Print

Mail

wiki links

Analysis: Local air carriers welcome new investment incentives

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

Robert Wu, vice president at Far Eastern Air Transport Corp's finance division

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.

Taiwanese carriers have been experiencing a tough time on rising operational costs and a dull market outlook, said Janet So (湛華生), public relations manager at Transasia Airways Corp (復興航空).

Therefore, the operators would have more channels to raise capital should the foreign shareholding be raised to 49 percent, she said.

While giving approval to the government's intention to further liberalize Taiwan's civil aviation market, Nieh said the major shareholder of EVA Airways and its unit UNI Airways Corp (立榮航空), Evergreen Group (長榮集團), also founder of the airline, would not sell its shares nor surrender management to foreign investors.

The policy may also have little impact on China Airlines and its subsidiary Mandarin Airlines Co (華信航空) unless the government-controled carrier implements the long-delayed privatization plan.

The government controls the carrier through China Aviation Development Foundation (航發會) under the Ministry of Transportation and Communications, which owns nearly 70 percent of China Airlines.

The ministry had earlier planned share offerings to privatize China Airlines and introduce foreign strategic partners to improve the operation of the carrier in 2004, but later halted the plan as the government wanted the carrier to execute government missions.

"Whether to continue the privatization depends on government policy ... No foreign investors contacted us [about share purchases] at this point," China Airlines chairman Philip Wei (魏幸雄) said.

Singapore Airlines had planned to buy shares of China Airlines several years ago, but did not clinch the deal.

Toh Giam Ming (卓嚴民), general manager of Singapore Airlines' Taiwan branch office, refused to comment whether his company would have renewed interest in China Airlines if the carrier offloaded its shares to foreign investors, but said "we are open to any opportunities."
This story has been viewed 1841 times.