China Airlines (CAL) will become the first Taiwanese airline to invest in a mainland Chinese carrier after winning government approval to acquire 25% of China Eastern Airlines' subsidiary China Cargo Airlines. The acquisition comes as China's airline consolidation enters its final phase, with the State Council giving the go-ahead for a number of tie-ups earlier this month.

It is hoped the CAL deal will help ease tensions between rivals China and Taiwan. China considers Taiwan a renegade province and there are no diplomatic ties or direct flights between them. Taiwanese companies are much sought-after investors in China, however. Direct transport links were severed in 1949. Passengers and air cargo have since had to travel via third points, usually Hong Kong or Macau.

CAL agreed in September 2001 to buy 25% of China Cargo from 70% owner China Eastern and 30% owner China Ocean Shipping for around 675 million yuan ($82 million). Chinese authorities approved the deal quickly but Taiwanese authorities held up their approval for unexplained reasons.

State-controlled CAL says now, however, that it has won final approval from Taiwan's Ministry of Economic Affairs to acquire the stake for $47 million. The deal is expected to be finalised in the first quarter of 2003. CAL will not say why the purchase price is much lower than the original estimate.

China Cargo posted revenues of 1.25 billion yuan in 2001. It was established by China Eastern and China Ocean Shipping in August 1998 as China's first international all-cargo airline and operates Boeing MD-11 freighters in Asia, and to the USA and Europe.Meanwhile, China Northern Airlines and Xinjiang Airlines are being folded into China Southern Airlines, the country's largest carrier, after their ownership was transferred to China Southern's majority owner Southern Air Group (SAG) on 11 October.

Ownership of China Northwest Airlines and Yunnan Airlines was also transferred to China Eastern Airlines' major shareholder Eastern Air Group (EAG).

Air China is merging with China Southwest and China National Aviation Corp (CNAC), owner of Zhejiang Airlines and the parent of listed Hong Kong subsidiary CNAC, which controls Air Macau and Dragonair. How this will take place is not clear, however, because CNAC is the Civil Aviation Administration of China's (CAAC) commercial arm and Air China does not have to explain its activities as it is not listed on a stock exchange, unlike Eastern and Southern.

The consolidation is intended to cut domestic competition and strengthen the airlines against international carriers.

Source: Flight International