Beijing has formally declared its intent to consolidate China's airlines after two years moving in that direction. The number is set to shrink by 40 per cent, but more carriers are likely to receive international designation as well.

Li Zhao, deputy director of the Civil Aviation Administrat- ion of China, says he will either cancel licences or force unprofitable provincial carriers to merge with larger airlines. As part of a government-wide crackdown on unprofitable state enterprises, Li singles out provincial carriers for criticism, claiming they are all losing money and are propped up by local subsidies.

Li has already cancelled the licences of three airlines - Anhui Company, Beijing Airlines, and Yuntian Air Service - and the CAAC now lists only 31 carriers. But an official says this is only the beginning: 'Ideally we would like to see that list reduced to a maximum of 20 carriers.'

Since the heydays of 1992/3 when new airlines were 'sprouting like mushrooms' the CAAC has been steadily applying the brakes. The only reason the CAAC did not formalise its consolidation policy sooner, according to China watchers, is that some provincial governments with their own airlines enjoy considerable political clout.

The merger trend could start with a bang. China National Aviation Corporation and China Southwest Airlines, both owned by central government, are in merger talks, says the CAAC official. 'We are optimistic there will be a successful combining of the carriers.'

The two carriers already have strong ties and a source indicates the merger is 'nearly complete.' CNAC, which has applied for a operating licence in Hong Kong, purchased new Boeing aircraft that were originally ordered for China South- west. It ran scheduled flights from Chengdu and Chongqing to Hong Kong for China South- west with aircraft wet-leased from the carrier, and now flies charters with its own aircraft and name on those routes.

The merged airline would retain the position now held by China Southwest as the country's fourth largest carrier. This is not the kind of consolidation the CAAC has purposely targeted, however, since neither is a provincial carrier. The CAAC official says the kind of consolidation he would ideally like to see would be between carriers like the state-owned China Eastern and Shanghai Airlines because both are based in Shanghai. But he admits it will be difficult because Shanghai Airlines is local government controlled with some private ownership.

Indeed, Shanghai, together with two other mid-sized airlines - China Southern subsidiary Xiamen Airlines and Hainan Airlines - is preparing to push for international routes separately. All now meet or exceed traffic, financial, and safety qualifications set by the CAAC in 1993.

Both Shanghai and Hainan are eyeing Hong Kong as a destination, but each foresees major obstacles either in opposition by incumbents or slot shortages at Kai Tak airport. Shanghai's chairman, He Pengnian, says his airline will probably apply first for charters to other regional cities and convert to scheduled flights after traffic builds. Xiamen's chairman, He Ping, has said he would prefer such secondary routes as Cebu, Philippines and Kuching, Malaysia, that are not already served by Chinese airlines.

Two of the carriers' chances must be better than most - Li singled out Shanghai and Xiamen for praise recently as two of China's best-run regional airlines.

Source: Airline Business