Air China and Cathay aim for Shanghai cargo JV nod by early-2011

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Cathay Pacific Airways and Air China hope to get the approval from the Chinese authorities for their Shanghai-based cargo joint venture by early 2011.

"You need to get a lot of approvals in China. We hope to get ours by end-2010, or early 2011. Yes, it is a bit delayed. But we will get the joint venture going as soon as we get the approval," says Cathay's chief operating officer John Slosar.

The duo unveiled the joint venture, Air China Cargo, in February. It is 51% owned by Air China, Cathay has a 25% stake and Fine Star, a subsidiary of Air China's parent China National Aviation (CNAC), owns the remaining 24%. It has a fleet of eight Boeing 747-400 freighters, and will buy four converted 747-400 freighters from Cathay over the next two years.

Slosar says that the delays are because Air China is transferring its 747-400Fs to the company.

"Air China is a state-owned enterprise, and this means it is selling state assets. It would be simpler if it was a private company, of course, but we are not worried. We are getting close," he adds.

Cathay has sent nine managers to Air China to study the Chinese carrier's cargo business, and the two teams are formulating a strategy for the company in the Yangtze River Delta, which Shanghai serves. "They all get along, and we are very happy with the way we are going," adds Slosar.

The Shanghai market is extremely competitive, with dedicated Chinese cargo carriers like Jade Cargo, Yangtze River Express, and Great Wall Airlines, domestic passenger operators like China Eastern Airlines and China Southern Airlines, and several European and US firms all based in the city's Pudong International Airport. But Slosar believes that the joint venture will hold its own.

"The Yangtze River Delta is an important market in China and there is a lot of business that we can get. In fact, the Yangtze River Delta is potentially bigger than the Pearl River Delta. Air China and Cathay have a lot of experience in the cargo business, and we will bring that to the market when we start operations," he adds.

The joint venture will start with seven or eight freighters, and eventually increase to 12 or 13 aircraft. That will allow the airline to offer daily services to high-frequency ports such as Frankfurt, London and Los Angeles.

Cathay, however, will not transfer any of the 10 747-8Fs it has ordered, and are due to be delivered from late 2011, to the joint venture.

"Our 747-8Fs will stay in Hong Kong, which is still a very important market for the company. We have a new cargo terminal coming up to feed the Hong Kong business and they will serve that," says Slosar.

Cathay was awarded a 20-year franchise to operate a new cargo terminal at Hong Kong International Airport in 2008. It suspended work on the HK$5.5 billion project in January 2009 due to the economic downturn, but resumed the construction earlier this year and plans to open the facility in 2013.