Yu flip-flops on airline's privatization

The government yesterday flip-flopped on a long-standing plan to privatize China Airlines (華航), after Premier Yu Shyi-kun indicated that the nation's largest carrier should still be available for diplomatic missions for Taiwan.

"How and when to carry out China Airlines' privatization scheme should be concerned with Taiwan's diplomatic predicament," Yu told reporters at the legislature yesterday.

Yu's remarks came a day after Minister of Transportation and Communications Lin Ling-san (林陵三) said that the government hopes to remain China Airlines' largest shareholder despite a proposed share-sale plan for the carrier.

"Taiwan should have its own national carrier to execute government tasks," Lin told reporters while attending an opening ceremony for China Airlines' museum.

Lin later elaborated that the ministry will follow through on share offerings for the airline, but that he hopes the government will retain a large enough stake to control the company. Lin didn't specify how big such a stake would be, though he said it could be under 50 percent.

According to the original plan, the ministry's China Aviation Development Foundation (航發會) -- the airline's largest shareholder -- proposed to release 36 percent of shares in the carrier to designated investors by the end of last year, and another 35 percent of shares to individual investors by next year.

The ministry has asked a financial consultancy to modify matters concerning the share offerings, Lin said.

The policy U-turn drew strong criticism from legislators of the People First Party (PFP), who said privatizing the carrier had been Lin's prime task when he was chairman of the foundation two years ago, considering the airline's poor safety record under the government's watch.

Chief secretary of the foundation, Lin Chun-cheng (林純政), who attended a breakfast meeting held by the PFP caucus yesterday, said the timetable has been disrupted because shares are currently at about NT$17, which is considered too low to sell.

For now, the foundation plans to implement the offerings when company shares climb to about NT$20, Lin said.

Another related spat that has surfaced is NT$10 billion of five-year convertible bonds issued by China Airlines in February, which reduced the foundation's shareholding from 71 percent to 69 percent at present. If all the bonds are converted to stock, the foundation's share will drop to 58.1 percent, Lin said.

The PFP criticized the move as a form of share offering.

Airline spokesman Roger Han (韓梁中) said the company issued the bonds to raise funds for purchasing new aircraft, since its liability rate of 76 percent makes it difficult to obtain loans from banks.

"Issuing the bonds has nothing to do with share offerings, since the foundation's shares are intact," Han said.

John Chang (張炯滄), vice president of the airline's finance division, said the company plans to further hold several convertible bond sales in the coming years to pay for a total 30 airplanes the airline ordered that are to be delivered between this year and 2007.