CHINA IS TO continue its two-year-old policy of restricting the start-up of new carriers, while encouraging smaller airlines in financial difficulty to merge with larger operators.

"We will not in principle approve new airlines. We are controlling the number of airlines very strictly," says Li Zhao, deputy director of the Civil Aviation Administration of China (CAAC).

The CAAC originally imposed its ban in an attempt to try to restrain runaway growth, and improve airline training and safety. The airline industry was further hit by the devaluation of China's yuan at the start of the year, leaving many carriers in financial difficulty.

It is estimated that there are now more than 40 airlines in China, of which only the three largest (Air China, China Eastern and China Southern) are making a profit. Many of the smaller provincial operators are supported by local government subsidies, says Li.

According to one Chinese aviation analyst, it is these carriers which Li is targeting for amalgamation with larger airlines. "If a province has the money, it's going to have an airline. Often, they are not managed properly and are operating oversized equipment."

Some potential start-ups have folded because of the CAAC's clampdown the most prominent of which was Beijing Airlines.

Other planned carriers have managed to survive only by being absorbed by larger regional airlines. Harbin based Swan Airlines was originally intended to be launched as an independent before its take-over by China Northern Airlines.

Swan now plans to begin operations using five of the 11 McDonnell Douglas (MDC) MD-90s ordered by China Northern. Another China Northern subsidiary, Beiya Airlines, based in Sanya on Hainan Island, has already begun flying using two MDC MD-82s.

Source: Flight International