China special: Set to deliver - the export market

A booming export market is encouraging growth  in the air cargo sector, and a profusion of Chinese and foreign-backed start-ups are ready to deliver the goods

A plethora of new cargo airlines have launched or are about to launch in China spurred by demand from China's export-driven economy.

Hong Kong has traditionally dominated air cargo traffic in and out of mainland China but liberalisation of the mainland's civil aviation sector has meant new direct air cargo links, mostly from Beijing, Shanghai and Guangzhou, are gaining an increasing share of the pie.

There are also new cargo hubs emerging in mainland China such as Shenzhen, a city neighbouring Hong Kong. Rapid growth in China's air cargo sector has been driven largely by the boom in Chinese exports. The International Air Transport Association has forecast that from 2005-9, China's international air cargo traffic will grow 14.4% a year on average. Meanwhile, according to Boeing's World Air Cargo Forecast, the domestic air cargo market grew 12.2% in 2005 and is set to grow 10.8% on average a year though to 2025. This expansion is expected to be fuelled by continued strong growth in China's gross domestic product (GDP).

China is also liberalising air services. It recently joined the World Trade Organisation, and Chinese cargo airlines are poised to capitalise on the growing sector. Foreign-backed Great Wall Airlines and Jade Cargo International launched in May and August respectively. Shanghai-based Great Wall, however, has been grounded since mid-August when the US Treasury Department imposed trade sanctions against its 51% equity partner Great Wall Industries, over allegations of providing missile technology to Iran. The carrier's remaining 49% stake is controlled by Singapore interests - the Singapore government's investment arm Temasek Holdings owns 24% and Singapore Airlines 25%.

Shenzhen-based Jade Cargo, like Great Wall Airlines, operates Boeing 747-400 freighters. Its majority shareholder is Shenzhen Airlines with 51%, alongside Lufthansa Cargo with 25% and a German bank with 24%. The carrier started out with services to Amsterdam Schipol and Seoul it holds traffic rights to Nagoya and Osaka in Japan and has applied for rights to Barcelona, Brescia and Toronto.

Taiwan is also a major player in mainland China's air cargo market. In January, Taiwan's national carrier China Airlines (CAL) and other Taiwanese interests became minority stakeholders in Hainan Airlines' all-cargo carrier Yangtze River Express. CAL bought a 25% stake while Taiwan's Yang Ming Marine Transport and Wan Hai Lines jointly acquired 24% with Liberia's China Container Express Lines.

A few months later, Taiwan's second-largest carrier EVA Air agreed a deal with Shanghai Airlines to establish a new international cargo carrier, Shanghai Airlines Cargo International. It started operations using Boeing 757Fs and a Boeing MD-11F from Shanghai Airlines.

Increased competition from these foreign-backed cargo airlines operating in China has been cited by Air China Cargo as one reason why it is considering joining forces with China Eastern Airlines' China Cargo Airlines. These state-owned carriers have been discussing merging their cargo businesses to achieve "economies of scale" and bolster their competitiveness.

Air China and Cathay Pacific Airways also revealed in June an agreement to establish a cargo joint venture in Shanghai. Details remain under wraps and the disclosure was only made in passing when the two announced a major equity swap.

Strategic investments

China's other large state-owned carrier, China Southern Airlines, is also looking to improve its cargo arm by joining forces with a "foreign strategic investor". Industry observers expected China Southern to team-up with SkyTeam Alliance carrier Korean Air, but China Southern has yet to find a partner and, in September, Korean Air announced it had reached an agreement with China's logistics giant Sinotrans to establish an international and domestic cargo carrier in joint venture partnership.

Sinotrans will own 51%, KAL will have 25% and two undisclosed South Korean companies will share the remaining stake. The business will launch in mid-2007 with an initial fleet of three aircraft.

There are other small start-up cargo carriers in the early stages of development: Would-be carrier Pan Asia Airways is based in Ningbo, a port city near Shanghai, and is backed by import-export company Xiamen C&D, Israeli shipping business Zim Integrated Shipping Services and Ningbo-based company South Ocean Hotel Device Product, which makes hotel catering equipment. Meanwhile, newly established Shenzhen-based domestic air cargo outfit Donghai Airlines, also known as East Pacific Airlines, has had two 737-300s converted into freighters.

Another lesser known start-up is Shaanxi Delong United Airlines, based in Xian. It plans to operate Chinese-built ShaanxiY-8 turboprops domestically and wet-lease long-haul jet aircraft for international services. China, it seems, has no shortage of new cargo airline start-ups seeking to cash in on the country's export-driven boom.

Source: Flight International