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Without Baggage of Legacy, China Budget Airlines Gain on “Big Three”

By Clement Tan

March 31 (Bloomberg) — Cheap fares and no legacy are helping China’s budget airlines beat state-owned carriers in the stock market.

With combined fleets exceeding 1,000 planes, $31 billion in market values, and up to 20 times more workers, state-controlled China Southern Airlines Co., China Eastern Airlines Corp. and Air China Ltd. on average provide just one-third the returns of Spring Airlines Co. and Juneyao Airlines Co., according to data compiled by Bloomberg. Even the Chinese regulator has lauded Spring as a model of efficiency.

Investors have driven up shares of Juneyao fourfold since the stocks listed last year, while Air China, the leader by market value, has fallen 46 percent in the same period. The data also suggest the three carriers need to step up the pace of reforms to better exploit growth in the Chinese air-travel market, poised to become the world’s largest within two decades.

“Spring and Juneyao don’t have the baggage of legacy like the state-owned airlines,” said Cao Xuefeng, an analyst at Huaxi Securities Co. in Chengdu. “They were started as profit-driven businesses and cost-efficiency for them extends to all aspects of their operations, not just their smaller work forces and cheaper tickets.”

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Airbus, Boeing See Politics Make Good Business Sense in China

By Clement Tan

March 1 (Bloomberg) — China’s political leaders identified aerospace as one of 10 key industries in the country’s quest to become an advanced industrialized nation. Ahead of this weekend’s annual legislative session, Western planemakers — their future competitors — are helping them toward that goal.

Airbus Group SE will break ground Wednesday on a finishing center for its wide-body A330 jets in Tianjin, near Beijing, a decade after it opened an assembly plant there for single-aisle planes. Chicago-based Boeing Co. also is seeking a location in China for a plane-completion facility.

Opening plants in China, poised to become the world’s largest aerospace and air-travel market in two decades, is as much a political as an economic decision. One factor is proximity to customers: Chinese airlines order billions of dollars of planes from Airbus and Boeing every year, and doing some assembly locally eases the strain on the planemakers’ existing facilities. Equally important is the goodwill such investments earn.

 “It’s absolutely undeniable there’s been a communication of Chinese expectations for companies to build in China, to provide jobs in China, that they will be treated less equitably otherwise,” said Scott Harold, the Washington-based associate director of Rand Corp.’s Center for Asia Pacific Policy. “If you build in China, you’re a ‘friend’ of China.”

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Five Things to Look Out for When You Fly With Air Koryo, the World’s Worst Airline

By Clement Tan and Sam Kim

Feb 18 (Bloomberg) — Change is in the air in North Korea. After years of being ranked by Skytrax as the world’s worst airline, national carrier Air Koryo is undergoing a revolution, according to interviews with passengers and travel agents.

New planes, new in-flight entertainment options, smart new uniforms for the cabin attendants, even business class. It’s all part of supreme leader Kim Jong Un’s effort to boost tourist numbers 20-fold to 2 million by 2020 and supplement the nation’s meager foreign exchange.

Here are five reasons to book your ticket now, before the thrill of flying the world’s only one-star airline vanishes forever. (And as long as you don’t mind helping fund Kim’s nuclear-weapons program.)

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Chinese New Year: When Buying A Train Ticket Feels Like Winning The Lottery

By Clement Tan

Jan. 31 (Bloomberg) — In China, getting a ticket home for the Lunar New Year can feel a bit like winning the lottery. First, there’s competition for plane, train and other passenger seats for almost 3 billion voyages. Then there’s the quiz to prove you’re not a Web robot.

Beijing hairstylist Yang Mingyue learned how high the odds are in November, when she stayed up past midnight to buy train tickets online as soon as they became available. After finding the best fares for the 20-hour trip home to Heilongjiang province, Yang hit a snag: cryptic questions she had to answer correctly before her booking would be accepted.

The puzzles are part of new cybersecurity measures designed to thwart scalpers from snapping up seats to resell at inflated prices. But in attempting to block scammers, the perplexing process is catching innocent web users such as Yang.

“Those questions were so ridiculously difficult, and even when I managed to get them right after a few tries, the seats I wanted were no longer available,” the 21-year-old said. “It’s too late now. Even standing tickets on the dates I wanted are all sold out, economy class air tickets, too. Business class is too expensive.”

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Deal-Making Hits China Plane Leasing as Billionaire Li Jumps In

By Clement Tan

China is making the aircraft-leasing business a popular destination for mergers and acquisitions.

Plane-leasing companies in China have been involved in more than $16 billion worth of acquisitions since last year, according to figures compiled by Bloomberg. In addition, billionaire tycoons such as Li Ka-shing, Hong Kong’s richest man, have entered the industry during that period.

Behind the recent flurry of activity is the Chinese government’s call in mid-2014 for local leasing companies to expand overseas and benefit from rising travel demand. Renting out planes to airlines has shown to be a stable business and is often more profitable than the carriers themselves.

“They want to grow big — and fast,” said Dewey Yee, head of aerospace finance and leasing advisory at Bridge Partners Capital in Hong Kong. “Aviation is really the only very, very long-term investment that you can make that gives you these really solid, steady returns.”

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With a Rail Merger, China Is Forging an Industrial Giant Second Only to GE

By Clement Tan

June 8 (Bloomberg) — China is forging the country’s answer to General Electric, combining two state-owned railroad equipment makers to create the world’s second-largest industrial company. And the giant isn’t planning to stay at home.

The merger of CSR Corp. and China CNR Corp. is now complete, producing a nearly $130-billion behemoth called CRRC Corp. with economies of scale that will allow China to compete even more aggressively for overseas rail deals. Shares of CRRC began trading Monday under CSR’s old tickers, gaining 4.5 percent to HK$15.68 in Hong Kong and rising by the daily limit of 10 percent to 32.40 yuan in Shanghai.

China is using its state-owned rail firms not just to win lucrative contracts but to project political influence abroad. CRRC will dwarf competitors like Germany’s Siemens AG and France’s Alstom SA as it targets emerging markets in Africa, Latin America and Southeast Asia — often with sales pitches from Premier Li Keqiang — while bidding for high-profile contracts in the developed world.

“It used to be that CSR and CNR were competing against Bombardier and Alstom; now it has become China versus everybody else,” said Alexious Lee, head of industrials research for CLSA Ltd. in Hong Kong. “China’s products may not boast high-end specifications, but they provide value for money.”

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Made in Chindia: Two Paths Toward Industrialization

By Clement Tan and Siddharth Philip

June 1 (Bloomberg) — It may sound like another example of rivalry between the world’s most populous nations.

The Communist Party recently announced a Made in China program aimed at transforming its manufacturing sector, months after Prime Minister Narendra Modi unveiled his Make in India plan, also targeted at manufacturing. Look closer though and the signs point to a broad shift that could draw the two Asian giants closer economically in the years ahead.

Made in China 2025 is a 10-year campaign to push the country beyond labor-intensive work into more sophisticated sectors, from robotics to aerospace. Modi’s goal is to bring basic manufacturing to an economy that needs more decent-paying jobs. In short, China has set its sights on rivaling Germany or Japan, while India will happily settle for where China is now.

“Whatever industries China will be shedding over the years, India can capture,” said Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong. “The advanced guys will find that they finally have to compete head to head with China and I think it’s going to be a big, big headache for these industrialized countries.”

Besides sheer scale, China is years, if not decades ahead of its neighbor. According to International Monetary Fund and World Bank data, China’s gross domestic product per capita is almost five times that of India at $7,600 and its manufacturing sector is 10 times bigger at about $3 trillion. Still, China is losing workers by the millions, similar to what Japan experienced in the late 1990s.

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How to Become an Airline Millionaire, Chinese Style

By Clement Tan and Jill Mao

May 26 (Bloomberg) — Two decades ago, the Wang brothers sold flavored milk and yogurt to children in China. Last week, they sold shares in their airline in an IPO to become millionaires.

Their journey from a poor fishing village to the largest shareholders of budget carrier Juneyao Airlines Co., which begins trading in Shanghai this week, is a success story that mirrors China’s growth. The company is benefiting from a government plan to encourage entrepreneurship in an air-travel market that’s set to become the world’s largest over the next two decades and is currently dominated by state-owned airlines.

At its offer price, Juneyao Air will be valued at 6.35 billion yuan ($1 billion). That’s about a tenth of the market value of Spring Airlines Co., whose stock has surged over 600 percent since a January listing. Every one of the 147 mainland initial public offerings that began trading over the past year has jumped the maximum 44 percent on its first day of trading.

“Certainly, Spring Air’s crazy surge, which outperformed even the broader bull market, would be on the minds of many people,” said Zhang Qi, a Shanghai-based analyst with Haitong Securities Co. “With oil prices at low levels, airlines that are more efficiently run would make an attractive investment proposition.”

Juneyao Air, whose Chinese name means lucky, is selling 68 million shares at 11.18 yuan apiece, raising 760 million yuan from the offering. The stock begins trading May 27.

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TransAsia Won Delay of New Safety Rule Prior to Fatal Air Crash

By Tim Culpan and Clement Tan

Feb. 9 (Bloomberg) — Taiwan aviation officials agreed last month to TransAsia Airways Corp.’s request to push back enforcement of a new rule aimed at forcing them to have more time to conduct pre-flight checks.

Authorities delayed until March 1 their implementation of minimum transit time requirements, introduced this year after a fatal crash on Taiwan’s Penghu islands in July, because the airline had already published its schedule for January and February, Clark Lin, director of flight standards at the Civil Aeronautics Administration told Bloomberg News.

Enforcement of the new rule, which applies only to TransAsia and its fleet of ATR 72 aircraft, would not necessarily have prevented last week’s fatal crash, he said.

Flight GE-235, with aircraft registration No. B-22816, departed Taipei’s Songshan airport on Feb. 4 for the pilots’ second trip to Kinmen near China that morning before crashing four minutes later in the nearby Keelung River. A review of the aircraft’s Technical Log Book entries, which were kept by TransAsia and released by the CAA, show the pilots may have spent just 20 minutes at the gate in Kinmen while fuel was added, before returning to Taipei.

At least 40 people have been confirmed dead and three are still missing after pilots responded to engine warning alarms before the aircraft plunged into the water.

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Asia’s Richest Man Starts 2015 With $45 Billion in Deals

By Clement Tan

Jan. 23 (Bloomberg) — For Li Ka-shing, Asia’s richest man, 2015 is turning out to be a busy year.

Li’s Hutchison Whampoa Ltd. said today it’s in exclusive talks to buy U.K. wireless carrier O2 for as much as 10.25 billion pounds ($15 billion), three days after Li-controlled units agreed to purchase a British rail business for more than 1 billion pounds. Two weeks ago, the octogenarian announced his biggest deal yet: the $20 billion-plus merger of Cheung Kong Holdings Ltd. and Hutchison Whampoa, his two main companies.

Li, 86, isn’t done. One of his companies is among bidders for Fortum Oyj’s Swedish electricity grid, a sale people familiar with the matter have estimated could fetch more than $5 billion, and more deals may be on their way. The flurry of activity comes as the tycoon, so revered by Hong Kong’s media they call him “Superman,” reorganizes his business empire before handing over the reins to his eldest son, Victor Li.

“The profile of the company is slowly changing to becoming one where the regulated utility type of cash flow is becoming more significant,” said Kalai Pillay, head of Asia-Pacific Industrials research at Fitch Ratings in Singapore. “They will be looking at things that are more long term cash.”

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