Nicholas Ionides/SINGAPORE

A long-planned shake-up of China's aviation hierarchy is finally set to happen, with the Civil Aviation Administration of China (CAAC) to be ordered to give up ownership of the 10 airlines under its direct control, according to industry sources in China. It will instead be tasked solely with regulating the industry as a "technical entity".

The sources say China's cabinet or State Council has resolved to strip CAAC of equity ties to the 10 airlines. Though it is not clear whether the decision was taken formally or unofficially, the sources say "the resolve to change is finally there", and that - with China preparing for the membership of the World Trade Organization - the changes will probably take place this year.

CAAC's stakes, held through unlisted airline parent companies such as China Southern's Southern Air Group and China Eastern's China Eastern Group, are to be transferred to a state-owned property management bureau under the State Council, which controls stakes in companies in other "strategic" sectors.

The ownership changes are likely to be carried out only after sweeping consolidation of the country's major carriers, although such a move may be imminent, with mergers on the agenda of a CAAC planning meeting later this month. Though opposed by some in the administration, the move should see the 10 carriers merged into three groups led by flag-carrier Air China and Hong Kong/New York-listed China Eastern Airlines and China Southern Airlines.

Under a draft plan already approved by CAAC, Air China will take over China Southwest Airlines and CNAC-Zhejiang Airlines; China Eastern will take over China Northwest Airlines, Great Wall Airlines and Yunnan Airlines; and China Southern will take over China Northern Airlines and China Xinjiang Airlines.

Questions remain over whether CAAC's commercial arm, China National Aviation (CNAC), will continue to control Air China, which is seeking a stock exchange listing. It also controls Air Macau and Zhejiang Airlines, and has effective control of China Southwest. Its Hong Kong-listed unit has the biggest stake in Dragonair.

Source: Flight International