who oversees US$12 billion of dedicated China investments at JF Asset Management Ltd in Hong Kong.
"The biggest player is expected to retain capital expenditure at similar levels to last year."
Carriers, including Air China, may fly 210 million passengers in 2008, compared with an expected 185 million last year, the aviation regulator said last month. Cargo volume may rise 12 percent to 4.45 million tons.
Air China fell 0.5 percent to HK$8.16 (US$1.05) in Hong Kong. The shares rose 4.6 percent to 23.49 yuan (US$3.27) in Shanghai trading.
The carrier took a US$750-million 10-year loan in 2006 to buy 14 planes from Boeing and Airbus, according to data compiled by Bloomberg News. The carrier paid about 45 basis points more than the London interbank offered rate, a benchmark for borrowing costs for the debt, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.
Rival China Eastern Airlines Co received US$635 million in loans last year to buy planes, more than the US$468.2 million in loans it got in 2006, data compiled by Bloomberg shows. China Southern Airlines Co got US$196 million in loans in 2007, less than US$573 million in loans it received in 2006, the data shows.
(Shanghai Daily February 7, 2008)