ATW Daily News

Led by Sinotrans, China's air cargo industry consolidating

Monday November 23, 2009

China's cargo industry appears to be moving toward consolidation as airfreight players look to mitigate damage from continuing losses that have resulted from the global economic downturn.

According to an industry insider, Chinese logistics giant Sinotrans has signed a cooperative agreement with China Eastern Airlines and "is considering selling some or all of its stake" in Grandstar Cargo International Airlines, the joint venture carrier it launched with Korean Air last year (ATWOnline, June 30, 2008). It owns 51% of Grandstar while KE controls 25%. A further 13% is owned by Hana Capital Co. and 11% by Shinhan Capital Co. The industry source told ATWOnline that the Sinotrans stake would be sold to either CEA or Air China, with which the logistics company signed a similar cooperative agreement earlier this year. A final decision on the stake sale has not been made, the insider said.

Grandstar has been unable to turn a profit in its first 17 months of operation. Sinotrans cited a CNY61.8 million ($9 million) third-quarter deficit on its investment in a recent report to investors. The JV carrier has not expanded beyond its initial Tianjin-Frankfurt route.

Additional air cargo consolidation in China could result from Air China's negotiations with Cathay Pacific Airways to launch a cargo JV in Shanghai by next spring. Also, CEA subsidiary China Cargo Airlines' merger with Shanghai Cargo Airlines likely will result from the pending CEA acquisition of Shanghai Airlines (ATWOnline, Oct. 12).

China has nine cargo carriers that operated a total freighter fleet of 70 aircraft as of Dec. 31, 2008. But hit hard by the global financial crisis, those carriers are suffering from serious financial difficulties, especially on international routes. CAAC last month implemented a series of measures designed to lift the nation's airfreight carriers out of the red, including increasing shipping rates, providing subsidies and encouraging mergers and consolidation.

by Katie Cantle

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