Companies

Aviation industry merger in works

By Liu Yiyu and Mao Lijun (China Daily)
Updated: 2010-07-28 11:59

An Air China Ltd plane takes off while another is parked at Beijing Capital International Airport earlier this year. Air China, the nation's largest international carrier, will boost capital expenditure by more than 50 percent in 2010 from a year earlier as it takes delivery of aircraft to meet a surge in travel demand. [Tomohiro Ohsum / Bloomberg]

BEIJING - China National Aviation Holding Company is to take over China Aviation Supplies Holding Company (CASC), a major aircraft and material provider for domestic airlines, which is part of the government's plan to consolidate the aviation industry, a source knowledgeable with the deal told China Daily on Tuesday.

The proposal is subject to approval by the State-owned Assets Supervision and Administration Commission (SASAC) and the State Council, the source said, adding that no timetable has been established for the deal.

"China Aviation Supplies' business will be maintained while some changes are expected regarding its business with other domestic airlines or the competitors of Air China," said the source.

The buyer - China National Aviation - is the parent company of Air China.

According to the source, CASC's current business portfolio is very complementary to that of China National Aviation, which is the country's air transportation provider,.

CASC's President Li Hai will be appointed as the vice-president of China National Aviation following the acquisition, the source said.

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"The acquisition is the result of a structural readjustment of China's aviation industry, and is in line with the country's strategy to make its State-owned enterprises bigger and stronger, with the eventual goal of becoming the world's best," said Li Xuerong, a researcher with China Investment Consulting.

The number of China's State-owned aviation companies will be scaled back to five after the acquisition.

SASAC said earlier it plans to initiate large-scale industry consolidation this year among State-owned enterprises and will cut the number to 100 from the current 125.

The deal, however, also raised some concerns.

"China National Aviation will further consolidate its dominant position in the aviation industry after the takeover and is likely to favor its subsidiaries, such as Air China, which will definitely affect other airlines," said Li Xiaojing, director of the Aviation Transportation and Economy Department at the Civil Aviation University of China.

With the burgeoning aviation market and limited imported aviation supplies, it is possible that the aircraft supplier will favor Air China over those competing with local subsidiaries of China Airlines, such as Sichuan Airlines.

To avoid the unfairness, we need to work on the details of the acquisition, said Li.

CASC has a long-term partnership with major airframe and engine manufactures such as Boeing, Airbus GE, Rolls-Royce and Pratt & Whitney. CASC imports aviation supplies and wholesales them to small- and medium-sized airlines without import permits.