Singapore Airlines heads back to China: cargo unit acquires stake in China Eastern’s cargo venture
Singapore Airlines (SIA) is dipping its toe back in the water in China after a tumultuous - and ultimately unsuccessful - attempt to buy a 24% stake in China Eastern Airlines in 2007/08. The airline's cargo arm has agreed to acquire a 16% stake in China Cargo Airlines, the cargo subsidiary of the Shanghai-based airline, subject to regulatory and other approvals.
The lure of China's potential has proven irresistible for SIA, which needs a fillip for Singapore's declining role as a cargo hub. Volumes at Changi Airport this year are still some 13% below peak levels set in 2006. See related report: Changi Airport reaches 40 million passengers in new annual record
Singapore Airlines Cargo has signed an agreement to acquire 16% of the equity interest in China Cargo Airlines Co Ltd, subject to regulatory and other approvals.
China Cargo was 70% owned by China Eastern Airlines and 30% owned by China Ocean Shipping (Group) Company (COSCO), prior to a reorganisation that will also see Taiwan's EVA Air buy in via a subsidiary. The parties will seek approvals for China Cargo Airlines to be reorganised into a limited liability Chinese-foreign equity joint venture company. Its registered capital will increase from RMB950 million to RMB3 billion.
SIA Cargo's investment in the re-organised company will amount to RMB328 million. The new shareholding structure of China Cargo Airlines will be as follows.
China Cargo Airlines shareholding structure
| Owner | Stake |
|---|---|
|
51 percent |
|
|
COSCO |
17 percent |
|
Concord Pacific Limited (EVA Airways Affiliate Company) |
16 percent |
|
16 percent |
SIA Cargo's President, Mr Tan Kai Ping, said: "We are excited about the joint venture. It affords SIA Cargo greater participation in the booming cargo transportation sector in China and we look forward to working closely with our new partners."
China Cargo Airlines operates a fleet of 13 aircraft comprising three Airbus A300 freighters, two Boeing 747-400 freighters, three Boeing 777 freighters and five McDonnell Douglas MD-11 freighters.
Its global route network extends to 26 destinations outside Shanghai, covering major cargo ports in China, Asia, Europe and the US.
Another tilt at China Eastern?
The cargo acquisition will inevitably fuel speculation of a renewed push by SIA to acquire a stake in China Eastern's passenger business and, in doing so, cement a greater stake of the burgeoning hub of Shanghai.
SIA's failed bid proved a blessing in disguise. China Eastern's woefully inefficient operation was exposed by the downturn caused by the string of natural disasters in China in 2008, and the global financial crisis that ensued. Massive losses and a government-anointed rescue plan involving the merger of Shanghai Airlines followed.
The Shanghai carrier, still largely un-restructured, has floated on the tide of the Shanghai World Expo and surging economic growth this year.
But fundamental competitiveness issues remain. Cutting Shanghai Airlines' ties to the Star Alliance and aligning the merged entity with SkyTeam, China Eastern looked to be drifting closer to China Southern, to counter the pincer movement of Air China/Cathay. The reappearance of Singapore Airlines, however, reignites China Eastern's favoured path of involving foreign funds and expertise in its revival and repositioning as a premium carrier.
SIA is likely to be wary of Air China's considerable ability to intervene and spoil the party, as it did in 2007/08. But the Singapore carrier ultimately has no choice but to pursue greater engagement with the Middle Kingdom.