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Aviation History
1986
1986 - 0062.PDF
autonomy from Beijing and a capitalist economy for at least 50 years. Aviation, which has proved one of the most intrac table issues during nego tiations, is regarded as a key measure of just how far China will let Hong Kong govern its own affairs. The agreement says the SAR will have the authority to "issue licences to airlines incorpo rated in and having their prin cipal place of business" in Hong Kong. The SAR will also conduct its own bilateral nego tiations for international services. While Cathay Pacific claims to be satisfied with the guaran tees of the treaty, it clearly leaves room for potential rivals. Any airline that establishes itself in the territory before 1997 has a chance of grabbing a slice of lucrative air routes from Hong Kong, perhaps at the expense of Cathay, when the new masters take charge. As the political pendulum inevitably swings towards more autonomy for Hong Kong in the run up to 1997, a significant local stake has been seen as a vital ingredient to the success of any new venture. Consequently all three start-up carriers claimed that they represented the Hong Kong people in an industry previously dominated by foreigners—a reference to the control of Cathay Pacific by the — London-based Swire Group and the fact that it does not employ local flight crew. (Eventually Cathay also succumbed, and in late November announced it would offer 25 per cent of its shares to the public later this year and "achieve the maximum widespread distribution among individual Hong Kong investors", although Swire Pacific will remain the majority share holder.) CFEA Counsel Leonard Bebchick stood before ATLA on December 2 and admitted defeat. With its last-minute withdrawal of applications to serve six points in China and 17 other Asian cities (see map), BCal's wholly owned subsidiary Caledonian Far East Airways (CFEA) dropped out of the battle to establish itself as Hong Kong's new international carrier. Political events and a tough response from Cathay had, according to Bebchick, "turned a sound business venture into a commercial cul-de- sac". BCal's surrender was a victory for Cathay, which had greeted CFEA's plans with a mixture of disdain and hostility. Cathay managing director Peter Sutch told Flight that he regarded the CFEA venture as "ill-conceived" and "politically rather naive". In contrast, BCal claimed that its plans for CFEA were well founded. The airline Dragonair boss Stephen Miller, right, with his number two, Lew Roberts had begun studying the regional market in 1980/81, soon after it established its DC-10 service on the London-Hong Kong cabotage route. "We identified an oppor tunity envelope," explained CFEA direc tor Ranald Noel-Paton, "for a second level airline based in Hong Kong and even tually owned by Hong Kong interests". Since December 1982 Cathay had flown with an all-widebody fleet, leaving "secondary destinations neglected". The day after Dragonair received its Air Operator's Certificate (AOC) in late July top BCal executives approached Miller with a proposal to take a stake in his airline. Two months earlier such an offer would have been jumped at, but with an AOC now tucked firmly in pocket and with the backing of powerful local business interests, Dragonair felt it could go it alone. And Miller, who had drawn-up a blueprint for a regional airline for BCal himself several years earlier, was not now convinced of the viability of the plan to serve 13 Asian countries. So BCal, left to pursue its own plans through CFEA, drew up a route map of 23 destinations in Asia, almost all of which were not served by a Hong Kong based airline either because services had not been negotiated or because rights were unused. Four secondhand 737-200s would be purchased, which would carry 227,000 people on the network annually. Despite 20 the fact that the cream of Hong Kong industrialists were tied up with Dragonair, BCal was confident of raising $30 million locally to help get the airline off the ground. CFEA, perhaps smelling a fight from which it could only lose, sought to carve out a distinct image for itself as a regional carrier which would not threaten Cathay's interests. "Our game is not long-haul trunk routes with widebody aircraft," reassured Noel- Paton; "That is Cathay's game, and they play it very well. We will operate narrowbody aircraft at lower frequencies on routes with low traffic flow." To Cathay, which had hardly murmured when Dragonair first arrived on the scene, the picture was different. CFEA presented the threat of a non- Hong Kong airline muscling in I on traditional Cathay territory. Sutch was unable to accept CFEA's arguments that a service to the Philippine city of Cebu, for example, would not impact on the Hong Kong- Manila route. "Anything that CFEA gets is bound to come out of Cathay's hide," said Sutch. In particular Cathay was concerned that if CFEA became an extra card in the pack at the UK's bilateral talks with Asian nations, any secondary city services would only be agreed at the expense of Cathay's capital links. The sensitivity of UK/Malaysia and UK/Philippines relations in aviation matters meant that CFEA's penetration of those markets was difficult from the outset. And, as last month's ATLA hearing drew closer, the remaining doors of opportunity slammed relentlessly in CFEA's face. From UK/China bilateral talks it emerged that obtaining scheduled Hong Kong-China routes would be extremely tough. Furthermore, CFEA soon found out that while multiple designation may be all the rage in Whitehall, its benefits were not apparent to Hong Kong's Government. Days before ATLA met, Financial Secretary Sir John Brembridge said that in normal circumstances only a single carrier would be designated on international routes out of the colony. With Cathay having just won rights to Beijing, a crucial CFEA destination was effectively struck from the list. Armed with Brembridge's statement, Cathay completed CFEA's misery. Although denying any desire to pre-empt CFEA, Cathay announced that it would re introduce previously abandoned services to Nagoya (Japan), Kaohsiung (Taiwan), and Bandar Seri Begawan (in conjunction with Royal Brunei Airlines)—all key CFEA destinations. CFEA's planned network was in tatters. Bebchick told ATLA: "Cathay has responded to the threat of competition by FLIGHT INTERNATIONAL, 11 January 1986 i
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