China Eastern Airlines Corp., Singapore Airlines and partners agreed to combine three air-cargo carriers to bolster their presence in Shanghai, mainland China’s busiest freight hub.
China Eastern, Singapore Air’s cargo unit, a unit of Taiwan-based EVA Airways Corp. and China Ocean Shipping (Group) Co. will invest a total of 2.05 billion yuan ($405 million) in China Cargo Airlines to support its acquisition of two other freight carriers, according to a Hong Kong stock exchange statement today.
China Eastern is consolidating freight operations following its takeover of Shanghai Airlines Co. to strengthen its presence in Shanghai, where the company is based. The move will help the carrier compete with a Cathay Pacific Airways and Air China cargo venture that’s due to start services by Dec. 31.
“Managing one company rather than three will help save costs,” said Kelvin Lau, a Hong Kong-based analyst at Daiwa Institute of Research. “Exports are still in the growing phase for China and imports are also doing quite well.”
China may become the world’s largest exporter and second- biggest importer by the end of the year, with total foreign trade of $3.8 trillion in 2010, Xinhua News Agency said Dec. 16, citing Chinese Commerce Minister Chen Deming.
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China Eastern, the nation’s second-biggest carrier, will invest 1.05 billion yuan in China Cargo and hold a 51% stake, while China Ocean Shipping (Group) Co. will put up 348.5 million yuan for a 17% stake. Singapore Air’s cargo unit and Concord Pacific, a unit of EVA Airways, will each invest 328 million yuan in exchange for a 16% stake apiece.
“We are excited about the joint venture,” Singapore Air’s cargo unit’s President Tan Kai Ping said in the statement. “It affords SIA Cargo greater participation in the booming cargo transportation sector in China and we look forward to working closely with our new partners.”
China Cargo operates 13 freighters and flies to 26 destinations outside of Shanghai, according to a Singapore Air statement.
The cargo carrier, which will acquire the assets of Shanghai Cargo Airlines and Great Wall Airlines, will have registered capital of 3 billion yuan following the restructuring. Prior to the new arrangement, the company was owned by China Eastern and Cosco Group.
Shanghai Cargo
Shanghai Cargo was formed as a venture between Shanghai Air and EVA Air. Great Wall is owned by China Eastern’s parent, Singapore Air and Singapore investment company Temasek Holdings Pte. China Eastern already manages operations.
China Eastern fell 4% to HK$3.57 (60.5 cents) at the close of trading in Hong Kong. Singapore Air gained 0.7% to $15.18.
Growth in China has encouraged FedEx Corp., the second-largest US package-shipping company, to add two new services linking China and the US, and Hong Kong’s Cathay to boost freight capacity from next year. Cathay’s cargo venture with Air China will give the carrier access to freight hubs in Shanghai and Beijing.
Airlines in the Asia-Pacific region are forecast to post a combined profit of $10.2 billion this year, the highest of any region, led by growth in China, the International Air Transport Association said Dec 14. Global freight traffic at Asia-Pacific airports increased almost 23% in the first 10 months of the year, according to Airports Council International.
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