Citigroup to back CAL's US$270 million loan deal

Citigroup Inc is arranging a US$270 million syndicated loan for China Airlines (CAL, 華航) to buy more aircraft, said John Chang (張炯滄), the airline's vice president of finance.

The 12-year loan has an interest margin of 46 basis points more than the three-month or six-month London interbank offer rate. A basis point is 0.01 percentage point. Three-month dollar LIBOR (London interbank offered rate) was recently at 1.11 percent.

"Our original forecast is for the cargo business to grow by 14 percent this year, now it's likely the growth would be more than 20 percent," Chang said. ``And it looks like the recovery of cargo demand isn't just a blip."

The funds will be used to buy two Boeing 747-400 freighters, Chang said in an interview.

The company plans to take delivery of seven aircraft this year, including the two freighters, due to stronger-than-expected demand, Chang said.

The Export-Import Bank of the US, a bank that borrows money from the US Treasury to encourage foreign trade, is expected to guarantee the loan, Chang said.

The loan will cover 85 percent of the purchase price of the two planes, with the remaining 15 percent to be funded with the airline's own money, he said.

It's debt to total asset ratio would rise to 74 percent from 72 percent after taking delivery of the seven aircraft, brining the size of its fleet to 62, Chang said.

Carriers that fly between Taiwan and China, such as CAL, EVA Airways Corp (長榮), Cathay Pacific Airways and Hong Kong Dragon Airlines, are benefiting from a surge in travel by the estimated 800,000 Taiwanese who work and live in China.

CAL said last month it would probably carry 8 million passengers this year, 14 percent more than the 7 million it carried last year. Profit will almost double to US$100 million this year, from NT$1.7 billion (US$51.1 million) last year. Sales will rise to about NT$100 billion against December's forecast of NT$89.1 billion.