Wed, Nov 28, 2001 page18

• China Airlines chief optimistic

  FEAR OF FLYING The disaster that has befallen the airline industry in the wake of Sept. 11 is being utilized by China Airlines to convert customers of US air carriers

  • NY TIMES NEWS SERVICE
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  How could Sept. 11 have been anything but a calamity for the world's airlines?

  Passengers canceled reservations, airlines were forced to cut dozens of routes and lay off thousands of employees, and strict new security measures at airports turned routine trips into marathon ordeals.

  Yet here in Taiwan, China Airlines Co (華航) views the near collapse of the industry as an opportunity. Its reputation has improved at a time when those of other airlines are suffering.

  In the cold calculus of risk, it helps that China Airlines is not American.

  "People believe United Airlines is still a target," the chief executive of China Airlines, Christine Tsung (宗才怡), said.

  "They can also see that we've improved our performance and safety; Sept. 11 could be a turning point for us," she said.

  Tsung said China Airlines has lured away passengers who might otherwise have chosen United to fly between Taiwan and the US. She hopes these jittery converts will become permanent customers.

  When Tsung took over the airline in July 2000, the situation was almost the reverse. The major US airlines were riding high, and China Airlines suffered with a dismal safety reputation. Three of its planes had crashed in six years in the 1990s, killing more than 450 people.

  Two crashes were attributed to pilot error, which raised questions about the culture of China Airlines. Founded in 1959 by retired air force officers, the airline was run like an old boy's club, and co-pilots rarely questioned the actions of their captains.

  "I told them, `You don't communicate well enough,"' Tsung said in an interview. "Sometimes first officers need to speak up."

  Tsung, 52, was perhaps perfectly suited to shake up the airline's culture: She is a woman, had no previous experience in aviation and had not even lived in Taiwan for most of the last three decades.

  Born in China and raised in Taiwan, Tsung left to attend business school in the US in 1972 and did not move back until 1999.

  After graduating, she held various financial jobs, including one at Columbia Pictures, and then became the finance director of Poway, California, a city of 32,000 that was carved out of San Diego in 1982.

  The job that brought her back to Taiwan two years ago was advising Kaohsiung on its mass transit system.

  While in California, Tsung kept a hand in Taiwan's politics. After Chen Shui-bian (陳水扁) was elected president in March 2000, he ousted the top executives of China Airlines and installed Tsung.

  "At the time, I asked myself, `Why do I always get the tough job?"' she said. "It's the story of my life."

  Beyond the hidebound pilot culture, China Airlines is hobbled by the China Aviation Development Foundation (航發會), a quasi-government organization that owns 71 percent of the company.

  The government wants to privatize the airline, but its plans have been delayed because of the global downturn and investor antipathy toward airline stocks.

  While Tsung cannot change her owners, she is trying to change the mindset of employees. She is hiring fewer pilots with military backgrounds and sending more of them to be trained in the US and Australia.

  She has culled the management ranks and encouraged rank-and-file employees to send her e-mail messages.

  "Putting a woman in that position was the best thing they could have done," said Jim Eckes, a consultant at Indoswiss Aviation in Hong Kong. "It was a male-dominated culture, and the guys weren't doing a good job."

  Industry executives say Tsung met resistance at first from the pilots and the officials at the China Aviation Development Foundation. But by all accounts, she has been undaunted. And as the airline's performance has improved, her management style has won more supporters in the ranks.

  With a clean safety record since 1998, China Airlines is gradually regaining the trust of travelers. Passenger traffic and cargo tonnage reached new levels in 2000, before the Taiwanese economy began to sour.

  The airline lost US$2.3 million in the third quarter of 2001, largely because of the falloff in traffic after Sept. 11. Tsung expects the total number of passengers for the year to decline about 5 percent.

  Still, China Airlines will earn about US$40 million in pretax profit in 2001 -- no mean feat for an Asian airline in the current climate. Tsung has nudged profit up by aggressive foreign currency hedging; she also hedged against rising fuel prices by buying futures contracts.

  But no amount of financial engineering can protect China Airlines from the troubled US market. Thirty-two percent of its passengers and 58 percent of its cargo go to or come from the US.

  Tsung said the terrorist attacks would have a lingering effect on that business.

  "This was the first time airplanes were used as weapons," she said, "which was truly devastating to the industry."

  Given the troubles with trans-Pacific service, Tsung considers the future of China Airlines to be to the west, in China. Beijing and Taipei were recently admitted to the WTO, which some analysts think will open the door for direct flights across the Taiwan Strait.

  To prepare itself, China Airlines bought 25 percent of the cargo operation of China Eastern Airlines, a carrier based in Shanghai, and invested in a cargo terminal at Xiamen airport, in Fujian Province.

  But direct flights are a more distant prospect, since they raise issues of sovereignty.

  "You have to respect your government and the issue of eminent domain," Tsung said.

  Once these political issues are worked out, she said, she would be eager to take China Airlines to China, noting, "We have always had a policy of following Taiwan's merchants around the world."
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