The mergers of nine major airlines into three jumbo holding companies last week marked another important move China has taken to reform its large-sized State-owned enterprises in the air transport industry.

In fact, the reform began as early as the late 1980s, when the civil aviation business was detached from the military administration, resulting in a number of separately operated airlines. But the airlines were still controlled by the government through the Civil Aviation Administration of China, now called the General Administration of Civil Aviation of China (CAAC).
The reform has helped the civil aviation industry develop quickly in a dozen years, as evidenced by expanded fleets, updated transport facilities, an incredibly multiplied number of domestic flights and newly built airports in nearly all major cities. On the other hand, however, the CAAC's strict control over the industry and the airlines' disorderly competition led to low efficiency in business performance.

When announcing the current mergers, the CAAC pledged that it would no longer meddle in the management of the airlines and would only function as an industry regulator. Its new functions will still include controlling air traffic, overseeing safety and maintaining a fair market environment.

That is a blessing for the airlines, which, in their efforts to make up deficits, are trying to change into real corporate companies.

The mergers will, at least theoretically, bring some benefits.

The new conglomerates can use their human and equipment resources more efficiently as crew members, service staff and flights can be arranged in a more reasonable manner. This will help reduce operational costs and thus likely lower ticket prices, directly benefiting passengers.

For example, it can be arranged that bigger planes - such as the Boeing 747 and 777, which are designed to fly long distances - fly international routes rather than short domestic routes, hence avoiding fuel waste.

The companies are also expected to acquire their own decision-making powers. They can thus have a freer hand in corporate operations, such as raising funds from securities markets and through more mergers and acquisitions to address the chronic problem of a capital shortage.

The new move, however, cannot solve all problems. The mergers do not automatically lead to staff reductions and more efficient organization. Traditionally, China's State-owned enterprises suffered from overstaffed organizations and bureaucracy. Civil aviation companies were no exception.

The inclusion of several airlines into one conglomerate has not only taken in all the original employees but also those companies' debts and the likely contradictions between different interest groups. And some officials are still closely linked to the CAAC. It will be a hefty challenge for the new companies to lay off redundant employees, especially officials, and balance the interests of different sections.

For a corporate company in its true sense, these are not insurmountable difficulties. For the three new companies, however, it will take some time to really streamline their organizations and adapt every move to market conditions. This is the most important thing to do if the flagship companies of China's aviation industry hope to counter the competition from international airlines, who are increasingly interested in getting a slice of the huge market.