China Southern Airlines Seeks Governmental Subsidies Again

China Southern Airlines Co. Ltd. (SEHK: 1055; SHSE: 600029), one of the country's leading air carriers, is actively applying to the Chinese government for the second round of capital injection, said the chairman, Si Xianmin.

Presently, the airway based in the southern city of Guangzhou, Guangdong Province, is confronted with a huge challenge. Its assets-liabilities ratio has reached 89%, close to the international requirement, 90%.

Air China Limited (SHSE: 601111; SEHK: 0753), China Eastern Airlines Co., Ltd. (SEHK: 0670; SHSE: 600115), and China Southern Airlines all suffered great losses in 2008, due to the global financial turmoil and losses from fuel hedging on the changes in fair value.

In order to help the three aviation tycoons lower their assets-liabilities ratios, the State-owned Assets Supervision and Administration Commission (SASAC) has successively infused CNY 7 billion and CNY 3 billion to China Eastern Airlines and China Southern Airlines, respectively.

On August 30, China Southern Airlines announced that its net profit for the first half of 2009 largely decreased 95.3% from a year ago to CNY 38 million, far less than those of its two counterparts. Air China and China Eastern Airlines separately reaped net profit of CNY 2.926 billion and CNY 1.174 billion, benefiting from the rebound of their fuel hedging businesses.

However, China Southern Airlines suspended its fuel hedging operation, losing such an important recovery opportunity.

There is no possibility of reduction of the three airways' assets-liabilities ratios through the performance improvement within a short period of time, said most analysts, adding that they should rely on the governmental subsidies.

Mr. Si believes that China Southern Airlines will warm up gradually in the second half of 2009, along with the rebound of China's aviation market, because about 80% of its airlines are designed to serve domestic passengers.

Last month, the Guangzhou-located air carrier joined hands with Sinotrans Air Transportation Development Co., Ltd. (SHSE: 600270) and Shenyang Taoxian Airport to establish an airport logistics firm, taking a stake of 45%, 45%, and 10%, respectively.

With a total registered capital of CNY 70 million, the JV was inaugurated in the northeastern Chinese city of Shenyang, Liaoning Province, on August 1, 2009. The establishment can be recognized as a great breakthrough in China's airport logistics realm, according to the China Southern Airlines General Manager Tan Wangeng.

In the near future, the three shareholders will consolidate both the domestic and international freight agency businesses, based on their investments in the supervised warehouses and express-mail supervision centers of airports.

(USD 1= CNY 6.83)

Source: www.bjbusiness.com.cn (September 11, 2009)

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