The government has decided to completely take over the China Aviation Development Founda-tion (CADF,
The CADF board will be chaired by Minister of Transportation and Communications Lin Ling-san (林陵三) and vice ministers from other relevant government agencies will serve as board members. The Executive Yuan has also asked the CADF to sell its CAL shares by the end of next year -- effectively privatizing the company -- and then dissolve itself. While the government deserves credit for the effort it is putting into CAL's problems, there is still a need for caution if ethical problems surrounding the takeover process and share sales are to be avoided.
First of all, there is the problem presented by the fact that one of the players is doubling as referee. The transportation ministry is in charge of the Civil Aeronautics Administration (CAA), which is responsible for supervising flight safety among the airlines, including CAL. Now we have the transportation minister doubling as the chairman of CAL's biggest shareholder. Before the CADF has dissolved, it will be difficult for the CAA to instruct the company to improve flight safety.
Even though the minister has said that the foundation will not interfere in the company's operations and will only work on the shares sale, it is in fact difficult to separate equity sales from operations. The fact that CAL's chairman and president are both mem-bers of the CADF board creates confusion and could cause other disputes in the future.
Next, the CADF's board members and supervisors are all government officials, but the government's interests are not necessarily synonymous with the interests of the airlines' shareholders, much less those of CAL employees. The way in which the government avoids possible conflicts of interest surrounding the sharea sale will be a mark of its wisdom. The ministry has said that CAL will not become a "foreign" company, implying that foreign airlines will not be entitled to acquire any of the company's shares.
But EVA Airways is Taiwan's only other international airline. If CAL's shares are simply sold to EVA, that will drastically change the competitive balance in Taiwan's aviation industry -- not a good thing for passengers, CAL employees or even EVA.
First, it will leave Taiwan with one huge international airline holding a monopoly. Foreign airlines will still be around, of course, but most Taiwanese travel with Taiwanese airlines. If CAL and EVA become one, we can expect persistently high ticket prices and the quality of service may even deteriorate. This is the kind of inefficiency created by monopolies.
Second, for a long time, there has been intense competition between CAL and EVA, as well as between employees of the two companies. If EVA becomes China Airlines' boss, CAL employees will be demoralized. If that happens, the tide of people leaving their jobs will likely be even greater than the current exodus prompted by CAL's recent tragedy, further diminishing its competitiveness.
Third, CAL and EVA are vastly different in terms of organizational culture. A merger with EVA will not benefit CAL. Moreover, the impact on EVA of such a merger would probably be even greater than that on China Airlines because EVA has existed for only a little over 10 years. In their assessment of proposed mergers, people in the industry often
consider compatibility of organizational cultures to be the most important factor. When two people are incompatible, yet are forced together by their parents, one can expect that the ensuing marriage will not be a happy one.
It is difficult to understand why the transportation ministry, prior to any detailed discussion by the CADF board -- and without enlisting the opinions of a wide variety of experts -- said that it would not allow foreign businesses to buy China Airlines stock. Was it because the government didn't want to let a domestic company pass into foreign hands, or was there some more convincing reason for the announcement? The ministry must make this clear. If, on the one hand, it says that foreign teams will be brought in to improve CAL's air safety, its unwillingness on the other hand to sell off stock to foreign airlines would seem contradictory.
Nevertheless, I support the government's decision to reform CAL. I also hope that the airline will be privatized soon and that its many "in-laws" who have thus far made effective reforms impossible will be removed. I maintain, however, that, looking at the list of CADF directors announced by the government, there certainly remains a conflict of interest. How this crisis can be turned into an opportunity -- and China Airlines be given a chance to be reborn so that people are no longer afraid to fly with it -- will depend on the wisdom of the government.
Gao Jyh-peng is a DPP legislator.
Translated by Francis Huang and Scudder Smith
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