China's fledgling air cargo sector poised for restructuring

CHINA Southern Airlines has signed a strategic cooperation agreement with the China National Foreign Trade Transportation (Group) Corp (Sinotrans), meaning that the three largest Chinese airlines have chosen the same logistics partner.

As a result, market expectations have been raised that their cargo services business will be restructured, according to Xinhua News Agency.

The strategic agreement reached between China Southern and Sinotrans calls for the logistics provider to offer wide cooperation in the fields of cargo services, passenger transport, finance, information technology, foreign trade and media.

This comes after Air China and China Southern Airlines in September and November 2009 respectively signed agreements with Sinotrans.

"In comparison with air passenger transport, China's air cargo services businesses are weaker. The cargo service capacity of the three Chinese aviation giants is far below their passenger capacity. In the domestic cargo transport market, air cargo services face strong competition from automobiles and train cargo transport. While in the international market, Chinese airlines firms have a big gap to bridge with foreign rivals in terms of management," the report said.

An executive with China Eastern Air Holding Company, the parent of China Eastern, has identified several problems that need rectifying before the restructuring of the air cargo services of the three airline giants could be promoted. These include issues over which firm should be the initiator and how to deal with listed assets.

In the meanwhile, Air China has established close ties with Cathay Pacific Airways in cargo services, and whether Air China will join in the restructuring of cargo services with its two Chinese rivals remains to be seen.

China Eastern has started to reorganise the cargo service of Shanghai Airlines, after its merger with itself. In addition, China Eastern has acquired a 51 per cent stake in Great Wall Airlines, a joint-venture cargo carrier.

Air China will further bolster cargo capacity in the Yangtze River delta, after its cargo subsidiary reached a cooperation agreement with Cathay Pacific in February.
(source:www.schednet.com)