Embattled Air Macau seeks cash injection

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Air Macau, which has encountered financial problems in recent months, is looking to receive a cash injection from its majority owner China National Aviation (CNAC) in a deal that may result in some of the airline's smaller shareholders selling out to CNAC.

The airline is also working to reduce the size of its fleet by two aircraft and forge a closer relationship with CNAC's parent Air China in an effort to expand its route network and reduce its reliance on the Taiwan market.

A well-placed source at the airline says Air Macau's vice-president of finance, Zhao Hongyu, is currently in Beijing meeting with CNAC. CNAC owns 51% of Air Macau while the smaller shareholders are Portuguese flag carrier TAP Portugal, Stanley Ho's gambling business Sociedade de Turismo e Diversoes de Macau, Taiwan's Eva Air, the Macau Government and undisclosed individual investors from Macau.

The source says the majority owner has pledged its support to Air Macau and the two sides are now working on a deal that will result in Air Macau receiving a cash injection. But it is unclear if the other shareholders will be willing to follow CNAC is injecting more cash into the business.

TAP chief executive Fernando Pinto told ATI in April that the Portuguese carrier was in talks with three undisclosed parties to sell its stake in Air Macau.

The source ATI spoke to today says Stanley Ho's Sociedade de Turismo e Diversoes de Macau is unlikely to sell out but some of the other minority shareholders might. The source also confirms TAP may look to sell and if so is likely to sell to the majority shareholder.

Macau's Government, meanwhile, has issued a statement expressing its support for the airline and attributes the carrier's problems to high fuel prices and competition in the airline industry.

"The Macao Special Administrative Region (SAR) Government takes note of the present situation of Air Macau and will continue to monitor closely the operation as well as keep in close contact with the management of the company," it says.

"Given the high operational costs resulting from high fuel prices and the keen competition in the aviation industry, the local airlines are now facing difficulties in their operations.

"The Macao SAR Government believes that the management of Air Macau will be able to overcome the present difficulties."

EVA Air, meanwhile, is unwilling to say what its position is on the matter.

"Our financial people have confirmed that Air Macau will hold an extraordinary general meeting later this month to discuss the alternatives they are going to take," an EVA spokeswoman says in an emailed response to a query from ATI.

EVA will wait until this meeting before deciding whether to sell or retain its stake, she adds.

Air Macau has also issued its own statement saying that "the major shareholder of Air Macau...has committed to render the highest level of support to Air Macau" and "the special support from Air China to Air Macau will be finalised very soon".

It adds: "Furthermore, Air China is ready to assist Air Macau and the Macau SAR Government to obtain necessary clearance from the Civil Aviation Administration of China to operate on special routes in order to create a new arena for Air Macau to further develop."

Air Macau needs a cash injection because in recent months it has been losing money and its financial situation was exacerbated by May's earthquake in the Chinese province of Sichuan.

The source ATI spoke to says that soon after the earthquake Air Macau suspended its services from Macau to Chengdu and Kunming in southwest China, two routes that together accounted for 11 return flights per week. Air Macau will only resume these services when the business situation in that part of China returns to normal, says the source.

It has also been adversely affected by the opening up earlier this month of direct air links between Taiwan and China, a market that Macau and Hong Kong previously had a monopoly over.

The source describes the drop-off in Taiwan traffic as minimal but says this, coupled with the fallout from the Sichuan earthquake, means the airline today "may have one or two aircraft that are excessive".

But the source is quick to add that Air Macau can redeploy this excess capacity and is currently working on a deal in which two of its Airbus A321s are to be wet-leased to Air China.

Air Macau currently has a fleet of 16 aircraft, according to Flight's ACAS database, and the vast majority of these are leased from International Lease Finance (ILFC). The other lessors are AWAS, GE Commercial Aviation Services and Aviation Capital Group.

Air Macau is also set to move further into the Air China fold because it wants to integrate its route network with Air China's, says the source.

The source also says Air Macau is talking to the Chinese authorities about getting permission "to be able to fly beyond certain points in China like from Beijing to Dalian".

Dalian is a city in northeast China, the old industrial heartland of China and a market that Air Macau has yet to launch services to.

Air Macau has been saying publicly for years that it wants to reduce its dependence on traffic between points in China and Taiwan but today its only other destinations are Bangkok, Manila, Osaka and Seoul.

The source says Air Macau plans to increase services to Bangkok and Manila and plans to fly to Tokyo and Nagoya.

But "with the slowdown in the Japanese economy it will take time to achieve that goal", the source adds.

Source: Air Transport Intelligence news