March 2016 – Clement Tan

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.”

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

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.”

Continue reading “Airbus, Boeing See Politics Make Good Business Sense in China”