Analysis: Local air carriers welcome new investment incentives

Local airlines welcomed the government's plan to raise foreign shareholding in local civil carriers, saying the relaxation would help them in forming strategic alliances with foreign airline operators and ushering in international aviation know-how.

But whether the relaxed restrictions on foreign capital will really attract foreign investors would largely depend on several factors, including China's fast growing airline industry, the proposed relaxation of cross-strait transportation restrictions, as well as the government's determination in carrying out the privatization of China Airlines Ltd (華航), industry veterans said.

The Cabinet last Wednesday passed an amendment to Article 49 of the Civil Aviation Law (民航法), which allows foreign investors to hold as much as 49 percent in local civil carriers, up from the previous 33 percent. But holdings of a single foreign investor is still capped at 25 percent.

The amendment needs be passed by the legislature to take effect.

"Lifting the ban complies with the international trend," said Nieh Kuo-wei (聶國維), spokesman of EVA Airways Corp (長榮航空), the nation's second-largest carrier.

Taiwanese carriers are a tough sell to foreign investors, given the limited aviation rights that result from the nation's diplomatic predicament. Also, business in the domestic industry is falling as the infrastructure of land transportation grows and improves with highway, rail and high-speed railway projects.

By contrast, foreign capital has been flowing into China in response to the huge demand for air transportation -- both domestic and international. Cathay Pacific Airways Ltd, for example, has acquired a 17.5 percent stake in Air China Ltd (中國航空). Boeing Co, Singapore Airlines, Korean Air and a score of companies are all scrambling for a piece in the lucrative market.

To enter the rapidly growing market, China Airlines, Taiwan's largest carrier, acquired a 25 percent stake in Yangtze River Express Airlines Co (揚子江快運) in 2005, while EVA Airways Corp bought 25 percent of Shanghai Airlines Cargo International Co (上海國際貨運航空) last year.

With the massive volume of traffic between Taiwan and China, the planned opening of direct cross-strait air travel would be one major incentive, making local airlines more desirable investment targets.

"Without a doubt, the liberalization of direct cross-strait air traffic will be a great boost to local carriers," said Robert Wu (吳勇璋), vice president at Far Eastern Air Transport Corp's (遠東航空) finance division.

"We are open to any interested foreign investors, especially overseas carriers, which could expand our flights and create more synergy," Wu said.

Foreign shareholders currently hold about 15 percent of Far Eastern Air, and the carrier would welcome any overseas investors interested in joining its fundraisings in the future, Wu said.

Despite registering a sales increase of 9.72 percent to NT$7.9 billion (US$239.42 million) last year, Far Eastern Air lost NT$300 million owing to high oil prices, Wu said.

As oil prices have declined this year, the carrier hopes to earn NT$150 this year on sales of NT$8.3 billion, Wu said.

Far Eastern Air wants to expand its international flights to make up for cuts in its domestic business that came after the commencement of the bullet train service and hopes to gain a lifeline in the much-anticipated direct traffic between Taiwan and China, he said.