Shanghai-based airline group Juneyao Airlines plans to sell
a 20-25% stake to strategic investors this year and sell a further stake to the
public next year.
Citigroup is the financial advisor to Juneyao Airlines and the
“target is to close the [private placement] deal by the end of this year and we
are confident” of achieving that, Huang Hui, the CEO of the airline’s parent
company, Juneyao Group, told ATI in
Juneyao Group is a diversified conglomerate with businesses
in real estate development and dairy products, and since 1991 it has been
chartering aircraft from Chinese airlines.
In 2005, it established Shanghai-based Juneyao Airlines,
which today operates Airbus A320-family aircraft and is positioned as a
premium-service carrier. It mostly caters to businesspeople and on 15 August
plans to launch a loyalty programme allowing frequent travellers to earn points
towards free flights.
Juneyao Group also owns 71% of Okay Airways, which is based
in Beijing’s port city of Tianjin and has two main businesses - a low-cost
scheduled passenger operation that operates Boeing 737s and a dedicated cargo
business that operates three 737-300Fs on behalf of FedEx.
The private placement sale and next year’s initial public
offering will cover Juneyao Group’s airline charter business, Juneyao Airlines
and the 71% stake in Okay Airways.
Huang says for the private placement the company is
speaking to overseas private equity firms that have experience managing
“They are from the airline industry… They are quite focused
on airlines and their understanding of airlines is quite good,” he says.
“We are not just looking for the money. We’re looking to
gain know-how and looking at their portfolio of investments” and whether this
can provide a competitive advantage.
The private placement will cover the sale of a 20-25% stake
to one or more private investors, he adds.
Juneyao Airlines currently only operates domestically but
plans to launch short-haul international services next year using A320s.
Huang says destinations it is eyeing are Hong Kong and
points in Japan and South Korea.
“The private placement will help us increase our fleet size
more quickly, broaden the geography of our operation, make improvements and
invest in information technology,” he says.
This means once the private placement is completed, the
airline group will place a large order for A320-family aircraft plus it has
ambitions to operate widebodies on medium and long-haul international routes,
Huang declines to give a timeframe for the launch of medium
and long-haul international services, saying the first priority is expanding
the domestic network and launching short-haul international services.
“For the IPO” at the end of 2008 there “is no specific plan
yet” on how much will be sold but if it is in Hong Kong there is a regulatory
requirement that it be at least 25%.
“Hong Kong is a very good market,” says Huang, adding that
the IPO is unlikely to be on a mainland Chinese stock exchange.
“The regulations for listing domestically [are such that]
you need quite a long time compared to Hong Kong,” he adds.
“We can list in Hong Kong at the end of 2008 but” Juneyao
Airlines only started in 2005’s second half and “we need a three-year track
record to list in China and you don’t know if the regulations in China will
change or not”.
Juneyao Group also has a small equity stake in United Eagle
Airlines, a privately owned Chinese carrier based in the southwest Chinese city
of Chengdu. But it is unclear if this equity stake will be part of the private
placement and IPO.
Huang says Juneyao is still talking to United Eagle to see
how the Chengdu-based carrier in future will co-operate with Juneyao Airlines
and other carriers in the group.
He says Juneyao Group’s strategy is to have an “aviation
business portfolio which gives us ‘economies of scale’ and good strategic
Okay Airways was appealing because its base is in northern China
and United Eagle was appealing because its base is in the southwest.
“In the next three to five years there will be some further
consolidation” in China, says Huang.
He says some of the private players that went ahead and
launched airlines in China have underestimated the amount of capital required
and lack the ‘economies of scale’, management know-how and international
These factors coupled with the fact that “the cost
pressures of airlines are pretty big” means there will be consolidation, he
Huang says that when taking into account Okay Airways, the
Juneyao Airlines group is already the largest private airline player in China.
He says the strategy is to let each airline maintain its unique brand identity
but Juneyao Group will drive efficiencies and achieve economies of scale by
merging back-office operations such as maintenance and training.
Economies of scale will also be achieved by growing the
This year Juneyao Airlines plans to increase its A320 fleet
to six aircraft from four, Okay Airways will increase its 737 passenger fleet
to five from three and the dedicated 737 freighter operation will increase to
six or seven aircraft from three, says Huang.
Okay Airways chairman Liu Jieyin told ATI this week that the airline has signed an agreement to lease 10
Xian Aircraft MA60 aircraft with the first two to be delivered this year.
But Huang says only a memorandum of understanding has been signed and the group
is still assessing whether to go ahead with the deal.
The MA60 is a Chinese-built 60-seat turboprop that other
airlines in China have stopped operating. Huang says he is trying
to determine whether a domestic regional operation using MA60s will be
financially viable. Okay also plans to have some MA60s as dedicated freighters.
“We’re still not sure whether the business model will be
successful or not so we don’t have a timeframe right now” for getting the
MA60s, according to Huang.