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China Airlines faces possible reduction in ratings

Taiwan Ratings Corp (中華信評) has placed its corporate credit and senior unsecured corporate bond ratings on China Airlines Co (華航) on creditwatch negative, the ratings company said yesterday.

"This action reflects Taiwan Ratings' concerns about the increasing business risks facing the airline industry in the aftermath of terrorist attacks in the US, which will lead to increased operating costs and a decline in traffic volume in both business and leisure travel," a Taiwan Ratings statement said.

Taiwan Ratings is affiliated with international ratings agency Standard and Poor's.

It said the effects of the terrorist attacks have created significant business risks to the worldwide airline industry, such as steeper falls in passenger demand for business and leisure travel from fears of further acts of the terrorist attacks and weaker consumer confidence.

The insurance costs could spike upward in the wake of the Sept. 11 terrorist attacks in the US and further discourage the demand for air travel, it added.

The creditwatch status would be resolved when the financial and business risks arising from the attacks and any related events could be better estimated, the Taiwan Ratings statement said.

However China Airlines said it has had no immediate plan to reduce its flights to the US in the wake of the attacks and US air carriers' plan to cut back operations.

"We are different from the American airlines hit hard by the terrorist strikes. While they focus on domestic markets, we pay more heed to international routes," a China Airlines spokesman said.

China Airlines said it hopes to offset its fall in business by the opening up of China's air market after Beijing's entry into the WTO.

Ealier this month China Airlines signed an agreement to buy a 25 percent stake in Shanghai-based China Cargo Airlines for 375 million yuan (US$45.3 million) in the largest ever cross-strait aviation deal.

China Airlines's net profit in the six months to June fell 20.9 percent year-on-year to NT$1.10 billion (US$31.8 million) because of the global economic slowdown.

The fall in profit was largely due to a decline in passenger and cargo business after the carrier expanded its fleet, China Airlines said.
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