Asian Aerospace opens in Hong Kong this week to expected confirmation that Singapore Airlines will be acquiring a minority stake in China Eastern Airlines. The timing could not be more opportune, as it will show how China recognises it still needs outside assistance to further develop its airline sector. At Asian Aerospace, foreign companies will be out in force to show they are willing to help.

China's airline sector is growing rapidly and the Civil Aviation Administration of China recognises that it is expanding too quickly. It has acted to slow growth by reducing the number of flights at congested Beijing Capital airport and freezing applications for new airlines until 2010. Officials are concerned that faster-than-expected domestic traffic growth - 19.6% in the first half of this year alone - is putting too great a strain on the air traffic control system and on airport infrastructure, and say airlines are struggling to train qualified personnel.

After suffering one of the world's worst aviation safety records in the early 1990s, China now has one of the best, with no fatal accidents in nearly three years. The regulator knows this can change overnight, and its move to control growth is designed in part to avoid that. The CAAC is also urging airlines to boost their management expertise and this is no doubt why SIA has won approval to buy into China Eastern. The deal will reportedly cover the acquisition of 25% in partnership with Singapore government investment arm Temasek Holdings.

China's airlines are largely inefficient and China Eastern has been the slowest-moving towards modernising. Its main peers Air China and China Southern Airlines have been forward thinking, joining multilateral alliances this year, while Air China is now part-owned by Hong Kong's Cathay Pacific Airways, and China Southern is talking about a freight tie-up with Air France.

China Eastern, unless it gets its house in order, risks being swallowed up by a stronger rival. SIA and Temasek should help it defend itself against a takeover by someone like Air China, but it should be hoped that more will come out of the partnership. China Eastern is the only one of the country's "big three" airlines that remained in the red in the first half and it should be open to learning from well-respected SIA.

Sceptics say the sale is simply a move to calm a market concerned that it is not forward-thinking enough, but it should be given the benefit of the doubt. Just like an addict who finally recognises the need for help, admitting a problem is the first step towards recovery.




Source: Flight International