Exit The Dragon

June 8, 2006
The creation of a significant Chinese national cargo airline may be underway and that could spell the end of foreign dominance. Market research firm Transport

The creation of a significant Chinese national cargo airline may be underway and that could spell the end of foreign dominance.

Market research firm Transport Intelligence has reported that Air China Cargo and China Cargo Airlines plan to merge in September. At that time, according to rumors, the resulting company could take over the cargo business of Dragonair. This would create a national champion for Chinese international airfreight, said Transport Intelligence. That market is currently dominated by major global air carriers and parcel carriers.

Also, earlier this month trading in shares of Cathay Pacific and its major owners, Swire Group, were suspended on reports of a major shake up in share holdings between Cathay Pacific and rival Dragonair. Those reports indicated Cathay Pacific was prepared to pay $1.28 billion to buy out Dragonair shareholders.

Cross ownership of the various airlines is a tangled web. Cathay Pacific was formed in 1946 and in 1948 the predecessor of today’s Swire Group took a 45% stake in the airline and thus responsibility for managing the airline. Dragonair went into service in 1985 and in 1990, CITIC Pacific, Swire Group and Cathay Pacific purchased an 89% stake in Dragonair.

Further complicating ownership, China National Aviation Corp. (CNAC) purchased a 35.86% stake in Dragonair in 1996 while CITIC retained 28.5% and Swire and Cathay Pacific retained 25.5%. Cathay Pacific currently holds 17.8% of Dragonair and CNAC owns 43.29%. CITIC Pacific owns 28.5%, and parent Swire Pacific owns 7.71%.

CNAC controls China’s Air China airline. Air China Cargo is a joint venture between Air China and the investment arm of the Bank of China CITIC. China Cargo Airlines is a joint venture between COSCO (the ocean line) and the airline China Eastern.

Though the acquisition of Dragonair would add a number of lanes in China for Cathay Pacific, the plum would be Dragonair’s Hong Kong-Shanghai route. Currently, Cathay Pacific serves only Beijing and Xiamen in Mainland China.

Dragonair reported growth of nearly 40% in 2005 and, points out Transport Intelligence, like the other airlines has been investing in new, long-haul cargo aircraft. “Such has been the growth of airfreight into China that it has begun to eclipse even the passenger business of Dragonair,” continued Transport Intelligence.

Chinese authorities recently approved a joint venture between Singapore Airlines, China Great Wall Industry Corp. and Temasek Holdings. That venture would be called Great Wall Airlines, and plans call for it to run dedicated freighter service to Europe and North America. Great Wall would be based in Shanghai, as would the newly merged airline that includes Dragonair (which is currently Hong Kong based).

Hong Kong Air Cargo Terminals (HACTL) announced it is developing major relationships with centers in Mainland China’s Pearl River Delta such as Guangdong and Shenzhen. Each of those commercial centers operates an airport and might be viewed as competitive with HACTL in Hong Kong, but for a “friendly but competitive” spirit demonstrated in HACTL’s new service to Humen, Dongguan. HACTL’s Superlink China Direct covers Shenzhen Baoan Airport, Guangzhou Bonded Area, Shenzhen Futian Bonded Area, Xiamen, Fuzhou and Hongye Wharf in Humen, Dongguan.

HACTL reported cumulative air cargo tonnage rose 6.6% to 786,000 tonnes for the four months to April 2006.

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