Air China to Win CNY1.5bn Governmental Subsidy

Air China Limited (SHSE: 601111; SEHK: 0753) lately announced that its parent, China National Aviation Holding Co. (CNAH), would gain a CNY 1.5 billion state-owned capital operation budget from the nation's Ministry of Finance (MOF).

Next, CNAH will inject the governmental subsidy into its listed arm, Air China, for the sake of the latter's acquisition of some minority stakes in Air China Cargo Co., Ltd. But the detailed capital injection scheme has not been confirmed yet, said the Air China Company Secretary Huang Bin.

It is not the first time that the Chinese government infuses money into a large-scale state-owned aviation group. In November 2008, China Eastern Air Holding Co. and China Southern Air Holding Co. separately obtained governmental subsidies of CNY 9 billion and CNY 3 billion, and before long, the nation additionally offered the former CNY 3 billion.

Ultimately, their capital gains were injected into the listed arms, China Eastern Airlines Co., Ltd. (SEHK: 0670; SHSE: 600115) and China Southern Airlines Co. Ltd. (SEHK: 1055; SHSE: 600029), via private placements, respectively.

Compared with these two counterparts, CNAH will not earmark the state-owned capital operation budget for its listed subsidiary's working capital supplement but equity transfer. Air China's purchase of the minority stakes of Air China Cargo can be recognized as a preparation for its joint venture investment with Cathay Pacific Airways Ltd. (SEHK: 0293), said people with the direct knowledge of the matter.

In 2003, Air China, Gold Leaf Enterprises Holdings Ltd., wholly-owned subsidiary of CITIC Pacific Ltd. (SEHK: 0267), and Capital Airports Holding Company (CAH) co-founded Air China Cargo, taking a stake of 51%, 25%, and 24%, respectively. Owning a CNY 2.2 billion capital base, the JV has grown into one of the country's leading airfreight carriers.

Air China successfully took over Gold Leaf Enterprises Holdings through its arm China National Aviation Co. Ltd. at the inception of 2008, so its holdings in Air China Cargo were lifted to 76% from 51%. In April 2009, it announced a plan to buy out the target company with CNY 700 million.

In particular, Air China and Cathay Pacific Airways have been discussing about establishment of an airfreight joint venture based on Air China Cargo in Shanghai. The new entity is scheduled to be inaugurated this spring, if everything goes well, revealed insiders.

By virtue of its geographic location and abundant throughput, the Yangtze River Detail region centering Shanghai has become an important place that domestic and overseas airfreight companies are vying for.

(USD 1= CNY 6.83)

Source: dycj.ynet.com (January 18, 2010)

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