The government may make progress in finding a strategic buyer for a 36 percent stake in China Airlines Co (
"The timing for the sale is not very good given the upcoming presidential election," president and chief executive officer Philip Wei (
The state-backed China Aviation Development Foundation (航發會), which holds about 71 percent of China Airlines shares, has been trying to sell some of its stake in the airline since 1998. It has proposed a two-stage share-release plan and hopes to conclude the sale by the end of next year.
The foundation is chaired by Minister of Transportation and Communications Lin Ling-san (林陵三).
The foundation plans to sell 36 percent, or 915 million shares, to investors such as international airlines with strong management skills. It will release another 35 percent, or 899 million shares, to individual investors and to China Airlines' employees.
But Wei said that chances of selling the carrier's shares to foreign airlines, such as Singapore Airlines Ltd, were slim.
"It is estimated it would cost more than NT$10 billion for any investor to acquire the shares. Given the poor financial conditions of many carriers after the serious impact of SARS last year, I don't think it is possible that any airline would be interested in the deal now," Wei said.
Based on the carrier's NT$19.90 closing price on the TAIEX on Friday, the sale could be worth more than NT$18.21 billion. The foundation in December postponed plans to sell the 36-percent stake in China Airlines to a strategic investor because the stock price, then NT$14.75, was below its NT$17 target price. The company's stock has risen a third in the past three months.
Wei didn't elaborate on who else would be interested in the stake, saying that it was the foundation's responsibility to deal with the matter, not the airline's. But the introduction of strategic investors to the company's management team was expected to help the airline polish its image after suffering its fifth crash in 11 years in May 2002.
China Airlines workers fear the sale will lead to layoffs and reduce employee benefits. The union is also worried that businessmen with political connections might have an unfair advantage in acquiring shares in the carrier, citing the example of the sale of Chunghwa Telecom Co (中華電信) shares.
The government sold a 13.5 percent stake in Chunghwa for NT$65.6 billion to a group led by Cathay Life Insurance Co (
Wei dismissed such concerns, saying that China Airlines management has been negotiating with its union representatives and assuring them that their benefits would not be sacrificed during the privatization process.
In a bid to hedge against increased oil prices, China Airlines would this year fix around 70 percent of its fuel costs, which make up about a quarter of the airline's total costs, Wei said.
The airline will pay about US$27 to US$28 a barrel of crude oil under long-term contracts. Last year, China Airlines hedged about 60 percent of its fuel needs, compared with about 40 percent to 50 percent at rival airlines, he said.
"We are a bit more aggressive in fuel hedging," said Wei. "Crude oil costs are unlikely to fall because of the recovering global economic outlook, instability in the Middle East and low US inventories."
The carrier expects the hedging to contribute about US$2.5 million to revenue a month for at least the first half of the year, and more should fuel costs rise further.
Chine Airlines recorded record sales of NT$7.7 billion (US$231 million) in January, with pre-tax profit hitting about NT$500 million. With deliveries of seven new passenger and cargo planes this year in an industry which is recovering from last year's SARS epidemic, profit will almost double to US$100 million this year from US$51 million last year, Wei said.
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