Wed, Oct 27, 1999 page18

• EVA offering ready for take-off

  HIGH HOPES The nation's second-largest airline aims to boost its air cargo business and has the backing of marine shipping powerhouse Evergreen Group

  • By Stanley Chou / STAFF REPORTER
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  Shares of EVA Airways (長榮航空) will begin trading through the over-the-counter market today. Its parent company, Evergreen Group (長榮集1?/CHINESE>), and affiliates have sold 10 million shares at NT$20 each. With 2 billion shares outstanding, that gives the airline a market valuation of NT$40 billion.

  EVA is the nation's second largest airline and holds a 17 percent share of the passenger market and a 20 percent share of the air cargo market. It competes with 31 international and domestic airliners that serve Taiwan, with China Airlines for decades holding the number one spot.

  The company started operations in 1991 and, after eight years, its annual revenue puts the firm among the top 50 airliners in the world. In 1998, 57 percent of EVA's revenue was generated from passenger service and 40 percent came from air cargo service.

  

  EVA Airways, which debuts on the OTC market today, said it plans to boost its air cargo revenues to 50 percent of total revenues and has the help of parent company Evergreen Group, the world's second-largest marine cargo shipper.

  PHOTO: TONY K. YAO, LIBERTY TIMES

  EVA had a passenger occupancy rate of 70 percent in 1998, whereas China Airlines had a 65.9 percent rate and the industry average was 65.3 percent, according to Civil Aeronautics Bureau. In terms of air cargo, EVA's 20 percent market share is catching up with China Airlines' 27 percent share, analysts said.

  EVA's future will depend heavily on the growth of air traffic, and forecasts are optimistic.

  According to Boeing, global passenger traffic will grow 5 percent annually between 1998 and 2007, and the Asia-Pacific area is expected to be among the fastest growing regions.

  The International Aviation Transportation Association estimated Taiwan's passenger traffic will grow 7 percent annually between 1996 and 2001. Boeing also estimated that global air cargo traffic will grow 6 percent annually in the next ten years; Taiwan's air cargo market is expected to grow at an annual rate of 8.9 percent between 1996 and 2001, according to IATA.

  EVA presently has 33 passenger and air cargo planes, each an average 4.77-years-old, serving customers in over 30 cities worldwide.

  The route between Taipei and Toronto was the latest addition to the company's global network. The EVA air fleet includes four Boeing 767-300s, 15 Boeing 747-400s, four Boeing 767-200s and 10 MD-11s. Two more MD-11s are scheduled for delivery later this year.

  Safety issues that have troubled China Airlines have not been a problem with EVA, one analyst said. EVA also has had no fatal accidents since it started operations. As a result, the company's fleet insurance premium dropped 20 percent in 1996, 30 percent in 1997 and 36 percent in 1998, according to the company.

  The Asian financial crisis has undoubtedly hurt passenger and air cargo business in the Asian-Pacific market. EVA's passenger numbers dropped from 41 million in 1997 to 37 million in 1998, though total revenue from this business increased from NT$24.3 billion in 1997 to NT$24.4 billion a year later.

  EVA was able to grow revenue in part because it did not join the price war brought on by the financial crisis.

  Meanwhile, its air cargo service escaped unscathed. Revenue from cargo service increased from NT$12.9 billion in 1997 to NT$16.9 billion a year later, a 31.5 percent increase.

  EVA estimates that passenger and air cargo revenues will increase 8.6 percent this year and 14.4 percent next year.

  One of EVA's strengths has been its air cargo business. In 1992, its air cargo revenue was NT$1.84 billion and made up 18 percent of the company's total revenue. By 1998, cargo revenue had increased 9.2 times to NT$16.98 billion, comprising 39.5 percent of the airline's total revenue.

  EVA's growth in the air cargo business has been helped in part by Evergreen Group's leading position in the global marine freight market.

  Evergreen is the world's second largest marine cargo shipper. In order to maximize its loading efficiency, EVA currently owns 10 Boeing 747-400 combination passenger and cargo aircrafts; the planes can be adjusted to accommodate passengers and cargo according to demand before take-off.

  EVA aims to increase its air cargo revenue to 50 percent of total revenue within three years, and a planned computerized air cargo system will help it optimize the allocation of air cargo capacity.

  "Having a carrier focus on cargo instead of passenger traffic could be a profitable business model," said Timothy Ross, regional airline analyst for Warburg Dillon Read. "If you are putting people by the seats near the toilets, you are not making much money, but a bellyful of semiconductors which Dell Computer Corp is paying top dollar to rush to market -- that's very profitable."

  However, expectations of how well EVA's stock will perform vary.

  "A 20 percent rise from the NT$20 offering price within 12 months can be expected, since its cargo business is surging," a Primasia Securities analyst said.

  But a fund manager at Jardine Fleming said airline stocks are too slow-growing and may not draw the attention of local fund managers, especially when shares of electronics firms dominate the market.

  While EVA's offering price may not seem cheap now, in the long-term, it should command a decent return amid fast growth in the passenger and air cargo markets of Taiwan and neighboring countries.
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