China Eastern Airlines Corp (中國東方航空), Singapore Airlines Ltd (新加坡航空) and partners have agreed to combine three air-cargo carriers to bolster their presence in Shanghai, China’s busiest freight hub.
China Eastern, Singapore Air’s cargo unit, a unit of Taiwan-based EVA Airways Corp (長榮航空) and China Ocean Shipping (Group) Co (中遠集團) will invest a total of 2.05 billion yuan (US$307 million) in China Cargo Airlines (中貨航) to support its acquisition of two other freight carriers, according to a Hong Kong stock exchange statement yesterday.
China Eastern is consolidating freight operations following its takeover of Shanghai Airlines Co to strengthen its presence in Shanghai, where the company is based. The move will help the carrier compete with a Cathay Pacific Airways Ltd (國泰航空) and Air China Ltd (中國國際航空) cargo venture that is due to start services by Dec. 31.
“Managing one company rather than three will help save costs,” said Kelvin Lau, a Hong Kong-based analyst at Daiwa Institute of Research. “Exports are still in the growing phase for China and imports are also doing quite well.”
China is set to become the world’s largest exporter and -second-biggest importer by the end of the year, with total foreign trade of US$2.9 trillion this year, Xinhua news agency said on Dec. 16, citing Chinese Commerce Minister Chen Deming (陳德銘).
China Eastern, the nation’s second-biggest carrier, will invest 1.05 billion yuan in China Cargo and hold a 51 percent stake, while China Ocean Shipping (Group) Co will put up 348.5 million yuan for a 17 percent stake. Singapore Air’s cargo unit and Concord Pacific Ltd, a unit of EVA Airways, will each invest 328 million yuan in exchange for a 16 percent stake each.
China Cargo operates 13 freighters and flies to 26 destinations outside of Shanghai, according to a Singapore Air statement.
The cargo carrier, which will acquire the assets of Shanghai Cargo Airlines (上海國際貨運航空) and Great Wall Airlines (長城航空), will have registered capital of 3 billion yuan after the restructuring. Prior to the new arrangement, the company was owned by China Eastern and Cosco Group.
Shanghai Cargo was formed as a venture between Shanghai Air and EVA Air. Great Wall is owned by China Eastern’s parent, Singapore Air and Singapore investment company Temasek Holdings. China Eastern already manages its operations.
Shares in China Eastern fell 4 percent to HK$3.57 at the close of trading in Hong Kong. Singapore Air gained 0.7 percent to S$15.18.
Growth in China has encouraged FedEx Corp, the second--largest US package-shipping company, to add two new services linking China and the US, and Hong Kong’s Cathay to boost freight capacity from next year. Cathay’s cargo venture with Air China will give the carrier access to freight hubs in Shanghai and Beijing.
Airlines in the Asia-Pacific region are forecast to post a combined profit of US$7.7 billion this year, led by growth in China, the International Air Transport Association said on Dec. 14. Global freight traffic at Asia-Pacific airports increased almost 23 percent in the first 10 months of the year, according to Airports Council International.