Taiwan's government is trying to take control of China Airlines before it is opened up to foreign ownership amid suggestions that Taipei is worried that mainland China may seek some of the equity.
Taiwan's transport and communications ministry has demanded control of the carrier's holding company, China Aviation Development Foundation (CADF), in return for clearing the issue of foreign depository receipts - the first step in a planned $287 million share sale. That would reduce the foundation's equity in CAL from 71.5 per cent to about 63 per cent, but the stated aim of the CADF is to reduce its holding to 51 per cent.
Sources suggest that the government may have adopted its hardline stance because of concerns that airline interests in the People's Republic of China will buy into the airline. But Peter Shih, CADF secretary and officer in charge of issuing the depository receipts, dismisses this suggestion. He says the foundation only plans a private placement, which allows him to control the identity of the buyers. He denies that last year's visit to CAL's headquarters by officials from the top mainland Chinese airlines had anything to do with equity stakes. 'That was just to be friendly - just to get to know each other.'
The other plausible explanation doing the rounds in Taipei centres on the shadowy nature of the CADF itself, which sits uncomfortably with Taiwan's new-found democratic pluralism. The political shift has ended the old practice of turning state assets over to cronies linked to the ruling party and there is now a drive on to establish clearer lines between public and private assets. For years CAL was a haven for retired air force officers and only in recent years have they been replaced by professional airline managers.
Whatever Taipei's motives, Shih is adamant that the CADF will not yield control without a fight. 'China Airlines is 100 per cent private,' he insists. 'The government owns not even one cent.' Not surprisingly, this is a view the government disputes, claiming that it subsidised the airline until it could stand on its own feet even after the CADF was founded as a non-profit organisation.
Taipei is demanding the right to appoint five of the foundation's nine directors plus its chairman, even though the foundation's bylaws require the approval of a third of the existing directors and the chairman before new directors are appointed. Shih claims this ends the matter, but the state contends the founding charter of CAL gives it a final say on all appointments.
With the issue now deadlocked, transport officials are advancing several arguments to justify reasserting government control over the airline. These range from Taipei's historic supervision of CAL's affairs to the foundation's alleged failure as a tax exempt entity to make the necessary contributions to public works.
Analysts agree that the CADF would benefit from more transparency, but they dismiss the government's stated reasons and question its motives for raising the issue now. One CAL official claims the government simply wants some of the airline's revenues.
The timing of the spat suggests that Taipei was hoping it would get lost in the political offensive it launched against Beijing to coincide with the handover of Hong Kong on 1 July. Late-June initiatives intended to remind China that Taiwan was still running its own affairs included military exercises and a streamlining of the organs of government as a first step towards declaring full independence.
Source: Airline Business