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Name: CAAC CIVIL AVIATION ADMINISTRATION OF CHINA
7JetSet7 Code: CAC
Status: Operational
Region: CHINA
City: BEIJING
Country: CHINA
Employees 477
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Background
(definitions)

Click below for data links:
CAC-2009-06-1ST CHINESE A320
CAC-2010-11-ARJ21-UPDATE
CAC-2010-11-C919 UPDATE-A
CAC-2010-11-C919 UPDATE-B
CAC-2010-11-C919 UPDATE-C
CAC-2010-11-C919 UPDATE-D
CAC-2011-06-SKYTEAM
CAC-2011-09-EMBRAER LINEAGE 1000 VIP
CAC-2012-03-BOEING COMAC AGREEMENT
CAC-2012-11 - CHINESE OFFSPRING-A
CAC-2012-11 - CHINESE OFFSPRING-B
CAC-2013-07 - 787-8
CAC-2013-08 - TOP 30 AIRLINES IN ASIA
CAC-2013-08 - TOP 30 ASIA AIRPORTS
CAC-2013-08 - TOP ASIAN SUMMER MARKETS
CAC-2015-09 - CAAC meets ICAO.jpg
CAC-2015-09 - Chinese President Boeing Visit.jpg
CAC-2016-12 - Airlines with 100 Plus Airplanes.jpg
CAC-LOGO

THE CIVIL AVIATION ADMINISTRATION OF CHINA (CAAC) IS THE REGULATORY AUTHORITY OF CHINA.

China (People's Republic of China) was established in 1949, it covers an area of 9,560,980 sq km, its population is 1,265 million, its capital city is Beijing, and its official language is Chinese.

MAY 1997: FOLLOWING THE VISIT BY FRANCE PRESIDENT, JACQUES CHIRAC, CHINA SUPPLIES CORPORATION MADE $1.2 - 1.7 BILLION ORDERS 10 A320'S & 20 A321'S: 3 TO CHINA SOUTHERN AIRLINES (GUN) FOR TOTAL 20, AND 3 TO SICHUAN AIRLINES (SIC).

OCTOBER 1997: $3 BILLION ORDERS 50 AIRPLANES: 36 737-NG'S, 5 757'S, 1 747-400, 8 777-200'S.

JULY 1998: FOLLOWING USA PRESIDENT, BILL CLINTON'S VISIT TO CHINA, AN ANNOUNCEMENT WAS MADE OF $3.4 BILLION 10 ORDERS 737-NG'S AND 1 747-400.

OCTOBER 1999: CHINA PRESIDENT'S VISIT TO FRANCE RESULTS IN AIRBUS (EDS) ORDER FOR 10 A318'S, 10 A319'S, & 8 A340-500/-600'S.

MARCH 2000: CONVERTED 2 ORDERS A320'S TO A321'S FOR TOTAL 10 A321'S ALL ALLOCATED TO CHINA NORTHERN AIRLINES (SHY).

(CAAC) CHIEF, LIU JIANGFENG REPORTS A COMBINED CHINESE AIRLINES NET PROFIT = +$95 MILLION AFTER HEAVY LOSSES IN 1998. A BAN ON NEW AIRPLANE ORDERS REMAINS IN PLACE.

April 2003: Following the visit of the French Prime Minister to Beijing, the CAAC (CAC) announced orders (February 2004) of 16 A319's, 10 A320's & 4 A330's for China Southern Airlines (GUN); China Eastern Airlines (CEA); Air China (BEJ), Sichuan Airlines (SIC), and Hainan Airlines (HNA).

November 2003: $2.4 Billion, 30 orders 737 (CFM56) to be distributed to: Air China (BEJ) (5), Xiamen Airlines (XIA) (5), Hainan Airlines (HNA) (8), Shandong Airlines (SHG) (7), and Shenzhen Airlines (SHZ) (5).

February 2004: CASC (CSC) transferred 4 orders A319's to Sichuan Airlines (SIC); 4 orders A321's to China Eastern Airlines (CEA); & 4 orders A330's to China Southern Airlines (GUN).

December 2004: China Eastern Airlines (CEA) will be allocated 20 orders (2008-02) 787, which are part of a (CAC) order for 90 787's for the Chinese major carriers.

January 2005: (CAAC) (CAC), $7.2 Billion, 60 orders (2008-02) 787's, 223 pax: 13 787's to China Southern Airlines (GUN), including 3 787's for Xiamen Airlines (XIA); 15 787's to China Eastern Airlines (CEA); 8 787's to Hainan Airlines (HNA); with the remaining 24 787's to go to Air China (BEJ) and Shanghai Airlines (SHA).

November 2005: Boeing's big weekend in Dubai was boosted by reports that the Chinese government will buy 70 737s as part of an effort to mitigate its expected $200 billion trade surplus with the USA. The $4 billion deal reportedly is the largest in Chinese aviation history. Hong Kong's "South China Morning Post" reported over the weekend that the order eventually might be as large as 150 737s, but neither Boeing (TBC) nor the Chinese government commented.

China signed a deal for 70 737-700/800s for delivery between 2006 and 2008. The airplanes are destined for: Air China (BEJ), China Southern Airlines (GUN), China Eastern Airlines (CEA), Shanghai Airlines (SHA), Xiamen Airlines (XIA), Shandong Airlines (SHG), Hainan Airlines (HNA) & Shenzhen Airlines (SHZ).

December 2005: Airbus (EDS)' negotiations with Chinese authorities resulted in a blockbuster contract as (EDS) reached a "general terms agreement" with Chinese Aviation Supplies Import & Export Group for the purchase of 150 A320 family airplanes. The order comprises A319s, A320s and A321s – the largest single order (EDS) has ever received since it entered the Chinese market 20 years ago. The deal is worth nearly $10 billion and was signed in the presence of Prime Minister Dominique de Villepin and Premier Wen Jiabao during the latter's visit to France.

"Since it was 1st introduced into the Chinese market in 1995, the A320 family airplanes have been put in service by 10 Chinese operators with a total of 216 airplanes, accounting for two-thirds of all in-service (EDS) airplanes, or nearly one-quarter of the total airplanes in operation in China,” said (CSC) President Li Hai.

The 150 airplanes will be delivered to 6 Chinese airlines, including Air China (BEJ), China Eastern Airlines (CEA), China Southern Airlines (GUN), Sichuan Airlines (SIC), Shenzhen Airlines (SHZ), and Hainan Airlines (HNA).

The agreement followed by one day the signing of a Memo of Understanding (MOU) between (EDS) and the National Development & Reform Commission of China covering Chinese participation in Airbus (EDS) programs, including the possibility of establishing a final assembly line (FAL) "for single-aisle airplanes in China."

5 Chinese companies currently produce parts for (EDS), which has committed to increase procurement volume to $60 million by 2007 and $120 million by 2010. It employs 54 Chinese engineers, soon to be 200, at its Beijing Engineering Center, which will be part of China's promised participation in the A350 program. (EDS) and China Aviation Industry Corporation signed a $500 million extension last month to a contract for A320 family wing boxes.

February 2006: Chinese domestic airlines flew a record 138 million passengers in 2005, a rise of +15% over 2004 and double the number of 2000. The figure is expected to double again in the next 5 years, according to Gao Geng, the Vice Minister of the General Administration of Civil Aviation in China. Cargo and airmail throughput rose +14% to 3.04 million tons in 2005 and also is expected to double in the next 5 years. However, profit margins will remain tight within the sector. He noted revenues in the sector had grown to CNY170 billion/$21.09 billion at the end of 2005, but profits in the past 5 years had amounted to only +CNY10 billion.

April 2006: The (CAAC) (CAC) and the National Development & Reform Commission announced an increase in fuel surcharges on domestic routes of <800 km to CNY30/$3.74 from CNY20 and on routes >800 km to CNY60 from CNY40. Increases went into effect April 10 and will last until October 10.

Boeing (TBC) announced the signing of a general purchase agreement with China Aviation Supplies Import and Export Group (CSC) for 80 737NGs, completing a deal launched last November with a commitment for 70 737s made at the Dubai Air Show. 50 of the 70 airplanes eventually were booked the following month, with the remaining 20 ordered in January. (TBC) said the 737 family comprises 41% of China's fleet of 542 passenger airplanes.

May 2006: The Chinese government is expected to invest a further CNY140 billion/$17.43 billion in aviation over the next 5 years, more than the country spent in the previous 15, according to local media reports. The (CAAC) (CAC) said the spending would be focused on the construction of 42 new airports, in addition to upgrading existing infrastructure.

The (CAAC) expects the number of Chinese airports to increase from the current 142, to at least 220 by 2020, as the number of airplanes rises from 863 to 1,580 in 2010 and to about 4,000 in 2020.

Top of the regulator's agenda is to reinforce the status of Beijing Capital, Shanghai Pudong and Guangzhou Baiyun as key international hubs, and to upgrade Chengdu, Kunming, Xi'an, Wuhan and Shenyang airports to the status of major regional hubs. Yunnan Province in the southwest of the country will account for nearly one-seventh of the planned spending, as it adds another five airports by 2010.

The (CAAC) expects overall passenger and cargo traffic to grow at an average of +14% annually through 2010, with growth slowing to +11% per year from 2011 to 2020. Last year, domestic airlines carried 138 million passengers, an increase of +15.5% from the previous year. Cargo traffic increased at +13.8% to 3.4 million tons over the same period.

June 2006: China is courting foreign pilots (FC) to keep up with its growing commercial airline industry.

The number of passenger planes in the country is expected to rise from around 800 in 2006 to 1,600 in 2011, according to the General Administration of Civil Aviation of China. Every 100 new planes would require +1,000 extra pilots (FC), China's industry regulator said in February, while official media estimate that Chinese flying schools can only graduate 600 pilots (FC) a year.

United Eagle Airlines Company (UEG), 1 of the country's 4 private airlines, has hired 3 foreign captains: Belgian Philippe Burtonboy, Pano Pahygiannis from Greece and David Harrigan from the USA. The 3, who previously worked for USA-based Independence Air (BLR) and US Air (USA), had >15,000 hours of accumulated flight time each.

The introduction of overseas staff is aimed at mitigating the shortage of domestic captains, said (UEG) spokesman Hu Wenbin. Sources in the (UEG) said that the annual wage of a foreign captain is around 800,000 yuan/$100,000, while the average Chinese captain earns about 600,000 yuan/$75,000.

Last month, China Eastern Airlines (CEA) announced 16 Indians had completed professional training as “air stewardesses,” (CA), the first group of Indian cabin staff ever hired by a Chinese airline.

July 2006: China's General Administration of Civil Aviation said that Chinese carriers lost more than >-CNY3 billion/-$374.7 million in the first six months of 2006 owing to rising fuel prices, according to press reports. Passenger numbers climbed +17.9% to 74.3 million and freight increased +11.4% to 1.6 million tonnes.

August 2006: (IATA) and China's General Administration of Civil Aviation signed a Memo of Understanding (MOU) to "further the safe, efficient and sustainable development of China's air transportation system," (IATA) said. The agreement focuses on cooperation in safety, traffic management, training, fuel, technology and other areas.

The (CAAC) announced it will double fuel surcharges on domestic flights under 800 km to CNY60/$7.50 per passenger and raise surcharges on flights of more than >800 km to CNY100 from CNY60. The changes are effective September 1, according to press reports.

September 2006: China is launching a program of capacity enhancement, which will see the development of more airways and runways before the 2008 Olympics. New routes are planned for services between Beijing and Shanghai; Shanghai and Hong Kong; and between Beijing, South Korea, and Japan. Beijing's Capital International Airport's third runway is due to start test operations in October next year and be ready for full scheduled service by May 2008.

Chinese airlines have been forced to cut fares to Tibet by up to -55% following the opening of the Qinghai - Tibet railway, according to the "China Daily," as concern grows among carriers over the impact of rail expansion.

The paper reported that nine flights operated by Air China (BEJ), Sichuan Airlines (SIC), and China Southern Airlines (GUN) have been discounted -45% to -55% since September 13. The Qinghai - Tibet railway opened July 1 and the train fare between Chengdu and Lhasa is CNY331/$41 with a sleeper fare of CNY712. Airlines now are offering fares on the route at CNY975.

Such price decreases in the face of rail competition may portend future fare wars between modes of transport in the world's most populous nation. China has embarked upon an aggressive expansion of its railway network and also increased the speed of trains on the existing network. Last year, Siemens AG snared a contract for 60 600-passenger high-speed trains capable of 300 kph for introduction in 2008 connecting China's major cities. This year, many of the express trains had speeds lifted to 200 kph. Since 1997, the speeds of Chinese trains have been boosted four times to meet demand.

By 2020, China expects to build 10,000 km of new railway track with 2,000 km of high-speed track, which will include the $12 billion, 1,300 km Beijing - Shanghai Express. The line will link some of China's wealthiest and most industrialized cities and likely will impede airlines' ability to raise fares on some high-density routes.

Hainan Airlines (HNA) ordered 15 additional 737-800s, completing the distribution of the 150-airplane order placed by China Aviation Supplies Import and Export Group (CSC). The 150 737-700s/-800s are worth approximately $10 billion at list prices and will delivered to Air China (BEJ) (25), China Eastern Airlines (CEA) (20), China Southern Airlines (GUN) (30), Shandong Airlines (SHG) (12), Shanghai Airlines (SHA) (13), Shenzhen Airlines (SHZ) (10), Xiamen Airlines (XIA) (15) and Hainan (HNA) (25) between this year and 2010.

Top USA and Chinese aviation officials meeting in Washington stressed the need to cooperate on technology and other key areas as air services between the nations accelerate.

(FAA) Administrator Marion Blakey said China and the USA share similar concerns over air traffic control, safety and high traffic growth rates and pledged to share technology and coordinate plans for the future. The (FAA), which Blakey noted has been working in China "for decades," will open a new office in Shanghai in addition to its current office in Beijing.

"Despite the robust development momentum, we remain sober-minded about the challenges ahead of us," Yang said. "Growing safety pressures are on our shoulders with further fleet expansion and rapid air traffic growth." He added that in 2005, some 138 million passengers traveled in China's airspace, with Chinese carriers operating 1,257 routes. (CAAC) expects 159 million passengers will take to the skies this year. But capacity saturation and insufficient airspace resources are creating bottlenecks in the system, he warned.

December 2006: (CAAC) (CAC) and Japan Airlines (JAL) reached agreement to launch cooperative aviation safety study projects in conjunction with the Civil Aviation Safety Institute of China, saying their goal is to contribute "to the development of global flight safety."

January 2007: Beijing generally has tried to maintain a hands-off approach to the fiscal affairs of Air China (BEJ), China Southern Airlines (GUN), and China Eastern Airlines (CEA), but it now believes intervention may be necessary as the carriers have been hit hard by fuel prices that are higher in China due to various levies.

(GUN) plans to partner with Chongqing Investment Corp to create Chongqing Airlines, which is expected to launch operations in June with three A320s. The new carrier is expected to be approved by (CAAC) (CAC). (GUN) holds 60% with an investment of CNY720 million/$93 million, while Chongqing Investment has put in CNY480 million for the remaining stake. (CAAC) (CAC) regulations prohibit two carriers operating under the same name. (HNA) now has said it would cede the name to (GUN) and call its new carrier "Western Airlines" (CHO) instead.

April 2007: "Grand China Air" (GCH) the company established in 2004, combining (HNA) Group's Hainan Airlines (HNA), Xinhua Airlines (XIH), Changan Airlines (CGN), and Shanxi Airlines (CHG), received its operating license from the (CAAC). The way now is paved for Grand China Air (GCH) to complete a listing in Hong Kong, possibly as early as the second half of this year. The listing could raise up to $500 million. Hainan (HNA), once a leisure-only carrier, now derives 16% of its capacity from Beijing, and only 9% from Haikou, the capital of Hainan Province. It plans to add two 737-800s, three A319s and two A330s to its fleet of 101 airplanes this year. (HNA) Group's expansion plans also include its new regional, Grand Xinhua Express (GXE).

May 2007: China Southern Airlines (GUN) and Air France (AFA)/(KLM) have entered into exclusive talks to launch a joint venture (JV) cargo carrier in China, (AFA)/(KLM) Vice Chairman & (KLM) President & (CEO), Leo van Wijk revealed recently in Beijing. (GUN) previously said it expects to launch a cargo (JV) by the end of 2007. The carriers currently are negotiating ownership share and where to base the (JV). Earlier this year, (GUN) Vice Managing Director, Xu Jiebo said a foreign airline would hold a 49% stake in a cargo (JV), the maximum allowable foreign investment under (CAAC) regulations. "As an important member of the SkyTeam (STM) Alliance, Air France (AFA)/(KLM) is one of the Western carriers we are in talks with," he acknowledged at the time.

Beijing has been encouraging foreign airlines with worldwide networks to launch cargo ventures with Chinese carriers as the nation's production of export goods continues to accelerate rapidly. Air China (BEJ) last month unveiled details of a cargo airline it plans to operate in partnership with Cathay Pacific Airways (CAT); Lufthansa (DLH) and Shenzhen Airlines (SHZ) launched Jade Cargo International (JDC) last year, and Korean Air (KAL) intends to launch a (JV) cargo carrier with Chinese logistics firm Sinotrans this year.

(GUN) boasts an extensive network in Southeast Asia, which is why it likely would have little interest in launching a cargo entity with an Asia/Pacific airline. But a formidable Western carrier such as (AFA)/(KLM) would expand its cargo reach to Europe and the USA. "So far, no specific scheme has been fixed, but this joint venture will be launched most probably this year."

The USA and China announced the establishment of a new air services accord between the countries that will more than double the number of passenger flights by 2012 and offer airfreight operators "greatly expanded commercial freedom," according to the USA Department of Transportation (DOT). "Piece by piece, we are making it easier, cheaper and more convenient to fly people and ship goods between our two countries," USA Secretary of Transportation, Mary Peters said.

This piece does not constitute the "open skies" for which the Americans were hoping, but it is significant. Starting this year, USA carriers will be allowed to operate a total of 13 additional daily frequencies to and from China within the next five years, more than doubling the current total of 10. One frequency will be added this year and next, followed by four in 2009, three in 2010, two in 2011 and two in 2012. The USA also will be able to designate three new airlines to fly into China, one in 2007 and two in 2009. Freight operators will benefit from the lifting of all restrictions on the number of cargo flights and carriers authorized to fly between the countries by 2011. As part of yesterday's agreement, USA and Chinese officials agreed to resume negotiations in 2010 "to establish a timetable to achieve the mutual objective of full liberalization," the (DOT) said.

Singapore Airlines (SIA)'s and Temasek's acquisition of a 25%, $930 million equity stake in China Eastern Airlines (CEA) is close to being finalized, with regulatory approval from Beijing expected soon.

June 2007: Chinese airlines posted a collective profit in May. The industry's operating revenue rose +10.9% from the year-ago month to CNY21.08 billion/$2.76 billion against a +2.6% lift in expenses to CNY19.94 billion. Local industry analysts credited a drop in domestic oil prices and the "strong Chinese domestic air transport market," for the improved performance. It was reported that Chinese Oil Co implemented a cost reduction of CNY90 per ton from April 1, which followed drops of -CNY180 on January 1 and -CNY90 on January 14.

May load factor rose +2.4 points to 73.5% LF, accompanied by a +19.4% increase in passenger numbers. Freight rose +16.1% to 306,000 tonnes, boosted by +26.8% growth in international cargo to 84,000 tonnes. (CAAC) attributed the increase to Great Wall Airlines (GWZ) and China Eastern Airlines (CEA). The former, a joint venture between Great Wall Industry Corporation and Singapore Airlines (SIA), took delivery of a 747-400F last month, while (CEA) added an A330F. A contribution also was made by Jade Cargo International (JDC), owned by Lufthansa Cargo (LUB) and Shenzhen Airlines (SHZ). Jade (JDC)'s cargo traffic increased to 10,000 tonnes from 247 tonnes in the year-ago month. China's registered commercial fleet numbered 1,043 airplanes at the end of May, as nine airplanes were added during the month.

(HNA) Group subsidiary Lucky Air (LKY) will launch "West China Airlines," Hainan Airlines (HNA)'s new Low Cost Carrier (LCC) by June 18 in Chongqing, with three 737-300s transferred from the parent company (HNA).

The new carrier is expected to receive its operating license from the (CAAC) soon. It will join (HNA)'s other western venture, "Western Airlines (CHO)," which it has been working on since December 2005 with the Chongqing Real Estate Group. That carrier has yet to be approved by the (CAAC). The (HNA) Group is the parent of Hainan Airlines (HNA).

Lucky Air (LKY) and the Jianying Investment Company each hold a 35% stake in the new West China Airlines, with identical investments of CNY28 million/$3.7 million, while Sichuan Three Star General Aviation Company, Shenzhen Guorui Investment Company, and Xinjiang Siweida Technology Company each contributed CNY8 million for the remaining stakes.

With the skies over eastern China nearing saturation, several airlines are adopting a "Go West" strategy. (HNA)'s Western Airlines (CHO) originally was slated to be called "Chongqing Airlines," but China Southern Airlines (GUN) had designs on its own western carrier and the same name. (HNA) had to rebrand to "Western Airlines (CHO)" because (GUN) recently received (CAAC) approval for its new subsidiary, which also is scheduled to launch next month. Meanwhile, Shenzhen Airlines (SHZ) plans to base its regional joint venture with Mesa Air Group, "Kunpeng Airlines," in Xi'an at year end.

China's traditionally isolationist flag carriers are taking the initiative to ally with foreign counterparts in order to take advantage of increasing liberalization and maintain their competitive position. Among the three principal carriers, China Eastern Airlines (CEA) is the only one uncommitted to a global alliance, preferring to seal its partnership with (SIA) first. (CEA) President, Li Fenghua said that (SIA)'s investment does not tie his carrier to the Star Alliance (SAL), nor does the fact that the Oneworld (ONW) alliance has yet to secure a Chinese member, render that alliance the only option. "We are leaving all the options open, as the point is to identify which airline alliance is the most suitable for us to boost growth," he said.

Meanwhile, Air China (BEJ) and (GUN) are restructuring various departments to meet requirements established by the Star Alliance (SAL) and the SkyTeam (STM) Alliance, respectively. (BEJ) expects to join (SAL) Alliance formally in December. "Our top priority is to join the (SAL) Alliance, as we will be able to optimize our network through deeper cooperation with other (SAL) Alliance members to earn profit," Managing Director International Affairs & Cooperation, Lou Yongfeng said. Lou said boosting airport infrastructure is key to meeting the (SAL) Alliance standards. To that end, (BEJ) convened a conference in Sichuan Province at which leaders from 33 domestic airports committed to supporting (BEJ)'s effort.

With China's big three committed to finding support abroad, industry analysts are indicating that smaller domestic carriers may be unable to compete unless they take similar steps.

The Chinese commercial aviation industry appeared to post a significant turnaround in 2006, with a collective net profit of +CNY2.38 billion/+$311 million compared with a -CNY1.35 billion loss in 2005. However, that reversal, outlined in the recently released (CAAC) annual report, largely was a result of (BEJ)'s success. (BEJ) reported a +CNY3.19 billion net last year, which helped boost the industry back toward 2004 profit levels. Combined industry revenue climbed +18.4% to +CNY158.9 billion against a +19.4% lift in expenses to CNY135.7 billion. China's airlines enjoyed a +15.5% year-over-year rise in passengers to 160 million and a +13.9% gain in cargo to 3.49 million tonnes.

In 2004, China's commercial carriers posted net earnings of +CNY6.23 billion, accounting for 71.7% of the profit generated by the country's entire air transport industry. But that ratio slipped to 34.7% in 2006, a drop that industry analysts attributed to increased competition, the monopoly position held by airports and oil companies overcharging for their services.

China Eastern Airlines (CEA) has demonstrated a Required Navigation Performance (RNP) approach into Tibet's Linzhi airport. The 737-300 flight was a cooperative between the (CAAC), the (FAA), and Boeing (TBC). The (CAAC) has now formally approved (BEJ)'s use of (RNP) procedures at the airport.

The (CAAC) granted a public air transport enterprise operating license to the (HNA) Group for its "Grand China Air (GCA)" entity, bringing the Hainan Airlines (HNA) parent one step closer to launching its new carrier, which will combine (HNA) along with Xinhua Airlines (XIH), Changan Airlines (CGN), and Shanxi Airlines (CHG), and be the country's fourth-largest commercial carrier. (HNA) currently holds 60% of Xinhua (XIH), 93.75% of Shanxi (CHG), and 81.16% of Changan (CGN).

(GCA), to be based in Beijing, has registered capital of CNY3.09 billion. State-owned, Hainan Development Holding holds 48.6%, with a CNY1.5 billion investment, while (HNA) Group and Starstep Ltd hold 19.1% and 18.6%, respectively. Minority shareholders are Yangtze River Investment Holding (8.1%), and Hainan Qixing Investment (5.3%).

Industry analysts have pointed out that (HNA)'s asset liability rate, which has been as high as 94.3%, would mitigate its ability to raise funds for fleet expansion. Launching (GCA) and listing in Hong Kong will allow it to attract more strategic investors, while evading certain financial risks.

(HNA) currently holds 9% of the domestic air transport market, that is dominated by Air China (BEJ), China Southern Airlines (GUN), and China Eastern Airlines (CEA).

July 2007: The (CAAC) officially approved the launch of the Tianjin-based joint venture (JV) cargo airline to be owned and operated by Chinese logistics firm Sinotrans and Korean Air (KAL). The new entity has a registered capital of $65 million, in which Sinotrans Air Transportation Development Company holds a 51% stake with an investment of $33.15 million. (KAL) invested $16.25 million for a 25% stake. Minority shareholders are Hana Capital Co (13%) and Shinhan Capital (11%). Korean Air (KAL) Cargo President, Ken Choi has said it will launch with one 747F and two A300Fs. The initial three airplanes will come from (KAL), but the (JV) will be expected to secure its own planes by its second year of operation, when "they'll have to stand on their own feet," Choi said.

Beijing has been encouraging foreign carriers to launch cargo (JV)s with Chinese companies to keep pace with the nation's surging export market. China Southern (GUN) recently confirmed it is in negotiations with Air France (AFA)/(KLM) to form a cargo airline.

Looking to reinforce their positions in an increasingly crowded domestic marketplace, Hainan Airlines (HNA), Shanghai Airlines (SHA), Spring Airlines (CQH), and China United Airlines (CUL), among others, are planning airplane buys this year. (GUN) and (BEJ) set the orders in motion recently with commitments for 45 and 23 narrow bodies respectively. "As far as I know, almost every Chinese carrier intends to buy airplanes this year, and we will announce our airplane purchase very soon," Hainan Assistant President & Director Marketing & Sales, Deng Jian said. He refused to reveal the number of planes the company plans to buy. Shanghai Airlines (SHA) said it will purchase 2 to 3 airplanes this year, and subsidiary China United (CUL), a 737 operator based at Beijing Nanyuan, will take an additional two. A Spring (CQH) spokesperson said (CQH), which flies A320s, will "definitely buy more airplanes as airplane lease expenses are much higher than airplanes purchased from a long-term perspective." It currently has seven airplanes on lease. (CQH) Chairman, Wang Zhenghua noted (CQH) plans a stock listing to finance the acquisition of six A320s in 2009.

"Each year all Chinese airlines expand their fleets, but this year it is notable as there are so many airplane orders, which is mainly attributable to the changes taking place in the Chinese air transport market," China United (CUL) Vice Managing Director, Yu Biao said. The key changes, according to industry analysts, are airlines' penetration into western China and increased liberalization from Beijing. A source at (BEJ) revealed that the 23 A320s just ordered will operate routes in the southwest beginning in 2009. "We are attaching much importance to exploring the West China market and hope to improve our competitiveness by a capacity increase in this region," the source said. Competition in the west has increased dramatically. (HNA) Group launched Dali-based Lucky Air (LKY) and Chongqing-based West China Airlines (WCA), (GUN) started Chongqing Airlines (CHO), Sichuan Airlines (SIC) acquired a 20% stake of Chengdu-based United Eagle Air (UEG), and Shenzhen Airlines (SHZ) plans to launch its joint venture with Mesa Air Group - - Xian-based Kunpeng Airlines - - by year end.

Earlier this year, AVIC I forecast that China will need 3,110 airplanes in the next 20 years and that the demand for 200-seat airplanes will continue to rise.

The (CAAC) conceded that the country's commercial air transport industry is developing "a bit too fast," attributing the growth to the rapid fleet expansion taking place at domestic airlines. Carriers added 45 airplanes in the first four months of the year and are expected to take a total of 150 this year compared to 135 in 2006. The (CAAC) is forecasting another 140 new airplanes in 2008, 160 in 2009, and 140 in 2010.

August 2007: China's Low Cost Carrier (LCC)s, which are facing a lack of access to trunk routes, restriction on the introduction of new airplanes and pilot (FC) shortages, are experiencing mixed results in their efforts to attract the foreign investors they need to move forward with listing plans. Spring Airlines (CQH) has met with success, sealing a deal with Citibank under which the latter will serve as strategic investor and financial adviser, Spring (CQH) spokesperson, Zhang Lei revealed. The carrier intends to list either in Shanghai or Hong Kong in 2009.

East Star Airlines (ESR), which is profitable, has presented its listing plan to six international investment banks, including JP Morgan and Merrill Lynch, and five additional foreign banks. However, Banque de L'IndoChine graded East Star (ESR) as a "third class" carrier, behind "first class" (BEJ), (GUN), and (CEA), and "second class" carriers like Shanghai Airlines (SHA), Shenzhen Airlines (SHZ), and Sichuan Airlines. It said it would consider an approximately $100 million investment if and when (ESR) is upgraded to "second class."

Junyao Airlines (JYA) (CEO), Huang Hui revealed (JYA) hopes to list by next summer's Olympic Games in Beijing and is working on an initial private placement scheduled to be concluded by year end.

While USA majors lobby and issue competing press releases touting their proposals to serve China under the expanded aviation agreement signed by the two countries, four small Chinese carriers have applied to the (CAAC) for the right to operate transpacific services in a market traditionally dominated by the country's big three and their USA counterparts. Despite the fact that Chinese airlines have faced significant competitive disadvantages on routes to the USA, four carriers - - Shanghai Airlines (SHA) Cargo, Hainan Airlines (HNA), Jade Cargo International (JDC) and Great Wall Airlines (GWZ) - - plan to operate transpacific services, and each has received approval from the (CAAC).

Shanghai Airlines (SHA) is scheduled to fly from Pudong (PVG) to Los Angeles via Anchorage (ANC) beginning in September, and to Dallas/Fort Worth (DFW) via (ANC) from next April. Jade (JDC) intends to operate a Shenzhen - (PVG) - Portland, Oregon - (DFW) - Portland - (PVG) routing, and a Shenzhen- (ANC) - Chicago O'Hare (ORD) flight beginning this month.

In March, Great Wall (GWZ) expects to fly freighters to Los Angeles (LAX) and (ORD) via (PVG) - Seoul - (ANC) and beginning June 8, Hainan (HNA) will operate passenger flights between Beijing and Seattle. Hainan (HNA) never before has applied to serve the USA. It also has applied to serve Mexico City from Beijing (PEK) from March 30, and last month, it started flights to St Petersburg. The local analyst community has suggested that the carrier is expanding internationally to pave the way for the launch of Grand China Air.

The industry in China is hoping that the seven new cargo routes to the USA will help domestic airlines improve on the 30% market share they currently hold in the international freight market. The difficulties in competing for passenger traffic were highlighted by the lack of interest from (BEJ), (GUN), and (CEA) in increasing their transpacific operations. (BEJ) Public Relations Director, Wang Yongsheng confirmed that "in the short term, we won't apply for any new routes to the USA," as (BEJ) already serves (LAX), San Francisco and New York (JFK).

With an eye on next summer's Olympic Games, and the potential safety issues associated with saturated skies, the (CAAC) announced that it will not approve any new entrants before 2010, and will impose stricter conditions and procedures for new carriers after that, in order to slow the rapid growth of commercial aviation. In recent years, China's air transport industry has maintained an annual growth rate of +16%. In the 2006 first half, total volume reached 13.83 billion (ATK)s, up +16.1% over the year-ago semester. Passenger traffic rose +17.5% to 74 million, while cargo traffic jumped +11.5% to 1.6 million tons.

This year, China has witnessed a rapid increase in new airlines. (HNA) Group and its Hainan Airlines (HNA) subsidiary, launched Tianjin-based regional Grand Xinhua Express (GCA) in April. Shenzhen Airlines (SHZ) and Mesa Air Group will launch Kunpeng Airlines in Xi'an with three CRJ-200s at year end, and last week, AVIC I confirmed that the new regional carrier it expects to launch this year has been approved by the (CAAC).

Local analysts have pointed out that the industry suffers from a severe shortage of professional technicians, especially pilots (FC) and experts in airspace and airport infrastructure. In addition to the suspension of new licenses, the (CAAC) will aim to remedy that situation by controlling airlines' capacity increases and cutting 48 domestic flights operating during peak hours from Beijing beginning August 15.

The (CAAC) said there will be some exceptions. It will adopt a "supportive" policy and green-light new cargo airlines and new carriers that hire foreign pilots (FC), operate at night, use Chinese-built airplanes and operate in the west or northeast part of the country.

With the skies over eastern China nearly full, airlines are adopting a "Go West" strategy. In June, (GUN) started its Chongqing Airlines (CGQ) subsidiary, while (HNA)'s Lucky Air (LKY) began operating Chongqing-based "West China Airlines."

After some initial difficulty, Chinese (LCC)s are making progress with securing new investors and subsequent (IPO)s. Hong Kong-based long-haul carrier Oasis Hong Kong Airlines (OHK) plans to sell a 20% stake to a new investor by October, Chairman, Li Zhuomin confirmed to the local "Ta Kung Pao" newspaper. In addition, privately run Shenzhen Airlines (SHZ) revealed its plan to sell a 20% share worth approximately $200 million to a single investor, with Deutsche Bank and several hedge funds, including Marathon and Och-Ziff, among the widely reported candidates. Shenzhen (SHZ) has refused to reveal where it will list, but industry insiders have indicated Shanghai is the likely choice.

Oasis (OHK) and Shenzhen (SHZ) are among several newer entrants who have pursued strategic investors as access to traditional funding has become more problematic. While some have had difficulty, Li told "Ta Kung Pao" that many international investment banks and financial organizations have expressed an interest since Oasis (OHK)'s inaugural flight to London last fall.

Among other startups, Juneyao Airlines (JYA) is preparing an overseas private placement of 20% to 25% and expects to raise approximately $150 million in an (IPO). Last month, Spring Airlines (CQH) confirmed it reached a deal with Citibank. It plans to list on a foreign exchange in 2009.

September 2007: The (CAAC) plans to open some secondary airports near larger domestic markets and relax its control of airfare and route licensing in an attempt to boost the growth of Chinese Low Cost Carriers (LCC)s. As one of the country's few profitable (LCC)s, Spring Airlines (CQH) welcomed the regulator's move. "Currently our airports cost, accounts for 10% of our total operating expenses. If the (CAAC) can open some secondary airports for us, it will be conducive to our cost [control]," spokesperson Zhang Lei said. Industry analysts pointed out that by transferring operations to secondary airports, as is common among low-cost counterparts in Europe and North America, the (CAAC) also will help alleviate operational pressures at hubs suffering from heavy congestion, resulting from industry growth, that has outpaced infrastructure development. (CAAC) Aviation Minister, Yang Yuanyuan noted that Chinese (LCC)s, most of which still are in an "initial development phase," are facing hurdles imposed by current regulatory policies. The regulator appears committed to gradual reform, including an easing of the policy that forbids carriers from selling tickets at a greater-than->55% discount rate. "Our goal is to make ticket pricing be decided by market forces," Yang said. He also said a new traffic rights policy is scheduled for implementation in 2010, that will allow airlines to operate specific routes without a licensing grant.

(BEJ) announced an expansion of its international network comprising 12 new routes to Europe and the USA in 2008 and 2009, as well as more frequencies on nine additional routes to the West. According to the long-haul routes distribution program released by the (CAAC), (BEJ) will begin serving Berlin, Istanbul and Warsaw from Beijing in 2008. The following year, it will begin flying daily from the capital to Toronto, Washington Dulles, Manchester, Zurich, Dusseldorf, Vienna and Milan, and from Shanghai to San Francisco and Rome.

(BEJ) has said it is committed to working with partner Cathay Pacific Airways (CAT) and other Star Alliance (SAL) members, to boost its position in the USA and Europe, as "in recent years, we have begun to make a turnaround on long-haul routes to Western countries," according to (CEO), Cai Jianjiang.

In addition, China Southern Airlines (GUN), China Eastern Airlines (CEA), Hainan Airlines (HNA), and Shanghai Airlines (SHA) are scheduled to open new routes to the USA, under the (CAAC) program, despite the fact that Chinese carriers collectively suffer heavy losses in transpacific operations. Industry analysts have pointed out that conditions may improve, if the USA and China sign a tourism agreement this year, that will ease USA visa restrictions on Chinese citizens.

Next year, (GUN) will open daily Beijing - Newark, and Guangzhou - Moscow flights, while (CEA) will start twice-weekly Shanghai - Los Angeles service. Hainan (HNA) will fly four-times-weekly from Beijing to Berlin and Seattle, and Shanghai Airlines (SHA) will fly from its namesake city to Vienna (five-times-weekly), Hamburg and Zurich (both thrice-weekly).

In 2009, (GUN) will fly from Beijing to Detroit and London, and from Guangzhou to Vancouver (all daily). Hainan (HNA) will open daily service from Beijing to Chicago and Newark, and Shanghai Airlines (SHA) will fly to Seattle and Los Angeles.

October 2007: Chinese carriers are beginning to follow the internationally common practice of recruiting privately trained pilots (FC) in an effort to make up for a pilot shortfall that (CAAC) (CAC) Vice Minister, Gao Hongfeng said last month will reach 2,000 over the next two years. The country's commercial aviation fleet numbered 1,067 airplanes at the end of July, and is expected to rise to 1,250 by 2010. Chinese carriers traditionally cover training expenses for their pilots, which normally runs several million yuan for each individual. As a result, pilots rarely are able to transfer to competing carriers, as the current employer often asks for heavy compensation from a potential new employer. In addition, the rising number of new entrants is exacerbating the problem. Gao said 39 privately run airlines have submitted applications to the (CAAC) since 2004, and 17 have been approved so far. China Southern Airlines (GUN) started the trend in May, announcing its plans to recruit 100 privately trained pilots. Sichuan Airlines (SIC) followed three months later, hiring 50 private pilots. This month Spring Airlines (CQH), East Star Airlines (ESR), and United Eagle Air (UEG) disclosed their interest in recruiting such pilots in the near future. Shenzhen Airlines (SHZ) has taken it one step further, establishing Kunpeng International Flight School (KIFS) with a CNY30 million investment. (KIFS) will award privately trained pilots an (ICAO)-recognized license on their graduation, and currently has 120 students. That number is expected to leap to 480 next year. Industry analysts have pointed out that privately trained pilots' ability to seek new jobs, when their working contracts expire, or are terminated, will help the market mature and constitute a significant step toward solving the shortage.

In July, Okay Airways (OKA) said it is nearing an order for 30 MA60 turboprops as part of its preparations to launch its regional carrier, which Okay (OKA) President, Liu Jieyin noted will operate principally in central and western China.

Consolidation appears to be the development trend in China's airline industry, but Hainan Airlines (HNA) Group President, Chen Feng said that the "super carrier" idea promoted by some officials will not work. Chen was speaking after attending the Communist Party of China's national congress in Beijing. He noted that Air China (BEJ), China Southern Airlines (GUN), China Eastern Airlines (CEA) and Hainan (HNA) have controlled 90% of the domestic market since 2002, despite the increase in new entrants. "I don't think there is a possibility that these four bigger airlines will merge," he said. Air China (BEJ) President, Li Jiaxiang has insisted that "merger and consolidation with other domestic carriers" is one of (BEJ)'s targets in the next few years.

Dongbei Air, the new regional that Sichuan Airlines (SIC) plans to launch in the first half of next year, is expected to receive (CAAC) approval soon. According to a (CAAC) statement, Sichuan (SIC) will hold a 33.5% stake in the startup with an investment of CNY53.6 million/$7.1 million, while Shenyang Zhongrui Investment Co put in CNY54.4 million for a 34% stake. Other investors are the Shenyang municipal government's state-owned Assets Supervision & Administration, and Liaoning Huanjiang Industrial Co, each of which will hold 16.25% with separate CNY26 million investments. Sichuan (SIC) will support the new venture with 30 pilots (FC), 20 flight attendants (CA), six Maintenance Repair & Overhaul (MRO) professionals (MT), and two dispatch employees. Dongbei initially will lease one A319 and two ERJ-145s to operate regional routes in northeast China. It will have bases in Shenyang and Chaoyang and also serve Dalian, Dandong and Jinzhou. With "Resurrection of Traditional Industrial Bases in Northeast China" adopted as official national policy, there is growing potential for economic development in the region, which industry analysts have predicted will support increased air service. Dongbei will be eligible for subsidies that (CAAC) (CAC) intends to distribute at year end to promote regional development. The (CAAC) (CAC) also will waive its prohibition against new entries prior to 2010, because Dongbei will operate in the less-congested Northeast.

Sensis was selected by (CAAC) (CAC)'s Air Traffic Management Bureau to deploy (ADS-B) at Chengdu Shuangliu International and Jiuzhai Huanglong. Timing of installation at the two central China airports was not revealed and financial terms were not disclosed. It will mark the first formal trial of (ADS-B) technology in China for use by commercial airplanes. Chinese authorities have said the ultimate goal is to deploy ADS-B throughout the vast country. "(ADS-B) will allow airplanes in this region to broadcast real-time reports indicating identification and position to both air traffic controllers and other airplanes, improving situational awareness," Sensis said. It is partnering with Aviation Data Communication Corp for the trial. "At 11,311 ft, Jiuzhai Airport is one of the highest tableland airports in the world, and is surrounded by mountains that can limit pilots (FC)'s ability to see and avoid other airplanes," Sensis explained. "At Jiuzhai, (ADS-B) will provide an improved view of air traffic, as well as important flight parameters to enhance conflict avoidance capability. Chengdu Airport is an important aviation hub and distribution center, of passengers and cargo for the southwest region."

November 2007: With market reforms taking hold in China's commercial aviation industry, the (CAAC) plans to relax its control over Chinese carriers' domestic route networks and allow them to launch new services freely by 2010, according to Minister, Yang Yuanyuan. The (CAAC) is committed to cutting the number of cities for which new flights still must be approved. "Our target is to reduce this number to zero by 2010, when all the domestic routes should be open to Chinese carriers without formal approval from the (CAAC)," Yang said. China Everbright Securities, aviation analyst, Li Jun pointed out that the (CAAC)'s new plan will benefit Low Cost Carriers (LCC)s, which collectively suffer from a lack of access to popular routes and cities like Beijing, Shanghai and Guangzhou, owing to a "first-come, first-served" policy, as well as the absence of a regulatory mechanism that requires underperforming carriers to
surrender routes. But Li warned that airlines will continue to face hurdles to entry, due to severe slot shortages at the aforementioned cities' airports. Because of saturation of air traffic over Beijing, the (CAAC) began cutting -48 domestic flights during peak hours in mid-August.

Spring Airlines (CQH) spokesperson, Zhang Lei agreed with Li's view, saying, "Even if the (CAAC) loosens its grip on the approval of domestic routes in 2010, it will still remain difficult for us to open new routes to Beijing, Guangzhou and popular domestic cities, owing to the slot shortage in these cities' airports, where sometimes we have to give up some of our current slots in exchange for new slots."

(HNA) Group's "Grand China Air (GCH)," designed to be the country's fourth-largest commercial carrier, launched on November 29 in Haikou, capital of Hainan Province, according to ex-(HNA) Chairman, Chen Feng. Hainan Development Holding Co holds 40.65% of (GCH) with an investment of CNY1.5 billion, while (HNA)'s Hainan Airlines (HNA) invested CNY900 million in a 24.08% stake. Other investors include Starstep, Yangtze River Investment, Pan American Aviation Holdings, Qiye Industrial Investment, Union Trans-Atlantic, and Perfect Star Investment. To pave the way for (GCH)'s launch, Chen resigned as Hainan Airlines (HNA) Chairman on November 1. (GCH) will be the controlling stakeholder in Hainan (HNA) and under Chinese regulations, the Chairman of a company that is the controlling stakeholder of a listed company cannot also Chair the listed company.

(GCH) will to merge Xinhua Airlines (XIH), Changan Airlines (CGN), and Shanxi Airlines (CHG) into one entity. (HNA) currently holds 60% of Xinhua (XIH), 93.75% of Shanxi (CHG), and 81.16% of Changan (CGN). (GCH) will aim to purchase the remaining outstanding shares of those carriers "very soon." Chen also noted that the new entity plans to be listed on the Hong Kong stock exchange. "(HNA) aims to solve its high debt ratio, by reorganizing to launch Grand China Air (GCH) and to list in Hong Kong, as the debt ratio would negatively impact raising funds for fleet expansion," he said. (HNA)'s debt ratio was about 80% in the third quarter.

Grand China Air (GCH), created by the (HNA) Group to be the country's fourth-largest commercial carrier, operated its first flight from Beijing to Dalian, although it postponed the ceremony to mark its launch to next month. (GCH) will operate under the (IATA) code of CN. It is noteworthy that it chose to operate out of Beijing, while its headquarters remains in the provincial capital of Haikou. An industry insider said that (GCH) "has no other alternatives," as the Hainan provincial government made its CNY1.5 billion investment contingent on the headquarters remaining in the province. "Meantime, (CAAC) also wouldn't approve its name as "Grand China Air" (GCH) unless it is based in Beijing. (HNA) has the ambition to be a national carrier, so it didn't want to give up the name," the source said. (HNA) said it will merge Hainan Airlines (HNA), Xinhua Airlines (XIH), Changan Airlines (CGN), and Shanxi Airlines (CHG) into one entity "very soon," after which it will list on the Hong Kong Stock Exchange. Even then it will have a long way to go to catch the Big Three of Air China (BEJ), China Southern Airlines (GUN), and China Eastern Airlines (CEA), which hold a combined 80% share of the domestic market while (GCH) grabs just 9%.

China expanded its airspace capacity from November 22, by implementing Reduced Vertical Separation Minima (RVSM) in order to be better prepared for next summer's Olympics. Under the new rule, the (CAAC) halved the height of each flight layer between 8,900 m and 12,500 m, increasing the number of layers from 7 to 13, and nearly doubling the number of airplanes that can fly through the same area simultaneously. The regulator noted that Sanya, Hong Kong and Taipei are excluded as these cities already have implemented (RVSM).
Chinese carriers welcomed the new policy. "We are pleased that (RVSM) has been adopted, as it can alleviate air traffic congestion and reduce flight delays to improve our efficiency," Air China (BEJ) Public Relations Director, Wang Yongsheng said. China Southern Airlines (GUN) said it is considering the resumption of certain flights that had been cut from the schedule, and adding more frequencies on high-load routes, according to Beijing Brance Co Vice Managing Director, Li Jun. With the expanded airspace capacity, local industry analysts pointed out that fuel efficiency can be improved by +0.7% on routes shorter than 500 nm and +1% on medium/long-haul routes, which will lead to an annual collective profit increase of +CNY400 million/+$54 million for Chinese airlines.

China's government reached agreement with Airbus (EDS) on firm orders for 110 A320 family airplanes and 40 A330s valued at approximately $15 billion, and also signed a Memo of Understanding (MOU) with the manufacturer stipulating that Chinese industry will take a 5% stake in A350 XWB production.

(GUN) signed a separate contract for 10 A330-200s. The announcements of the large airplane order and industrial cooperation on the A350 XWB coincided with high-profile meetings taking place in Beijing, between French President, Nicolas Sarkozy and Chinese President, Hu Jintao, both of whom were present for the signing of the (MOU) by s (EDS) (COO), Fabrice Bregier and National Development & Reform Commission (NDRC) Vice Minister, Chen Deming. According to (EDS), the (MOU) states that (EDS) and (NDRC) will "carry out high-level industrial cooperation on A350 XWB development and manufacturing work, in order to enhance a closer strategic cooperation relationship between Airbus (EDS) and the Chinese aviation industry. (EDS) confirms its intent to manufacture 5% of the airframe of the A350 XWB airplanes in China." It added that a joint venture manufacturing plant will be established in Harbin in 2009 with AVIC II subsidiary, Harfei Aviation Industry Co "to produce [A350 XWB] composite material parts and components." (EDS) noted that six Chinese manufacturers "are already involved in manufacturing parts, such as wing components, emergency-exit doors and maintenance tools for (EDS) airplanes." The plane maker also holds a 51% stake in a Joint Venture (JV) A320 Final Assembly Line (FAL) in Tianjin, with first delivery from the (FAL) expected in the second half of 2009. The 160 airplanes ordered raise the possibility that (EDS) will top rival Boeing (TBC) in 2007 orders, which was not anticipated earlier this year, even by (EDS) executives with the company in the midst of launching its "Power8" restructuring program. Aside from the 10 A330-200s going to (GUN), distribution of the other 150 airplanes to Chinese airlines was not revealed, nor is it clear how many of the A320s will come from the Tianjin (FAL).

December 2007: China Eastern Airlines (CEA) applied to the Chinese government (CAAC) to be allocated 40 of the 110 A320 family airplanes, Beijing recently agreed to purchase from Airbus (EDS) and is contemplating ordering a similar number of 737s. It also plans to give Singapore Airlines (SIA) executives significant management roles following next month's expected closing of (SIA)'s and parent Temasek's 24% stake purchase, according to Chairman, Li Fenghua. Li is in Hong Kong, touting the virtues of the (SIA)/Temasek deal, and in interviews with various media outlets, hinted at the carrier's future plans. He told "Reuters" that (CEA) formally has asked the government for 40 A320s that were part of the recent (EDS)/China accord, but conceded that it is "still uncertain how many we will get." He added that the carrier has had discussions with Boeing (TBC) regarding fleet expansion and may order up to 40 737s.

He also revealed that (SIA) officials will play a significant role in (CEA) management, following what he believes is near-certain approval from shareholders next month of the (SIA)/Temasek deal. Li told "The Wall Street Journal" that (SIA) also "will send 10 personnel from various departments to work side-by-side with us, mainly in Product Development, Sales & Mmarketing, and Treasury Operations. This is long term. They will actually be on permanent secondment to (CEA)."

January 2008: Chinese carriers enjoyed a fruitful 2007 as they earned a collective profit of +CNY17 billion/+$2.33 billion in the first 11 months of last year, more than triple the +CNY5.54 billion posted the same period of 2006, newly appointed (CAAC) (CAC) Minister, Li Jiaxiang said. Li credited yuan appreciation and fuel surcharges for the result, but warned that "Chinese carriers still posted a collective loss, if these two main contributors are excluded." For full-year 2007, passenger boardings are expected to increase +15.9% to 185 million, while cargo traffic measured in (RTK)s should rise +13.3% to 3.96 million. According to a (CAAC) forecast, passenger boardings will reach 210 million in 2008, up +14% from 2007, while cargo traffic will grow +12% to 4.45 million (RTK)s.

It has become increasingly popular for Chinese (LCC)s to seek foreign investors to fund growth. Spring Airlines (CQH), another Shanghai-based (LCC), is close to selling a no-more-than-20% stake to a foreign investor.

East Star Airlines (ESR), the first Chinese (LCC) to fly outside China's mainland by launching services to Hong Kong and Macau from Wuhan last November, also sealed a strategic cooperative agreement with Citibank for capital financing and Initial Public Offereing (IPO) consultation.

Industry analysts noted that Chinese (LCC)s have begun to show their competitive edge in the domestic airline industry, but still face significant disadvantages compared to their much larger state-owned rivals.

February 2008: The third runway at Beijing Capital International Airport (PEK) has been put into operation following a successful flight test acceptance of a new CAT III Instrument Landing System (ILS) *1 provided by Thales (THL). (PEK) is the busiest airport in China, with more than >48 million passengers transported in 2006 and an average of 1,100 landings/departures per day. The previous two-runway operation mode would not have been able to meet the requirements of increased traffic expected for the 2008 Olympic Games. The new runway, designed also to serve the A380, is now fully equipped for CAT III *2 landing requirements, and represents the highest international precision landing standard to help support the expected +30% traffic volume increase. The Thales (THL) CAT 111 (ILS) is capable of safely guiding airplanes on automatic precision landing in very low visibility conditions (down to 200 meters horizontal visibility). Thales (THL) has more than >300 Navigation systems installed in recent years, to help to safely support the dramatic air traffic growth in the country.

Air China (BEJ) intends to make Air China Cargo (CAO) its wholly owned subsidiary and is negotiating with Beijing Capital Airport to purchase the latter's 24% stake in the country's largest cargo carrier.

(CAO) has suffered operating losses in recent years and reported a net loss of -CNY382 million/-$53.4 million in the first nine months of 2007. (BEJ) cited "an increase of freighters that resulted in low airplane utilization rates" and "management problems" as the causes. In response, (CAO) has sought greater penetration in Shanghai.

(BEJ) and (CEA) discussed a cooperation between their respective cargo subsidiaries in 2006, but a potential 50/50 joint venture was scuttled by a bribery case involving (CEA).

March 2008: Air China (BEJ) will launch four-times-weekly, Shanghai - Milan Malpensa on March 30, aboard an A340. (BEJ) has revived plans to serve the North Korean capital, Pyongyang. The official "Xinhua" news agency says Star Alliance (SAL) member (BEJ) will launch thrice-weekly services to the North Korean capital on 31 March. 737s will be used for the flights from its Beijing base. (BEJ) said in November that it planned to start serving Pyongyang in January , but it later delayed the start, citing operational reasons. (BEJ) will be the only foreign airline serving the reclusive state of North Korea.

(BEJ), China Eastern Airlines (CEA), Xiamen Airlines (XIA), and Xinhua Airlines (XIH) also have faced labor disputes with resigned pilots (FC), largely because Chinese carriers traditionally cover training expenses that can amount to millions of yuan per pilot (FC). There is considerable reluctance to allow them to transfer to competing carriers.

In order to make up the severe shortage, carriers are beginning to follow the internationally common practice of recruiting privately trained pilots (FC). (GUN) started the trend last May, announcing its plans to recruit 100 such pilots (FC). Sichuan Airlines (SIC) followed three months later, hiring 50 private pilots (FC). Spring Airlines (CQH), East Star Airlines (ESR), and United Eagle Airlines (UEG) have disclosed their interest in recruiting such pilots (FC).

The (CAC) said it has adopted measures to curb flight delays in advance of this summer's Olympic Games. According to the regulator, Chinese airlines based in Beijing, Shanghai, Guangzhou, and other Olympic-related cities are being ordered to have one or two backup airplanes on hand to guarantee ontime performance. Carriers canceling flights during the period must transfer passengers to other airlines and cover their fares in full. From July through September, the regulator will forbid all domestic airlines from ticket oversales. Any carriers that do not perform adequately in terms of ontime performance and mishandled baggage during the Olympic period won't be approved for any expansion or allowed set up a branch company for two years, the (CAAC) said.

(BEJ) is eyeing Shanghai Airlines (SAL) and plans to deepen cooperation with its Star Alliance (SAL) partner following the formal rejection of its bid for (CEA) last month. Sun Yu, (BEJ)'s head of planning, revealed that the carrier keeps "close contact" with (SHA) and plans to expand their collaboration. "But whether we can reach an agreement with (SHA) is up to the Shanghai municipal government," the airline's controlling stakeholder. Sun said (BEJ) has started talks with authorities but did not reveal the extent or aim of the negotiations. It has been speculated that (BEJ) may make an outright bid for (SHA) as (BEJ)'s acting Chairman, Kong Dong, noted earlier that (BEJ) is committed to enhancing its market position in Shanghai and would look for another domestic partner if (CEA) rejected its advances. But (SHA) Board Secretary, Xu Junmin rejected that possibility and said it will "go its own way" for the time being. In response, (BEJ) Board Secretary, Huang Bin said, "As member airlines of Star Alliance (SAL), (BEJ) and (SHA) can deepen cooperation in many respects, such as Maintenance Repair & Overhaul (MRO) and airplane purchasing. But as far as I am concerned, it doesn't [necessarily] involve a stake purchase." He added, "Shanghai is an indispensably important hub for (BEJ)" and said 80% of its international routes start there. As part of (BEJ)'s "Shanghai strategy," Sun said it will launch a branch company there soon. It held a 12% market share with 31 airplanes at the close of 2007, while (CEA) and (SHA) accounted for 35% and 15% respectively.

(SAL) carriers Air Canada (ACN), (BEJ), (ANA), Asiana Airlines (AAR), Austrian Airlines (AUL), (LOT) Polish Airlines, Lufthansa (DLH), (SAS) Scandinavian Airlines, Shanghai Airlines (SAL), Singapore Airlines (SIA), Thai Airways (TII), Turkish Airlines (THY), and United Airlines (UAL) each completed the transfer of their operations to Beijing International's Terminal 3. The move was part of the collocation plan developed as a result of (BEJ) and (SHA) joining the (SAL) last year. A similar collocation will be completed at Shanghai Pudong on April 29.

April 2008: Chinese mainland carriers are preparing for commercial flights across the Taiwan Strait to be permitted before year end, as the newly elected President of Taiwan, Ma Yingjiu, has promised. Ma will take office on May 20, and said he plans to allow the launch of weekend charter flights across the strait in July, followed by daily scheduled flights before 2009.

According to China International Capital Corporation (CICC), mainland carriers see "big market potential" across the strait. The route is expected to contribute more than CNY5 billion/CNY714.2 million to the collective annual net profit of mainland airlines.

News reports out of Taiwan said that (BEJ) plans to take the lead and establish a branch office on the island after Ma assumes the presidency. (BEJ) did not confirm, but did stated that "all mainland carriers are preparing for launching the cross-strait flights."

(CICC) noted that (CEA) will benefit most from the flights as 35% of the Taiwanese population living on the Chinese mainline resides in Shanghai and the neighboring Jiangsu Province. (GUN) should reap more benefits than (BEJ) as well, according to (CICC), as it holds a 60% stake in Xiamen Airlines (XIA). A quarter of the mainland's Taiwanese population lives in the Pearl River Delta region and another 10% in nearby Fujian Province.

(BEJ) holds a 17.5% stake in Cathay Pacific Airways (CAT) and a 51% stake in Air Macau (MCU). Those two carriers will be impacted by the liberalization, especially (CAT), which connects Taiwan to both the mainland and Europe through Hong Kong.

The (CAC) announced it will transfer rights to routes operated by (CEA) in Yunnan Province to other carriers and impose a fine of CNY1.5 million in response to a March 31 - April 1 incident in which pilots (FC) returned outbound flights to Kunming. The (CAC)'s investigation concluded that the "disgraceful incident," involving 21 flights largely was the fault of disgruntled (CEA) pilots (FC). It said one of the 21 flights returned for "technical reasons" and two could be attributed to weather. But nine were found to have problems with Quick Access Recorder (QAR) equipment, making it difficult for investigators to pinpoint the reason for return, and nine others were attributable to "human factors." The (CAC) told (CEA) to upgrade its (QAR) equipment within three months. (CEA) has dismissed two senior officials from its Yunnan Branch Co and suspended 11 pilots (FC).

May 2008: China moved one step closer to achieving its "dream" of manufacturing "jumbo airplanes" by establishing the Commercial Aircraft Corporation of China (CCC) in Shanghai. The company is charged with building civil airplanes, with a particular focus on large commercial jets, likely in the 150-seat size category. Beijing has said it could compete with some Boeing (TBC) and Airbus (EDS) models by 2020.

Originally scheduled to launch in March, the new company has a registered capital of CNY19 billion/$2.72 billion, with the state-owned Assets Supervision and Administration Commission investing CNY6 billion to become the largest stakeholder. The Guo Sheng Group, representing the local Shanghai government, invested CNY5 billion. Other stakeholders include AVIC 1, AVIC 2, Baosteel Group, Aluminum Corporation of China, and Sinochem Corporation.

Chairman, Zhang Qingwei said the company will be responsible for "airplane research and development, key parts production and final assembly, marketing, customer service, airworthiness certification and financial leasing." General Manager, Jin Zhuanglong added that the short-term goals of the new venture are to accelerate training of civil aviation professionals and to conclude the ARJ21's first flight and airworthiness certification process. "As for our long-term goal, we only have one," he said. "That is to guarantee commercial success of our large commercial trunk airplanes." Jin told state news agency "Xinhua" that the company has adopted an "opening-up" policy with an eye toward purchasing avionics and engines for its large airplanes from international suppliers. "We welcome our foreign counterparts to participate in the manufacturing process of our large commercial trunk airplanes so as to create a win-win situation," he said. He conceded that it will be a "long-term process" to manufacture large commercial airplanes, adding that no timetable has been established for building the first model. He also downplayed the potential challenge the (CCC) will present to established manufacturers. "Even if we make it, our large commercial trunk airplanes won't pose any challenge to Boeing (TBC) and Airbus (EDS), as we [will] only have one single type [initially], while they have multiple types of airplanes."

China's "jumbo airplane" final assembly line may be based at Shanghai Pudong, an industry insider (who requested anonymity) said. "But it has to go through the evaluation by the (CCC), which will make the final decision," the insider said. Launched officially in Shanghai two weeks ago, the (CCC) mainly is responsible for manufacturing the large commercial airplane. (CCC) Vice General Manager, Wu Guanghui noted that it will consider "producing single-aisle, 150-seat airplanes in the first place, which will be similar to the A320 or 737." The company's headquarters already are in Shanghai and it is discussing placing its Research & Development (R&D) center, Final Assembly Line (FAL), and spare parts production base there as well, although no final decision has been made.

As an important step in the reinforcement of China's "jumbo airplane" program, principal manufacturers AVIC I and AVIC II are accelerating preparations for their integration, which is expected to take place "very soon," according to AVIC II General Legal Counsel, Li Shentian.
"As far as I am concerned, we do have an initial plan for integration of AVIC I and AVIC II. But it's not the time to formally disclose the specific details now as it still needs to be approved by Beijing" Li said. It was reported that the integration plan will come out early next month, and will center on merging AVIC I and AVIC II into one company comprising different departments covering engine, airborne equipment, helicopter manufacturing, small airplane production and other activities. China Securities Company aviation analyst, Feng Fuzhang said the country's commitment to build a 150-seat commercial airplane "makes it even more imperative for the merger to happen. The current operating independence of AVIC I and AVIC II have made Chinese airplane manufacturing resources so scattered." The Aviation Industry Development Research Center of China, an AVIC I subsidiary, previously said that the merged company likely will be responsible for producing spare parts and conducting test flights for large commercial airplanes, while the recently established (CCC) will take charge of financial leasing, overall design, final assembly, marketing, and customer service.

June 2008: Chinese airlines carried 15.4 million passengers in May, down -1.1% year-over-year, as the devastating Sichuan Province earthquake and surging oil prices impacted demand, according to the (CAAC) (CAC). Air China (BEJ) passenger boardings dropped -10.7% to 2.7 million, and load factor fell -4.5 points to 71.3% LF, which (BEJ) attributed to the earthquake and the dedication of some capacity to relief efforts. China Eastern Airlines (CEA) saw passenger numbers plunge -8% to 3 million. Operating expenses rose with fuel prices. (BEJ) noted that it purchased 244,000 tonnes of jet fuel in May with the average price per tonne rising +31% to CNY7,447/$1,081. Airlines collectively cut their schedules and raised fares, leading to a -2.8-point decline in overall load factor to 70.9% LF, and a -7.2% fall in average utilization to 9 hours. The total fleet numbered 1,181 airplanes at the end of May, an increase of +13 during the month.

China's airlines are moving to upgrade their fleets and cut international flights to mitigate the impact of skyrocketing fuel costs. China Southern Airlines (GUN) President, Liu Shaoyong said that the carrier plans to phase out 12 MD-80s in October, with the aim of improving fuel efficiency. In addition, it cut some international flights on June 1, particularly Southeast Asia routes from Guangzhou that an industry analyst said "are mainly focused on tourists [and] make less profit." (BEJ) is expected to replace older 747s with more fuel-efficient A330s. (BEJ) VP, Ma Xulun added that the company plans to increase hedging and optimize routes to reduce fuel expense. "Last year, our fuel hedge accounted for 50% of our fuel consumption," he explained. "This year we purchased our international fuel almost all by fuel hedge." Shanghai Airlines (SHA) VP, Chen Zhuofu said that (SHA) plans to introduce two A321s next year to replace 757s. He said it will be difficult for Chinese carriers to post a collective profit this year if fuel prices continue to rise. (CEA) also is considering cutting international flights. "These long-haul routes incur more fuel consumption and even [lead to a] loss," Board Secretary, Luo Zhuping said. "For example, currently we [lose] between -CNY1 million/-$144,000 and -CNY2 million on one flight from Shanghai to New York."

In addition to these measures, Chinese carriers have raised fuel surcharges on international routes, including a +33% increase by (GUN).

Airlines are concluding preparations for the launch of commercial charter flights across the Taiwan Strait, which are expected to start July 4, after an agreement between the Strait Exchange Foundation (Taipei) and the Association for Relations Across the Taiwan Strait (Beijing) was signed in Beijing. The deal allows for 18 direct flights across the strait each weekend (including Fridays). Taiwan will have access to Beijing, Shanghai, Guangzhou, Xiamen, and Nanjing, with future flights to Chengdu, Chongqing, Hangzhou, Dalian, Guilin, and Shenzhen under consideration. In turn, mainland Chinese carriers will be able to fly to Kaohsiung, Taipei, Taichung, Matsuyama, Penghu, Hualien, Kinmen, and Taitung. The agreement calls for negotiations on regularly scheduled direct flights to start "as soon as possible." Both parties agreed to discuss cargo charters in the next three months.

Passengers currently traveling between the Chinese mainland and Taiwan must transfer in Hong Kong, which typically adds 4 to 5 hoursd to the trip. The cross-strait flights also will help reduce operating costs and expand markets, which is important especially for struggling Taiwanese airlines suffering from fuel price hikes and fierce competition from high-speed rail.

(BEJ) VP Zhang Lan said that the Beijing-based carrier will operate five airplanes to Taiwan. (BEJ) noted that "everything is ready now" and it planned to send a delegation to Taipei to conduct operational integration with China Airlines (CHI) and (EVA) Air.

(CEA) plans to establish offices in Taipei and Kaohsiung. The Shanghai-based carrier sent a delegation led by Managing Director, Cao Jianxiong to Taiwan to discuss ground handling, Maintenance Repair & Overhaul (MRO), and other operational necessities.

(GUN) announced that it will sign a strategic agreement with (CHI) on June 23 to address both carriers' full-scale cooperation on cross-strait flights. (GUN) said it has concluded all its preparations.

The Chinese government raised the domestic fuel price more than +25% to CNY7,450/$1,082 per ton, which China Securities aviation analyst Li Lei reported would lead to a +CNY3.6 billion increase in annual expenses for (GUN) - - which operates the largest domestic network; - - a +CNY1.8 billion rise for (BEJ); +CNY2.2 billion for (CEA); and +CNY700 million for Hainan Airlines (HNA). However, Li said the increase will not have a significant influence on second-quarter financial performance, as yuan appreciation will continue to drive profits. However, he said the second-half outlook is "less optimistic," owing to fuel costs and "declining" domestic demand. Airlines plan to follow their fuel surcharge increase on international routes with a domestic increase. (GUN) Chairman, Liu Shaoyong said that (GUN), (BEJ) and (CEA) applied for the right to boost domestic charges by +33.3% to CNY80 on routes shorter than 800 km and by +50% to CNY150 on longer flights.

July 2008: The (CAAC) (CAC) reported that Chinese carriers transported 14.2 million passengers in June, down -3.8% from the year-ago month, while cargo traffic declined -0.8% to 321,000 tonnes.
Chinese carriers experienced declining market demand in June owing to slowing domestic economic growth and the continuing effect of natural disasters. Load factor was down -2.1 points to 72.3% LF. Daily utilization dropped sharply, falling -10.5% to 8.5 hours, due to route cancellations caused by rising fuel prices. Half-year passenger numbers grew +5.4% to 91.8 million and load factor remained level at 74.1% LF. Utilization rate fell -6.3% to 9 hours. The fleet numbered 1,192 airplanes as of June 30, an increase of +11 during the month.

A slowing economy and the ripple effects of the Sichuan earthquake helped produce a -23% year-over-year drop in Chinese airlines' combined net income in the first half of 2008 to +CNY3.7 billion/+$540.9 million from +CNY4.8 billion in the year-ago period.
China Eastern Airlines (CEA) reported a +CNY368 million profit, while Air China (BEJ) enjoyed a +5.5% increase in operating revenue to CNY24.21 billion in the first half. Passenger boardings totaled 16.6 million. (BEJ) did not release its profit figure in its mid-year work report. According to (CAC) statistics, industry operating expense climbed +15.3% year-over-year to CNY140.26 billion. Boardings rose +5.4% to 91.8 million and cargo volume jumped +8.1% to 2 million tonnes. The load factor remained level at 74.1% LF and ontime performance dropped -3.5 points to 80.3% LF. Utilization rate fell -6.3% to 9 hours. Looking ahead, (BEJ) Chairman, Kong Dong warned that the airline industry faces a "coming winter," referring to a severe external operating environment. The Beijing-based carrier said it will adjust its fleet mix in order to drive cost savings. It recently ordered 20 A330s, 15 777s, and 30 737s to replace the 757s currently in service.

Guangzhou-based, China Southern Airlines (GUN) was the first Chinese mainland carrier to operate a charter flight across the Taiwan Strait, with Taiwan's China Airlines (CHI) following suit later from Taipei to Shanghai.

The first weekend of charter flights across the Taiwan Strait concluded with 11 carriers having offered services, which many regard as an important step toward the opening of scheduled flights between the Chinese mainland and Taiwan. The 11 airlines are (BEJ), (GUN), (CEA), Hainan Airlines (HNA), Shanghai Airlines (SHA), Xiamen Airlines (XIA), (CHI), Mandarin Airlines (MDN), TransAsia Airways (FSH), Uni Air (MAK), and (EVA) Air.

Taiwanese aviation authorities reported that six airports handled 72 flights transporting 12,000 passengers July 4 through 7. Taipei Taoyuan handled 32 flights, followed by Taipei Songshan with 26. Makung (six), Kaohsiung (four), Taichung (two), and Hualien (two) handled the remainder. Corresponding statistics for the mainland were unavailable, but the (CAAC) (CAC) noted that there will be 144 roundtrip flights across the strait this month. Mainland carriers expect the flights to provide a new growth point as they have experienced slowing increases in demand, especially in May, when passenger volume dipped 1.1% year-over-year, the first decrease since 2003.

(GUN) Chairman Liu Shaoyong, who was aboard the inaugural A330 flight to Taipei, called the current allowance "too little" and said that "daily regular direct flights [without having to overfly Hong Kong] should be realized as soon as possible."

(CHI)'s former Chairman, Zhao Guoshuai, who resigned this week, agreed with Liu. He argued that "it is far from enough to operate only 72 charter flights every weekend." He expressed confidence that the flights "will exert a positive effect on (CHI)" as the mainland is a new market for the Taipei-based carrier.

Meantime, (CEA) already has established an office in Taipei. According to Managing Director, Cao Jianxiong, the Shanghai-based carrier plans to recruit staff and cabin crew in Taiwan in the future while (CHI) and (EVA) act as agents for ticket sales.

Chinese carriers were dealt another blow to their bottom lines this month as authorities decided to raise the jet fuel price by +CNY720/+ $104.83 per ton.

(BEJ) Board Secretary, Huang Bin confirmed that the increase took effect on July 1. It is the third time fuel prices have gone up this year following a +CNY210 per ton increase in the first quarter and a +CNY1,500 hike on June 20. China's quarterly adjustment of jet fuel prices traditionally takes import costs into consideration, which largely has shielded airlines from the soaring international oil prices over the past two years.

CITIC Securities Company aviation analyst, Ma Xiaoli said he expects (GUN) will be hit hardest by the domestic increase as it flies the largest number of domestic routes. According to his estimate, (GUN) faces a reduction of -CNY250 million in marginal profit for every +CNY100 increase in the cost of jet fuel, while (CEA)'s bottom line would sink by -CNY220 million and (BEJ)'s would drop by -CNY180 million.

To mitigate rising fuel expenses, Chinese carriers collectively approved an increase in domestic fuel surcharges beginning July 1. In addition, (BEJ), (GUN), (SHA), and (HNA) will raise surcharges on international routes.

(CEA) Board Secretary, Luo Zhuping said that while higher surcharges are helpful, "The shrinking market demand is a bigger blow for airlines than the surging fuel price. If fuel surcharges keep on rising, it will impact the market demand to reduce further, which will lead to a drop in airfares."

Huang shares the same view. He said that (BEJ) will be cautious as "the company has to take market tolerance into account." In the meantime, Morgan Stanley analyst, Edward Xu wrote in a research note that Chinese carriers will report poor traffic data for June.

August 2008: Airlines on both sides of the Taiwan Strait want to launch weekday services, as weekend charter flights linking the Chinese mainland and Taiwan reach the one-month mark. "Judging from the one-month results, the weekend charter flights are indeed widely welcomed by people on both sides of the strait," (EVA) Air Vice General Manager, Nieh Kuo-wei told Chinese state news agency "Xinhua." Cross-strait charter flights kicked off on July 4 under an agreement signed by the China-based Association for Relations Across the Taiwan Strait and the Taiwan-based Straits Exchange Foundation. According to "Xinhua," there have been 144 roundtrip flights carrying some 53,000 passengers over the last four weekends. The average load factor is reported to be 87% LF.

Airlines on both sides of the Taiwan Strait carried 95,765 passengers across the strait with an average load factor of 87% LF over the seven weeks ended August 18, according to Taiwanese authorities. Taiwan Civil Aviation Chief, Li Long Wen told media that cross-strait routes are among the few profitable services operated by Taiwanese carriers. The Shanghai route reported the highest load factor at 92.3% LF, followed by 85.4% LF for Xiamen, 82.8% LF for Guangzhou, 78.7% LF for Beijing, and 77.3% LF for Nanjing. Owing to the strong traffic to Shanghai, China Eastern Airlines (CEA), Shanghai Airlines (SHA), China Airlines (CHI), and (EVA) Air have raised the business class (C) fare on the route to CNY6,500 from CNY5,500.

Chinese carriers continued to suffer falling passenger demand in July. Air China (BEJ)'s (RPK)s traffic decreased by -8.4% from the year-ago month, while passenger boardings fell -6.8% to 3 million, and load factor plunged -8.1 points to 73.3% LF. China Southern Airlines (GUN)'s (RPK)s slid -4.2% year-over-year, and load factor dipped -1.4 points to 75.1% LF. It is noteworthy that (BEJ)'s and (GUN)'s international (RPK)s dropped -13.7% and -13.3%, respectively, mainly owing to heightened security measures related to the Beijing Olympics and slowing global demand. (GUN) cut its international capacity -14.2% (ASK)s last month. Competitors are expected to report similar results. As July traditionally is the peak travel period in China, industry analysts pointed out that the decline in demand will have a significant impact on full-year performance.

(CEA) continued to hope that it could secure Singapore Airlines (SIA) as a strategic investor, even though its stake sale deal expired officially this month. (CEA) noted in a statement that the deal, reached last September, was "automatically terminated owing to the preconditions for implementing the agreement had not been satisfied by the deadline." Board Secretary, Luo Zhuping said that the sale's revival depends on acceptance by the carrier's shareholders and rejected local speculation that (SIA) has lost interest in a partnership. "Whether to renew the agreement or not, and when to renew the agreement, is only a technical issue," Luo said. Meantime, (SIA) said that it would continue to seek other ways to establish a foothold in China and that it is optimistic about the future of that country's commercial aviation industry. An (SIA) spokesperson recently told media that the carrier has not given up on the (CEA) deal, even though it was rejected by shareholders in January. The spokesperson, Stephen Forshaw, claimed (SIA)'s cooperation with (CEA) would focus on the commercial aspect and said it would not rule out an investment as long as the purchase price of HK$3.80/$0.49 per share was accepted by (CEA) shareholders. Air China (BEJ) Chairman, Kong Dong noted recently that the Beijing-based carrier remains interested in increasing its stake in (CEA). (BEJ) parent CNAC is (CEA)'s largest circulation shareholder at 12.07%. (CEA)'s share price just closed at HK$1.97.

September 2008: Airbus (EDS) officially opened its first final assembly line outside Europe with its inauguration of the A320 Family Final Assembly Line (FAL) in Tianjin. Chinese Premier, Wen Jiabao and (EDS) President & CEO, Tom Enders officiated at a ceremony with more than >600 guests. The (FAL) is a joint venture between (EDS) (51%) and a Chinese consortium comprising the Tianjin Free Trade Zone, AVIC I, and AVIC II. It is similar to (EDS)'s Hamburg assembly line and its first airplane will be delivered to Sichuan Airlines (SIC) through Dragon Aviation Leasing in mid-2009. The facility will ramp up production to four airplanes per month by 2011. It is China's second attempt to build commercial airplanes under license, the first being the MD-80/-90 Trunkliner program with McDonnell Douglas in the mid-1990s. It initially was supposed to produce 20 MD-80s and 20 MD-90s, with eventual targets as high as 150 airplanes, but only 20 MD-90s were built, and the program became embroiled in controversy after some machine tools exported from the USA allegedly were diverted to military production.

Six Chinese manufacturers already are involved in manufacturing parts for (EDS) and the value of that work was $70 million in 2007. By 2010, (EDS) purchasing from the Chinese aviation industry will nearly treble to $200 million, before more than doubling again to $450 million by 2015. On the occasion of the (FAL) opening, (EDS) and the (CAAC) (CAC) signed a Memo of Understanding (MOU) covering a five-year cooperation in training for Chinese aviation authorities, maintenance support for airlines, (ATM) technologies and training for aviation and university instructors.

Air China (BEJ) and China Southern Airlines (GUN) both endured double-digit year-over-year traffic declines in August, and while some of the drop can be attributed to heightened security related to the Beijing Olympics, slowing domestic economic growth likely portends a poor full-year 2008 traffic and financial performance for Chinese carriers. (BEJ)'s overall passenger traffic plummeted -16.3% year-over-year in August to 5.26 billion (RPK)s on a capacity decrease of -0.9% to 7.4 billion (ASK)s. Its load factor of 71.1% LF was down by -13 points. Passenger boardings dropped -16.6% to 2.77 million, while cargo volume fell -4.1%. Similarly, (GUN) suffered a sharp decline in August, as passenger boardings plunged -16.2% to 4.99 million, with load factor at 71.2% LF, down -8.7 points from last year and a new low for 2008.

Spring Airlines (CQH) Chairman, Wang Zhenghua said he is optimistic that domestic demand will rebound in September and October, a view that is not widely shared. But even he commented that this month and next provide the only opportunity for carriers to improve their domestic traffic performance this year.

China Eastern Airlines (CEA) has not yet released its traffic statistics for August, but in contrast to Wang, (CEA) Board Secretary Luo Zhuping expressed pessimism regarding the remainder of 2008. "The biggest problem we are facing now is the continuous decline of domestic demand. The winter is coming and uncertain economic prospects make it difficult for domestic demand to rebound in the short term."

Shenyin Wanguo Securities, Aviation Analyst, Li Shurong agreed with Luo, pointing out that "high domestic fuel prices show little possibility [of falling] for the time being and the slowdown of yuan appreciation, and continuous decline of domestic demand are expected to exert a negative impact on Chinese carriers." China International Capital Corp predicted that "excepting (BEJ), most [of China's] carriers [including] (GUN), (CEA), Hainan Airlines (HNA), and Shanghai Airlines (SHA) will post a full-year net loss in 2008."

Six Hong Kong carriers, including Cathay Pacific Airways (CAT) and Dragonair (DRG), will cut fuel surcharges on international and domestic routes by -10% and -15%, respectively, through October and November. Surcharges will be HK$832/$106.97 on long-haul flights, and HK$196 on short-haul. The decision, as well as cuts implemented by some foreign carriers, have put pressure on airlines from the Chinese mainland. (BEJ) noted that it will "make a corresponding adjustment" on international routes but ruled out the possibility of a domestic reduction, at least in the short term, as the domestic fuel price lags behind the international rate.

The government is lowering interest rates, which could help demand, but may depreciate currency.

China's AVIC I said that the merged company it is forming with AVIC II will be called "China Aviation Industry Corporation (CAIC) Group" and revealed details of the entity's structure. The merger, which aims to create a state-owned company to oversee airplane manufacturing in China, including development of a "jumbo airplane" by 2020 to compete with 737s and A320s, has been delayed several times this year. AVIC I said integration processes are underway but the official start of the (CAIC) Group will be delayed until October. It previously has cited start dates that did not come to pass. The (CAIC) Group will have 14 departments at its Beijing headquarters and own 10 subsidiaries. One of the units under its oversight will be the Commercial Aircraft Corporation of China (CCC), the company established earlier this year that is jointly owned by AVIC I and AVIC 2 and is tasked with building the larger airplanes.

(CAC) Chairman, Zhang Qingwei said that the "jumbo airplane" program will follow a "main manufacturer-supplier" model and include several divisions, among them airplane research and development, final assembly and integration, marketing and sales, and customer service/airworthiness and certification.

AVIC I is ramping up efforts to manufacture large commercial trunk airplanes as some of its subsidiaries are beginning to make big investments in expanding production capabilities. As planned, the merged AVIC will be responsible for producing spare parts and conducting test flights for large commercial airplanes. AVIC I subsidiaries Xi'an Aircraft Industry Co, Shenyang Aircraft Corp & Chengdu Aircraft Industrial Co, and AVIC II subsidiaries, Shaanxi Aircraft Industry Co and Harbin Aircraft Industry Group are expected to be the five domestic producers of large commercial airplanes.
Chengdu Aircraft Industrial has reached an agreement with local authorities to establish an aviation industry park with an initial investment of CNY600 million/$87.8 million. It is expected to be operational in 2010. Chengdu Assistant Managing Director, Li Qing noted that the park will be a production center for airplane nose and forebody parts, mainly for large commercial airplanes, although the facility also will aim to be an international base for production of boarding gate, emergency exit and landing gear door parts for civil airplanes. Shenyang Aircraft Corp plans to invest CNY3.6 billion in a civil airplane industrial park in Shenyang, while Xi'an Aircraft Industry announced earlier this year a five-year investment of CNY6 billion in a new industrial park in Xian's Yanliang district.

Despite these efforts, AVIC I VP, Hu Wenming pointed out that engine production remains the biggest challenge. "It's most likely that we will choose to use foreign engines for large commercial airplanes initially," he said.

October 2008: Chinese airlines showed a slight recovery last month as the "golden week" travel period starting September 29 helped boost passenger traffic that had been declining since May. According to the (CAAC) (CAC), passenger boardings rose +0.7% year-over-year to 16.4 million, while cargo traffic plummeted -8.8% to 360,000 tonnes. In contrast with the overall growth, China Southern Airlines (GUN) continued to suffer from declining market demand last month, as passenger boardings fell -1.1% to 5 million, with a -2.4-point decrease in load factor to 67.1% LF. Passenger traffic dropped -5.4% to 6.96 billion (RPK)s.

China Eastern Airlines (CEA) is expected to report a similar result. "Currently, the most pressing problem we face is the continuous decline of domestic demand. We will experience a 'winter' from this year to next year as it's unlikely that the Chinese airline industry will enjoy a strong recovery any time soon, owing to the economic uncertainty," (CEA) Board Secretary, Luo Zhuping said. (CEA) announced that it expects a significant loss for the first nine months of this year. (CEA) decided to reduce the pay of all executives and general staff in an attempt to cut costs.

Chinese airlines transported 141.4 million passengers in the first nine months of 2008, up +1.7% over the same period last year. Cargo traffic rose +3.8% to 3.04 million tonnes. The total fleet numbered 1,245 on September 30, an increase of +17 airplanes from August.

Chinese carriers should get some relief in the fourth quarter, as the Chinese government decided to cut the price of fuel by -CNY570/-$82.37 per ton owing to the recent drop in international oil prices. The reduction took effect October 1. It marks the fifth time that Beijing has adjusted the domestic fuel price. It introduced a +CNY210 per ton increase in the first quarter, a -CNY80 drop in the second quarter, a +CNY1,500 hike on June 20 and a +CNY720 addition on July 8.

(HSBC) noted that China Southern Airlines (GUN) is expected to benefit most from the most recent domestic cut, as it has the largest number of domestic routes, which comprise 80% of its total.

China Eastern Airlines (CEA) Board Secretary, Luo Zhuping said that the cut "is good news for our domestic carriers, but it is hard to predict how much it will improve our financial performance as the decline of the domestic market in recent months still remains our biggest worry." He said (CEA) has no plan to reduce the fuel surcharge on its domestic network. Fuel costs currently account for around 40% of Chinese airlines' total operating expenses.

The Commercial Aircraft Corporation of China (CACC) (CCC) launched the Shanghai Aircraft Customer Service Company (SACS), which will be the first domestic enterprise of its kind for civil airplanes and marks an important part of China's large commercial airplane manufacturing strategy. Last month, (CACC) Chairman, Zhang Qingwei revealed that it plans to establish one headquarters and three centers: A research and development center based around the Shanghai Aircraft Design & Research Institute, a manufacturing center based around the Shanghai Aircraft Manufacturing Factory and the customer service center. (SACS) has registered capital of CNY100 million. (CACC) Managing Director, Jin Zhuanglong noted that the new entity will establish a global customer service network and provide whole-life service for both large commercial and regional airplanes [the ARJ21] covering flight controls, spare parts support, engineering and technology service, customer support and network data management, among other services.

Okay Airways (OKA) became the first Chinese carrier to operate the domestically produced MA60, as the company completed a successful inaugural flight on October 19. The 50/60-seat turboprop's other customers are from Latin America, Africa, and elsewhere in Asia. The airplane has received 136 orders so far. China's first Low Cost Carrier (LCC), Okay (OKA) has increased its focus on the regional market in recent years. Last year, it signed a lease deal with China Aviation Industrial Leasing Company for 10 MA60s. Okay (OKA) President, Liu Jieyin said the first MA60 will operate from Tianjin to Dalian, Yantai, and Jinzhou. Over the next two years, the carrier expects to take delivery of the remaining nine, helping it to establish a regional network connecting Tianjin to northern, northeast, and central China, and complementing its trunk routes to Kunming, Hangzhou, Haikou, Sanya, Guilin, and elsewhere. It currently flies eight 737s. China Aviation Industry Corporation Group Chairman, Lin Zuoming said Okay (OKA)'s successful MA60 introduction marked the beginning of Chinese turboprops' batch operation by domestic carriers and he is confident the airplane will become "a role model to earn profits for Chinese airlines."

November 2008: China Southern Airlines (GUN) and China Eastern Airlines (CEA) have started to ground airplanes and cut flights as there is little sign of a recovery in the slumping domestic market.
According to the (CAAC), Chinese carriers again suffered from falling demand last month, despite the "golden week" travel period surrounding October 1 National Day. Passenger load factor fell -2.2 points year-over-year to 76.9% LF, while daily airplane utilization was down -2.1% to 9.2 hours. (GUN) President, Liu Shaoyong said the company has grounded 12 MD-82s and reconfigured both its domestic and international schedules. He predicted that the "domestic market will recover in the second half of next year, while the international market will turn for the better in 2010."

(CEA) President, Li Fenghua agreed with Liu and blamed the global economic downturn for the domestic decline. "Nowadays almost all the big carriers are cutting flights, especially international flights," Li noted. Earlier, (CEA) Board Secretary, Luo Zhuping told foreign media that the carrier has cut some "unprofitable" routes and grounded about 20 airplanes in secondary domestic markets.

The difficulty facing Chinese carriers again has raised the possibility of consolidation. (CAAC) Minister, Li Jiaxiang said the regulator would support any move that would benefit the airline industry, claiming that it is necessary to "huddle together to get warmth against the cold." But Liu pointed out that China's "big three" will continue to limit their cooperation to business areas that do not involve stakes.

Hit hard by the continuous decline of the domestic market, China Southern Airlines (GUN) parent, China Southern Group, and China Eastern Airlines (CEA) parent, China Eastern Group are expecting their requests for government aid to be approved. An industry source said that Beijing is expected to inject +CNY3 billion/+$439 million into each airline, allowing China Eastern (CEA) to reduce its net debt ratio to 94.7% from 98%, and China Southern (GUN) to reduce its net debt ratio to 80.5% from 83%.

(GUN) Chairman, Liu Shaoyong had made numerous appeals for up to CNY40 billion in financial aid from Beijing. The carrier reported a -CNY810 million third-quarter loss. (CEA) posted a -CNY2.33 billion loss in the quarter.

Meantime, Air China (BEJ) parent, (CNAC) also reportedly is seeking government capital. (BEJ) reported a -CNY1.9 billion loss in the third quarter.

The dream of a direct routing across the Taiwan Strait is closer to reality following the signing of an agreement between Beijing's Association for Relations Across the Taiwan Strait and Taipei's Strait Exchange Foundation. The deal, which will take effect in 40 days, will allow carriers to bypass Hong Kong airspace and reduce flight time, operating costs, fuel burn, and emissions.

Taiwanese carriers will have access to 16 cities in mainland China in addition to Beijing, Shanghai, Guangzhou, Xiamen, and Nanjing. They are Chengdu, Chongqing, Hangzhou, Dalian, Guilin, Shenzhen, Wuhan, Fuzhou, Qingdao, Changsha, Haikou, Kunming, Xi'an, Shenyang, Tianjin, and Zhengzhou. The number of permitted weekly roundtrip flights will rise from the current 36 to 108.

Mainland carriers welcomed the move. Air China (BEJ) Party Secretary, Tan Zhihong said the carrier will add 10 A330s and 737-800s to its cross-strait operation, that currently comprises flights to Taipei (TPE) from Beijing (PEK) and Shanghai. He said the newly permitted flight path will save 90 minutes on (PEK) - (TPE), and 80 minutes to/from Shanghai and that (BEJ) will save CNY30 million per year operating 737-800s on the new (PEK) - (TPE) routing.

Xiamen Airlines (XIA) Managing Director, Yang Guanghua said his airline will place 10 737-800s, expected to be delivered in 2009 on cross-strait routes, in order to meet growing demand.

The agreement allows 60 return cargo flights per month operated by 2 - 3 mainland and 2 - 3 Taiwanese airlines. Mainland carriers will have access to Taipei and Kaohsiung, while their counterparts will fly to Shanghai and Guangzhou.

Nine mainland Chinese carriers were selected to operate weekday flights across the Taiwan Strait and are expected to launch service on December 15, according to the (CAAC) (CAC). In addition to Air China (BEJ), China Eastern Airlines (CEA), China Southern Airlines (GUN), Hainan Airlines (HNA), Xiamen Airlines (XIA), and Shanghai Airlines (SHA), which all already operate weekend cross-strait flights, Sichuan Airlines (SIC), Shandong Airlines (SHG) and Shenzhen Airlines (SHZ) were tapped to operate the weekday flights.

Mainland carriers are permitted to operate 54 weekday flights per week. According to the (CAAC) (CAC), (BEJ) will operate 10 while 12 have been allotted to (CEA), 10 to (GUN), five to (HNA), six to Xiamen (XIA), and five to (SHA). Sichuan (SIC), Shandong (SHG), and Shenzhen (SHZ) each have been granted permission to operate two weekly weekday flights.

Regarding cross-strait cargo flights, (CEA) subsidiary, China Cargo Airlines (CKK), China Southern Airlines (GUN), and Air China Cargo (CAO) have been selected. China Cargo Airlines (CKK) and (GUN) each are expected to operate 10 monthly flights from Shanghai and Guangzhou respectively, while Air China Cargo (CAO) is expected to operate five monthly flights from both Shanghai and Guangzhou.

Hainan Airlines (HNA) and Shanghai Airlines (SHA) posted third-quarter net losses of -CNY260.8 million/-$38.1 million and -CNY437.4 million, respectively, as declining domestic demand and high fuel prices continued to wreak havoc on China's airlines.

Hainan (HNA) reported a +CNY228.9 million profit in the third quarter of 2007, while (SHA) was -CNY77.3 million in the black.

In the three months ended September 30, (HNA)'s operating revenue fell -8% to CNY3.41 billion against a +9.7% increase in operating expenses to CNY3.07 billion. (SHA)'s operating revenue dropped -9% to CNY3.15 billion, while expenses climbed +6% to CNY3.59 billion. Neither carrier released traffic figures.

Through the first nine months, (HNA) remained profitable to the tune of +CNY50.2 million, although that figure represented a steep decline from the +CNY419 million earned in the year-ago period. (SHA) lost -CNY414 million through the nine months.

Shenzhen Airlines (SHZ) plans to launch Kunming Airlines in January in the capital of Yunnan Province. Preparations for Kunming Airlines' launch have been underway since 2004 and the carrier gained (CAAC) (CAC) approval in 2005. But for various reasons, the preparations were suspended for some time, before being revived earlier this year when Shenzhen Airlines (SHZ) came forward to say it would be the controlling stakeholder. It also will provide airplanes and Maintenance Repair & Overhaul (MRO) support.

Kunming Airlines Chairman, Wang Qingmin noted that the carrier will launch with three airplanes, with plans to grow the fleet to 10 in 2009, 30 to 40 in 2010, 80 to 100 by 2015, and 150 to 200 by 2022. It eventually will open additional operating bases in Xi'an, Guangzhou, Tianjin, and Hangzhou.

Located in southwestern China, Yunnan is home to numerous resorts and is a popular tourist destination. Kunming Airlines will not be without competition; Hainan Airlines (HNA) signed a cooperative agreement with the Yunnan government in June to launch Yunnan Airlines, which will be comprised mainly of the assets of Lucky Air (LKY).

Despite the Chinese government's attempt to ease the burden on airlines by reducing landing fees -20% in March, 29 Chinese carriers had failed to pay about CNY4 billion/$585.1 million combined to airports as of September 30, according to the China Civil Airports Association (CCAA). The (CCAA) noted that domestic airlines owed CNY532 million on February 29, with Hainan Airlines (HNA) in arrears -CNY102.2 million. China's big three of Air China (BEJ), China Southern Airlines (GUN), and China Eastern Airlines (CEA) owed CNY45.7 million, CNY64.9 million and CNY44.2 million, respectively. Smaller privately held carriers like East Star Airlines (USR), Okay Airways (OKA), and Juneyao Airlines (JYA) are debtors as well. The (CCAA) Secretary General, Wang Jian said the defaults mainly comprise fees covering landing, parking and security services. Chengdu-based Eagle Airlines (UEG) reportedly has grounded two airplanes, owing to its shortage of liquid capital and severe debt burden. The (CCAA) said Eagle (UEG)'s defaults had reached CNY39.5 million as of February 29.

In order to defend airports' interests, the (CCAA) vowed to "take collective action" against defaulting carriers, but it backed off the stance later and said it had "constructive" talks with the China Air Transport Association, which represents domestic airlines. The organizations agreed to maintain communication in search of a solution.

China received a boost to its airplane manufacturing ambitions as (GECAS) (GEF) announced an order for five firm and 20 option (ARJ21-700)s. The airplanes will be powered by (GE)'s (CF34-10A) and are scheduled to begin delivering to the lessor (GEF) in 2013. (GECAS) (GEF) is the first Western customer to order the 90-seater, which now has sold 206 units. Commercial Aircraft Corporation of China (CACC) (CCC) Chairman, Zhang Qingwei said the commitment also marks the largest so far. It is worth up to approximately $800 million if all options are filled.

The first ARJ21-700 which rolled out 11 months ago, made its inaugural flight this month - - SEE ATTACHED PHOTO - - "GEF-ARJ21-700-NOV08." The regional jet reached an altitude of 9,000 feet during the one hour flight. Engineering flight tests will continue through 2009. Three additional airplanes will be added to the flight test program next year to support certification and service entry in 2010.

According to (GECAS) (GEF), (CACC) sees a potential market for 850 ARJ21s over the next 20 years, which (GE) said would be worth more than >$4 billion in engine revenue.

Meanwhile, Chinese Vice Minister Industry & Information, Miao Wei confirmed that the country's large commercial airplane, designed to compete with the A320 and 737, is expected to enter the market between 2016 and 2020.

He said the (CACC) (CCC), a joint venture between AVIC I and AVIC II, will conclude preparation work by the end of next year, start production between 2010 and 2015, and enter the market sometime over the ensuing four years. The evaluation of potential sizes, market outlook, customer support, certification and other parameters is "going very well," he said.

(CACC) (CCC) Managing Director, Jin Zhuanglong noted that the company is in close contact with foreign suppliers regarding engine selection, equipment and production materials. Jin also revealed that Beijing has opened discussions with Russia regarding cooperation on a large commercial airplane program.

China Aviation Industry Corporation (CAIC) Group, VP, Tan Ruisong told reporters that the result of the merger of AVIC I and AVIC II, was launched with registered capital of CNY64 billion/$9.36 billion.
President & CEO, Lin Zuoming said (CAIC), which will be responsible for the production of China's large commercial airplane, has established departments covering defense, transport airplanes, airborne equipment, engines, helicopter manufacturing, utility airplanes, aviation research, flight testing, trade and logistics and capital management. The separation of civil from military aviation removes barriers that would prevent the company's future acquisition by overseas interests.

(CAIC) signed an agreement with Shanghai's municipal government to establish a commercial aero engine company with registered capital of CNY6 billion. (CAIC) is the controlling stakeholder of the new venture, which is expected to launch in six months. Tan said the engine company will include privately run companies as shareholders, and foreign engine firms may be involved, if Beijing gives the "green light." He added, "It may take 15 years to develop and produce" a commercial airplane engine.

(CAIC) employs about 400,000 at some 200 subsidiaries. Lin is targeting +20% annual revenue increases and wants to reach CNY1 trillion in turnover by 2017. The company currently brings in CNY300 billion.

December 2008: Okay Airways (OKA) passenger operations will shut down for one month, owing to conflicts between airline management and the controlling stakeholder Juneyao (JYA) Group, which sent a letter to the (CAAC) (CAC) claiming it no longer is able to guarantee Okay (OKA)'s operational safety. The carrier will suspend operations from December 15 to January 15, as instructed by the (CAAC) (CAC), which will send staff to audit Okay (OKA)'s safety standards. It has delayed taking delivery of its second MA60.

Okay (OKA)'s cargo cooperation with FedEx (FED) will continue to operate as usual. Juneyao (JYA), which controls 63% of Okay (OKA), said the airline will earn a profit from its cargo business this year, but will continue to suffer losses on its passenger operation, as the Chinese market continues to decline. Okay (OKA) had hoped to introduce a third-party strategic investor, but the Juneyao Group rejected the strategy and plans to merge Okay (OKA) with its Shanghai-based, Juneyao Airlines (JYA) subsidiary.

The Chairman of (OKA)'s controlling shareholder, the Juneyao Group (JYA), Wang Junjin, promised that the troubled airline will resume flying "as soon as possible" following a one-month shutdown imposed by the (CAAC) (CAC). Wang admitted that Okay (OKA) has been suffering operating losses owing to "its unclear management focus to operate trunk routes and regional routes at the same time, as well as to explore not only the passenger transport market, but also the cargo transport market." In response, Juneyao (JYA) fired (OKA) Chairman, Liu Jieyin. It said it has no plan to lay off (OKA)'s general staff.

Owing to difficulties in securing profitable routes and pilots (FC), smaller privately run Chinese carriers are struggling to survive, especially in the current difficult environment. Wang said he plans to optimize (OKA)'s route network, improve efficiency, and reduce operating costs in order to boost performance.

(OKA) currently operates three 737 passenger airplanes, three 737-300F freighters, one MA60 and two Y-8s on nearly 20 domestic routes.

China's privately run carriers are struggling in the current environment. Spring Airlines (CQH), the most profitable domestic Low Cost Carrier (LCC), announced that its 2008 profit is expected to drop -70% from the +CNY70 million/+$10.2 million earned last year. (CQH) plans to charge for checked luggage to increase its operating revenue.

China Southern Airlines (GUN) received notice that China's Ministry of Finance agreed to inject CNY3 billion/$438.9 million in the carrier's holding company, it said in a filing with the Stock Exchange of Hong Kong. China's beleaguered national carriers have been appealing to the government for aid. Trading in (GUN) shares was suspended November 26 to 27. Trading in China Eastern Airlines (CEA) also was suspended, although no government aid was announced.

(GUN) recently announced plans to invest CNY10 billion over the next 3 to 5 years to enhance its position in Liaoning Province in northeast China. The provincial government will transfer its 40% stake in Shenyang Taoxian International airport (SHE) to (GUN), which will commit to upgrading the facility into a hub by 2020. In the short term, it will expand (SHE)'s terminal and launch 5 to 8 international routes in the next 3 to 5 years. (GUN)'s Northern Branch Company, based at (SHE), currently operates 24 airplanes on approximately 70 routes.

China Eastern Airlines (CEA) appealed to China's Ministry of Finance for a reduction in its tax liabilities as it reported a -CNY1.83 billion/-$265.5 million fuel hedging loss as of October 31. (CEA) CFO, Luo Weide said the carrier's tax burden includes a business tax, import tax, value-added tax, and civil aviation fees. It paid approximately CNY20.6 billion to the Beijing government from 2002 through the first half of this year. It also said that its application for a capital injection, similar to that granted to China Southern Airlines (GUN), is underway. Trading in (CEA) shares in Hong Kong, Shanghai, and New York remains suspended.

(CEA), whose stock has been suspended from trading since November 27, said that it will receive a CNY3 billion/$435.8 million cash injection from the government, according to press reports. (GUN) received a similar payout late last month. (CEA) will raise CNY2.35 billion through the issue of 652 million "A" shares to its state-owned parent company and an additional CNY652 million through the issue of "H" shares to its China Eastern International Holding subsidiary, according to a statement cited by the "Shanghai Daily." The parent company's stake in the airline will rise to 68.2% from 59.7%. "The raised funds will reduce (CEA)'s asset-liability ratio, increase the size of net assets, enhance the carrier's antirisk ability and ease its pressure from operational capital," the airline said. It reportedly has debts of approximately CNY70 billion.

As domestic demand continues to decline, overcapacity has become a problem. (CEA) Board Secretary, Luo Zhuping said the airline expects to take delivery of more than >40 airplanes by 2010, which will leave it facing "a tougher situation." He said Chinese airlines can continue to expect negative growth through the first half of 2009. For this reason, (CEA) has grounded around 20 airplanes and China Southern (GUN) has parked approximately 12. Air China (BEJ) plans to phase out or sell eight airplanes. But Luo said he is optimistic the industry will recover, when the economic situation improves. A key driver will be flights to secondary cities, and Beijing is expected to announce a significant investment in secondary airport expansion in the coming days.

The (CAAC) (CAC) "urged state-owned airlines to cancel or delay orders for new airplanes next year," according to China's official state news agency "Xinhua," which estimated that Airbus (EDS) and Boeing (TBC) are slated to deliver a combined 180 airplanes to the nation's carriers in 2009. The (CAC) pushed for airlines to return leased airplanes and ground or sell older planes "in an effort to keep carriers out of financial trouble, during the current global economic crisis." It further stated that it would be "very cautious" regarding the approval of new airplane orders next year and would not sanction the launch of any new airlines before 2012.

Airbus (EDS) said that it has not "received any requests from Chinese airlines to cancel or delay airplane deliveries," adding that it remains "committed to our long-term partnership with China." Boeing (TBC) stated that it had "no specific request" from Chinese carriers to delay deliveries and will "continue to work closely with our airline customers in China."

There were 1,256 civil airplanes in operation in China as of October, according to "Xinhua." "Since the second half of this year, the global economic crisis has had an increasingly negative effect on the development of the civil aviation industry," the (CAC) said.

China Southern Airlines (GUN) and China Eastern Airlines (CEA) announced last month that they had started to ground airplanes and cut flights. Domestic passenger traffic has dropped steadily throughout the second half of 2008, and China's major airlines are expected to post full-year losses.

USA Aerospace Industries Association President & CEO, Marion Blakey, speaking at the organization's annual forecast luncheon in Washington, said the (CAC) statement was another sign that "the international market is volatile." She added, however, that next-generation airplanes will give airlines "a competitive edge that I don't think the Chinese will be willing to give up."

The (CAC) also said it would lower fees on airlines to help ease carriers' financial burden.

Chinese carriers have had mixed reactions to the (CAC)'s recent call to "cancel or delay" 2009 airplane orders as a part of an effort to lift the domestic airline industry out of its current difficulties.
(CAC) also encouraged carriers to return leased airplanes and to ground or sell older planes, in addition to capacity adjustments, in order to reduce deliveries of foreign-made airplanes.

(CEA) answered the call and has applied to delay 2009 deliveries, but it noted that the number of airplanes it will delay, needs "further analysis of the market for next year." According to its original plan, (CEA) is expected to take 29 airplanes in 2009.

Meanwhile, (BEJ) is sticking to its schedule for the time being. However, (BEJ) Board Secretary, Huang Bin noted that it would accelerate the phase-out of older airplanes and cut some routes and flights.

(SHA) shared (BEJ)'s view and is not changing its airplane orders. It expects to take delivery of eight Western-built airplanes next year. It said market demand would determine the launching of any new routes.

(CQH) also is sticking to its schedule and has hired more than >40 pilots (FC) in the past four months. It even hopes to purchase two more A320s canceled by other Chinese carriers, but Chairman, Wang Zhenghua said that would require (CAC) approval. (CQH) is expected to introduce five A320s in 2009.

Truly direct scheduled flights across the Taiwan Strait finally began when (CEA) inaugurated its Shanghai - Taipei service. Cross-strait flights have occurred intermittently and infrequently since 2003, typically during peak leisure travel periods such as the Chinese New Year. Weekend cross-strait flights began in July, but this latest flight was the first that was not required to fly through Hong Kong airspace rather than directly across the Taiwan Strait. (CAAC) (CAC) Minister, Li Jiaxiang noted a direct routing can save approximately 1 hour 20 minutes and some 8 tonnes of fuel on a Beijing/Shanghai - Taipei flight. Last month, the (CAAC) selected (CEA), (BEJ), (GUN), (HNA), Xiamen Airlines (XIA), Shanghai Airlines (SHA), Sichuan Airlines (SIC), Shandong Airlines (SHG), and Shenzhen Airlines (SHZ) to operate 54 weekday flights between 16 mainland cities and Taiwan.

(CEA) is scheduled to conduct 10 cross-strait flights per week (four Shanghai - Taipei frequencies and a combined six from Beijing, Tianjin, Hangzhou, Chengdu, and Chongqing). (GUN) also will operate 10 - - four each from Guangzhou and Shanghai, and two from Shenzhen. This first flight operated the first direct cargo flight from Guangzhou.

(CEA) will fly 12-times-weekly - - seven from Shanghai, two from Nanjing, and one each from Xi'an, Kunming, and Wuhan. (HNA), (XIA), (SIC), and (SHZ) will operate from Haikou, Fuzhou, Chengdu, and Shenzhen respectively.

China Southern Airlines (GUN) Group Chairman, Liu Shaoyong was appointed as the new Chairman of (CEA) parent China Eastern Air Holding Co, appearing to pave the way for the merger of (CEA) and Shanghai Airlines (SHA). In an effort to boost Shanghai's status as an international aviation hub, the State-owned Assets Supervision and Administration Commission of the State Council, (CEA)'s controlling shareholder, reached agreement with the State-owned Assets Supervision and Administration Commission of the Shanghai Municipal Government, (SHA)'s controlling shareholder, on the merger of the two Shanghai-based airlines, an industry insider said. Key details on how the combination will move forward remain undecided, but Liu is expected to be Chairman of the merged carrier. The government's plan to revive (CEA) includes a change in leadership in advance of any consolidation. The (CAAC) (CAC) supports domestic consolidation. Among the measures announced as part of its effort to bolster the flagging Chinese airline industry was its promise to "support mergers and consolidation" when such combinations would improve management levels and enhance international competitiveness. Beijing also is considering injecting CNY28 billion/$4.08 billion in both (GUN) and (CEA) in addition to the CNY3 billion it already has granted each carrier.

Meantime, SASAC named Air China (BEJ) parent, China National Aviation Holding Co (CNAC) VP, Ma Xulun as (CEA)'s new CEO. He succeeds Cao Jianxiong, who is expected to be (CNAC)'s new VP. (GUN) Party Secretary, Li Wenxin will be responsible for the Guangzhou-based carrier until a new Chairman is appointed.

The Chinese government cut the domestic fuel price -32% to CNY5,050/$736.49 per ton from CNY7,450, marking the sixth time this year, Beijing has adjusted the domestic price. Because of the way in which fuel prices are managed by the government, Chinese airlines have not reaped the immediate benefit of the collapse in oil prices. Fuel expense currently accounts for 40% to 50% of Chinese carriers' total operating expenses. China Southern Airlines (GUN) is expected to benefit most from the new cut as it has the largest number of domestic routes, comprising 80% of its total. According to Shenyin Wanguo Securities Aviation Analyst, Li Shurong (GUN) will save about -CNY5.8 billion in fuel costs annually. China Eastern Airlines (CEA) is expected to save -CNY3 billion, while Air China (BEJ) can save -CNY3.7 billion, as its domestic routes account for only 50% of its total. The (CAAC) (CAC) also cut fuel surcharges on domestic routes by a large margin.

January 2009: The Chinese government decided to grant domestic airlines a three-year tax break on fuel charges retroactive to January 1, 2008, as part of its effort to mitigate the impact of the global economic downturn on the country's commercial aviation industry. The tax relief is expected to save Chinese carriers about -CNY2.5 billion in operating costs, but local industry analysts argued that it will do little to improve airlines' financial performance since the tax rate on fuel surcharges is only 3%. In addition, China cut surcharges on domestic routes by -75% last month to stimulate demand.

Okay Airways (OKA) applied to the (CAAC) (CAC) for permission to resume operations following its suspension last month. (CAC) North China Regional Administration spokesperson, Sun Defu confirmed that the (CAC) received (OKA)'s application and will conduct a safety check before granting approval, for which Sun did not provide a timetable. (OKA) Chairman, Liu Jieyin told local press that "fund shortages" remain an obstacle to the Tianjin-based airline's relaunch. It is estimated that (OKA) needs more than >CNY100 million to resume operations, and it has lost more than that amount in the weeks since it suspended operations following a dispute between management and the controlling shareholder Juneyao Group (JYA) over (OKA)'s operational safety. (OKA) also operated cargo flights in cooperation with FedEx (FED) and said it will attempt to resume its deal with the USA company as soon as it receives relaunch approval from the (CAC).

February 2009: Shanghai-based, Spring Airlines (CQH) and Juneyao Airlines (JYA) stood out among China's struggling privately held airlines and reported a profitable 2008.

In contrast to (CQH) and (JYA), other privately run carriers are suffering from capital shortages and struggling to survive in the difficult operating environment. Unlike state-owned airlines, they are unable to secure financial aid from the government. Wuhan-based, East Star Airlines (ESR) and Chengdu-based, United Eagle Airlines (UEG) are unable to pay significant bills owed to certain airports, while Tianjin-based, Okay Airways (OKA) suffered a -CNY200 million net loss in 2008.

Scheduled flights across the Taiwan Strait are expected to more than treble to 357 per week from 108 in July following third-round negotiations between Beijing's "Association for Relations Across the Taiwan Strait" and its Taiwanese counterpart, the "Strait Exchange Foundation." It was noted that two-thirds of the flights between Taiwan and Hong Kong/Macau are transit flights to the Chinese mainland. Currently, there are 340 flights between Taiwan and Hong Kong and 196 between Taiwan and Macau. The increase in cross-strait flights to 357 is designed to meet market demand.

In contrast to the expected increase, load factor on cross-strait flights hit a low of 70% LF this month owing to the economic slowdown. But carriers on both sides continue to believe that there is plenty of room to grow. Taiwan airlines' desire to secure fifth-freedom rights and fly from China to Europe has little possibility of approval due to complicated political factors.

Undeterred by the operating environment that has resulted in steep losses at Chinese carriers, Shenzhen Airlines (SHZ) plans to go ahead with the launch of its Kunming Airlines (KMG) subsidiary on February 15 as it searches for a foothold in the Yunnan market. The new venture has registered capital of CNY80 million/$11.7 million, with Shenzhen holding an 80% stake. Private investor, Wang Qingmin will take the remaining 20% with a CNY16 million investment.

(KMG)'s inaugural flight will be a Kunming - Changsha - Harbin routing. It initially will operate two 737-700s and one 737-800 provided by (SHZ), which also will furnish cabin crew (FC)/(CA) and Maintenance, Repair & Overhaul (MRO) support. (SHZ) has ambitious plans for Kunming. (KMG) will operate 10 airplanes by year end on 10 domestic routes, 30 to 40 airplanes by the end of next year, 80 to 100 by 2015, and 150 to 200 by 2022.

Located in southwestern China, Yunnan is home to numerous resorts and is a popular tourist destination. (KMG) will face competition. China Eastern Airlines (CEA), which boasts the largest share (39.5%) of the Yunnan market, plans to turn its provincial branch company into a separate subsidiary by selling shares to the Yunnan government. Hainan Airlines (HNA) signed an agreement with the provincial government last June to launch Yunnan Airlines, which will be comprised mainly of the assets of Lucky Air (LKY), which accounts for a 9.6% share of the market.

Carriers now must satisfy six conditions in order to get approval to open a new base. These conditions focus on an individual airline's safety record, fleet size, financial performance, on-time performance, payment of financial obligations and legal compliance. Carriers previously were permitted to establish domestic bases without (CAC) permission.

The Commercial Aircraft Corporation of China (CACC) (CCC) announced completion of the preliminary overall technological program for China's large commercial airplane and said it plans to conclude a feasibility study this year. Meantime, the ARJ21-700 has entered mass production. First flight was in late November and three additional airplanes will be added to the flight test program this year to support certification and service entry in 2010.

March 2009: (AVIC) is expected to launch an aero engine company, airborne systems company and composite material engineering center in conjunction with the Beijing municipal government. According to the strategic cooperation agreement, the three new companies will have total registered capital of CNY11.5 billion/$1.68 billion, with total investment of CNY21 billion.

The new (AVIC) is the product of the November merger of (AVIC) I and (AVIC) II. It employs about 400,000 at some 200 subsidiaries covering defense, transport airplanes, airborne equipment, engines, helicopter manufacturing, utility airplanes, aviation research, flight testing, trade and logistics and capital management. As part of its restructuring, (AVIC) established a new airplane company in Xi'an last month. In January, it launched a commercial engine company in Shanghai charged with producing the engine for China's large commercial airplanes. The Beijing engine company will lean toward military production and is targeting CNY160 billion in revenue by 2017. The new systems company is targeting CNY200 million in turnover.

The Chinese economy grew +7% last quarter, slower than its average over the past 7 years.

The Chinese government is on a quest to secure energy resources for its (until now) voraciously growing economy. That, in turn, is creating demand for routes like Beijing - Algiers, which Air Algerie (ALG) launched with A330-200s this month. Algeria is a major oil and gas producing nation.

Shenzhen Airlines (SHZ)'s subsidiary, Kunpeng Airlines is expected to replace Shandong Airlines (SHG) as the operator of the first ARJ21-700, which is scheduled to obtain its domestic airworthiness certificate next year. A (SHZ) spokesperson said that the first ARJ21-700 will be delivered to Kunpeng in the second half of 2010. (SHZ) ordered 100 ARJ21s at the end of 2007. In an effort to boost ARJ21 sales, Commercial Aircraft Corporation of China (CACC) (CCC) Vice Managing Director and the Chief Designer of China's large commercial airplane, Wu Guanghui called on Beijing to subsidize domestic carriers purchasing the ARJ21. The airplane has received 208 orders, 181 of which have come from China.

The Chinese airline industry showed some signs of recovery in January as domestic carriers posted a collective net profit of +CNY40 million/+$5.8 million, according to the (CAC). The airlines reported a -CNY7.07 billion net loss through the first 11 months of 2008. The regulator credited "favorable policies" implemented in December for the January result, including its decision to withhold approval for new entrants until 2010 and its call for carriers to cancel or delay airplane orders. Fee reductions and infrastructure improvements also played a role, the (CAC) said.

Chinese airlines transported 17.5 million passengers in January, up +17.6% from the year-ago month. On domestic routes, passenger boardings jumped +21.3% to 16.3 million, a sharp contrast from the -17% drop on international routes to 1.2 million. Passenger load factor rose +0.2 point to 75.2% LF but cargo volume plummeted -29% to 264,334 tonnes.

China Securities Aviation analyst, Li Lei predicted that Chinese carriers will narrow their collective full-year loss by a large margin and may even breach the black in 2009 owing to the slump in fuel prices and the lack of the fuel hedge losses that plagued the industry late last year.

(CEA) is considering joining a global airline alliance in an effort to improve its financial performance, according to Chairman Liu Shaoyong, who told reporters in Beijing that the Shanghai-based carrier is scheduled to evaluate the three global alliances in June in order to find the most "suitable" fit. Liu, who previously was Chairman of China Southern Airlines (GUN), led that Guangzhou-based carrier into SkyTeam (STM) in 2007 and suggested at the time that (CEA) join the alliance. He noted that (GUN)'s Beijing - Amsterdam service suffered an annual net loss of more than >-CNY100 million/-$14.6 million before it joined (STM) (which includes (KLM)), after which the route's performance improved and it even became profitable during peak traffic periods. "The process of joining a global airline alliance is also a training process, which has benefited (GUN) a lot," he added.

(CEA) is looking to work with airlines around the world as well. "We welcome various kinds of partners, no matter whether they want to conduct strategic cooperation with us, make financial investment in us or manage our brand," Liu said. As the global financial crisis deepens, he expects Chinese carriers to face a "more difficult situation." He called on Beijing to increase its financial commitment to airlines. (CEA) and (GUN) already have received capital injections from the government totaling CNY7 billion and CNY3 billion, respectively.

Liu also pushed Beijing to accelerate consolidation and mergers across the domestic airline industry in order to improve global competitiveness. It is widely expected that (CEA) will merge with Shanghai Airlines (SHA) this year.

East Star Airlines (ESR) (ESR) was forced to suspend operations by the (CAAC) (CAC) owing to its heavy debt burden and the collapse of a stake sale deal with Air China (BEJ) parent, (CNAC). It is the second privately held Chinese carrier to suspend service in recent months. Okay Airways (OKA) stopped flying in December, but resumed operations the following month.

(ESR) has been in financial crisis since last year. In June, the (CAC) suspended its right to fly to Shanghai, Guangzhou and Shenzhen because it was unable to remit "air transport funds" to the regulator in time. At year end, airports in Shenzhen, Yunnan and Hangzhou threatened to stop providing services to the carrier unless it paid the service fees it owed. According to the Wuhan Municipal Transport Committee, (ESR) also failed to make lease payments on its 10 A320s to (GECAS) (GEF), forcing the lessor to seek a legal settlement. (ESR)'s current debt is roughly estimated at CNY17 billion/$2.48 billion.

(ESR) was close to selling a stake to (BEJ) parent (CNAC) in an effort to boost liquidity. (BEJ) Chairman, Kong Dong noted recently that (CNAC) was "on the verge of closing on its purchase of (ESR)," but in a statement it released, (ESR) said it would not sell to (CNAC) owing to "its different management concept from (CNAC) and its much smaller size compared to the (CNAC)." A (CNAC) spokesperson said the company sent a letter to (ESR) trying to find out why the offer was rejected without warning or notification but there has been no reply. The spokesperson said (CNAC) remains committed to establishing a presence in the Wuhan market. It signed a cooperative agreement with the Hubai provincial government this month.

(BEJ) parent (CNAC) intends to move forward with its acquisition of a stake in (ESR), despite the Wuhan-based carrier's "strong opposition" to its "forceful purchase." (ESR) was forced to suspend operations on March 15 by the (CAAC) (CAC) owing to its heavy debt burden and the collapse of a stake sale deal with (CNAC). Chairman, Lan Shili was reported to have been kept under surveillance by local police following (ESR)'s suspension. (ESR) sent an e-mail to (CNAC) outlining its objections to the sale.

A (CNAC) spokesperson said, "For now, the working group [CNAC] sent to Wuhan for the stake purchase deal with (ESR), is staying in Wuhan, as the company hopes to continue pushing forward the deal with (ESR)." But the spokesperson also admitted that the "attitude and concrete measures taken by the Wuhan local government" will be a critical factor in (CNAC)'s effort to take control of (ESR). It currently is negotiating the wet-lease of (ESR)'s airplanes.

"Of course the Wuhan government hopes (CNAC) can successfully seal the stake purchase deal with (ESR) so that Wuhan's position as an aviation hub in central China can be strengthened," a Wuhan government transport committee spokesperson said, while stressing that local authorities will not force (ESR) to accept (CNAC)'s offer to merge with (BEJ). The government said that allowing (ESR) to go bankrupt is an option.

Launched in June 2005, (ESR) has registered capital of CNY80 million. Its 10 A320s operate on more than >20 domestic routes from its Guangzhou, Zhengzhou and Wuhan bases.

(ESR) will go bankrupt because of its inability to pay off its debts, according to the Wuhan municipal government. (ESR)'s six debtors reportedly have asked the local court to liquidate the carrier, which suffered a -CNY500 million/-$73.1 million operating loss last year. It is in arrears with both (GECAS) (GEF) and Wuhan Tianhe International Airport and also is behind on its fuel and insurance payments.

(ESR) was forced to suspend operations by the (CAAC) because of the debts and its decision not to sell a stake to (BEJ) parent, (CNAC).

A Wuhan government spokesperson said authorities are considering allowing (BEJ) to operate (ESR)'s airplanes (with (ESR) staff), which would uphold the cooperation agreement signed with (BEJ) three weeks ago. "(CNAC) is committed to exploring the market in the middle part of China," a (CNAC) spokesperson said. It still hopes to acquire a stake in (ESR) but will consider alternatives to increasing its foothold in the region. The spokesperson did not confirm reports that (CNAC) intends to establish a Wuhan branch company.

Chengdu-based, United Eagle Airlines (UEG), a privately held carrier, agreed to merge with Sichuan Airlines (SIC) through the sale of a 56% stake for CNY200 million/$29.2 million. The deal comes days after another struggling private airline, East Star Airlines (ESR), rejected a purchase offer from (BEJ) parent, (CNAC) and was suspended by Chinese regulator (CAC). (SIC)'s stake in (UEG) has increased to 76%. (SIC) is controlled by the local government (40%) and China Southern Airlines (GUN) (39%). The remaining 24% of (UEG) is held by five private companies led by Chengdu Huaying Investment Consultation (15.1% worth CNY45.4 million).

A (SIC) insider said that (SIC) aims to be better positioned in its home market because China Eastern Airlines (CEA) and Shenzhen Airlines (SHZ) plan to enter the area soon. (SIC)'s "deeper cooperation" with (UEG) will focus mainly on regional transport.

Launched in July 2005, (UEG) has registered capital of CNY80 million and operates three A319s and two A320s on 17 domestic routes. Owing to its small fleet, scattered ownership structure and the difficult external operating environment, it has suffered heavy losses and carries a debt burden. In December 2008, Chengdu Shuangliu International Airport stopped providing service to it because of CNY30.5 million in unpaid landing and ground service fees.

The spokesperson said that (UEG) will use the CNY200 million to pay off its debts and expand its business with new routes and fleet additions. It plans to launch Chengdu - Lijiang flights on March 28 and will resume all routes it had to suspend earlier this year. In addition, it expects to take delivery of an A320 in July.

The (CAC) said it will disallow competition on 51 new domestic routes that Chinese airlines will add between March 29 and October 24. The regulator said that each one of the new routes will be operated by only one Chinese carrier for three years. Industry analysts noted that the 51 routes are not particularly sought after and airlines would be reluctant to operate flights on them absent the protection against competition. The (CAC) said it is seeking to expand the domestic market in a weak economic environment in which domestic demand has been soft.

"It's quite risky to operate these routes as generally their market outlook is not very good, so [domestic carriers] have to make a big investment to breed and explore their market potential at first," Spring Airlines (CQH) spokesperson, Zhang Lei noted. But Zhang didn't rule out the possibility of earning profits on the routes as "the market is changing all the time and we can make proper capacity adjustments so as to take advantage of being the only operator for the first three years. Even if other carriers come in three years later, the original operator can still play a leading role."

International Aero Engines (IAE) announced the delivery of the first set of (V2500)s to Airbus (EDS)'s A320 final assembly line in Tianjin. The (V2500) will be installed on nine of the first 10 airplanes assembled there, including the first plane scheduled for delivery to Sichuan Airlines (SIC) this summer.

The (CAC) put an A320 full flight simulator (FFS) into service at its Hua-Ou Aviation Training Center, the facility's third (FFS). The Thales (THL) simulator will increase Hua-Ou's training capacity by more than >25%, it said.

April 2009: The USA (FAA) and the (CAAC) (CAC) signed a Memo of Understanding (MOU) "to share best environmental practices at airports in the two countries," according to the (FAA). The agreement was reached at the USA-China Aviation Symposium in Beijing. (FAA) Acting Assistant Administrator International Aviation, Di Reimold said, "I believe that the United States and China, which represent the two largest aviation systems in the world, have an obligation to the global community to lead the way in aviation cooperation . . . In order to sustain growth in our industry, we must find new ways to address greenhouse gas emissions and noise pollution."

Following the dramatic slowdown in demand during the second half of 2008, the Chinese airline industry experienced double-digit domestic growth in January and February that is being credited to Beijing's economic stimulation policies. Chinese carriers transported 34.5 million domestic passengers in the first two months of 2009, up +15.3% over the year-ago period. Boardings on domestic routes climbed +21.3% to 16.3 million in January and +17% to 16 million in February, according to the (CAC).

But industry analysts warned that it is too early to say the industry is recovering, as passenger boardings on international routes and cargo traffic continued to plummet. Hit hard by a sharp reduction in exports and a continuous decrease in international travel by Chinese citizens, airlines reported a -16.6% drop in freight to 524,404 tonnes in January - February, a -17% fall in January international passengers to 1.2 million and a -25.6% plunge in February to 1.1 million. Overall passenger load factor rose +2.4 points in February to 77.5% LF.

Shanghai Airlines (SHA) Chairman, Zhou Chi noted last month that consumer confidence requires further strengthening and that the domestic market remains price-sensitive. He said the Chinese airline industry may earn a profit this quarter, which is the traditional peak season. China Eastern Airlines (CEA) Board Secretary, Luo Zhuping is more optimistic and said he expects domestic carriers to enjoy a "good harvest" in 2009.

China Southern Airlines (GUN) became the first Chinese carrier to offer mobile check-in, another innovative step for the airline that sold the country's first e-ticket in 2000 and introduced the first common-use self-service kiosk in 2005 and the country's first online check-in option in 2006.

Mobile check-in initially will be available at Guangzhou Baiyun on flights to Zhengzhou and is expected to be expanded to other routes eventually. (GUN) introduced check-in via Short Message Service (SMS) last September, allowing passengers to check in and select their seats via mobile phones, then pick up their boarding pass at the airport. The service produces a barcoded boarding pass sent to the passenger's phone.

Air China (BEJ) plans to introduce the service on domestic routes leaving from Beijing shortly. It concluded a feasibility study last month and is awaiting approval from the (CAAC).

China Eastern Airlines (CEA) also is committed to expanding check-in options. "If we can't get creative with information technology, we will always be at the mercy of domestic e-travel websites," Chairman, Liu Shaoyong said.

Owing to a strong rebound in the domestic market and the continuing decrease in domestic fuel prices, Chinese carriers are expected to report a collective first-quarter profit, according to (CAC) Minister, Li Jiaxiang. Li noted that "favorable policies" implemented in December were effective in combating declining domestic demand and stimulating growth. Among those initiatives were the decision to withhold approval for new entrants until 2010 and the call for airlines to cancel or delay airplane orders, as well as fee reductions and infrastructure improvements.

Chinese carriers transported 34.5 million domestic passengers in the first two months of 2009, up +15.3% over the year-ago period. Boardings on domestic routes climbed +21.3% year-over-year to 16.3 million in January, +17% to 16 million in February and +15.8% in March. He also said that falling fuel prices have "reduced the operating costs of Chinese carriers," which has "contributed to the result in the first quarter."

The Chinese government cut domestic fuel price by -CNY460 per ton, effective April 1, which followed a -CNY330 per ton reduction in January. The new cut is expected to save the country's airlines about -CNY4 billion this year, with China Southern Airlines (GUN) benefiting the most (-CNY1.17 billion) because it operates the highest number of domestic routes, comprising 80% of its total schedule. Air China (BEJ) and China Eastern Airlines (CEA) each will save a little more than >-CNY600 million. Fuel expenses currently account for 40% of Chinese carriers' total operating costs.

China Southern Airlines (GUN) reported its first full-year loss in three years, a -CNY4.82 billion/-$704.1 million deficit that represented a reversal from the +CNY1.84 billion profit reported in 2008. (GUN) had warned last month that its loss would be deeper than expected, and a +1.6% year-over-year rise in revenue to CNY54.40 billion was not nearly enough to offset high fuel prices, the spring Sichuan earthquake, slowing demand and impairment charges related to retired airplanes. In a filing cited by both Dow Jones and "Bloomberg News," (GUN) reported a +1.8% lift in (RPK)s traffic to 83.18 billion and a +2.3% increase in passenger numbers to 58.2 million.

Air China (BEJ) joined its "big three" rivals in suffering a significant 2008 loss, reporting a -CNY9.15 billion/-$1.34 billion deficit under Chinese accounting standards that marked a reversal from the +CNY3.7 billion profit in the previous year. China Southern Airlines (GUN) reported a -CNY4.82 billion loss last year and China Eastern Airlines (CEA) lost -CNY13.93 billion. (BEJ)'s 2008 deficit under international accounting standards was -CNY9.26 billion, according to a filing cited by Dow Jones. (BEJ) blamed falling demand and fuel hedge losses for the result. Revenue climbed +7% last year to CNY52.97 billion.

(BEJ) also announced its first-quarter result, a +CNY981.2 million profit that was down -5.7% from the +CNY1.04 billion earned in the year-ago period but that represents a signal that the Chinese airline industry is starting to turn around. (CAAC) (CAC) Minister, Li Jiaxiang said that he expects a collective first-quarter profit. (BEJ)'s first-quarter revenue was down -12% to CNY11.24 billion.

In early March, (BEJ) Chairman, Kong Dong expressed pessimism about the carrier's 2009 prospects and said he did not expect a profitable year. The company has yet to receive word on its request for a capital injection from the Chinese government.

China Eastern Airlines (CEA) reported a -CNY13.93 billion/-$2.04 billion loss in 2008, according to domestic accounting standards, a reversal from a +CNY604 million profit net profit reported in 2007. Its loss under international accounting standards reached -CNY15.26 billion. Operating revenue fell -4% year-over-year to CNY41.84 billion (domestic accounting standards) while expenses climbed +14% to CNY43.08 billion, an increase attributable mainly to a +22.3% jump in fuel costs to CNY18.49 billion.

(CEA) blamed "the rapid decline of domestic demand" caused by various natural disasters, the global financial crisis and "drastic increases in capacity" throughout China for the result. It said the global recession also had a "negative impact" across its international network.

It had a fleet of 240 airplanes as of December 31. It took delivery of 19 airplanes in 2008: One A319, seven A320s, five A321s, one A330-200, three A330-300s, one 737-700 and one 737-800 - - as well as one 737-300 and one 747F on lease. It reported a -5.9% drop in (RPK)s to 53.8 billion and a -4.9% reduction in passenger boardings to 37.2 million. Load factor fell -2.8 points to 70.8% LF and cargo traffic was down -5.4% to 889,480 tonnes.

The Shanghai-based carrier has received a CNY36 billion line of credit from domestic banks to shore up its finances during the downturn. It predicted "negative growth" in the international market this year, although the domestic market may recover. Expo 2010, scheduled to take place in Shanghai next year, will offer new opportunities, but "domestic overcapacity still remains serious," it said.

This year, (CEA) aims to transport 42.8 million passengers while raising load factor +2.2 points to 73% LF and boosting cargo traffic to 950,000 tonnes. Chairman, Liu Shaoyong noted earlier this year that it plans to narrow its loss by a significant margin in 2009, break even in 2010 and turn a profit in 2011.

The Chinese commercial aviation industry is expecting a turnaround in the recently completed quarter.

(GUN) announced an agreement with China Construction Bank including a CNY20 billion line of credit. Chairman, Si Xian Min said, "In face of the current global economic downturn and waning demand, (GUN) still recorded steady growth in passenger traffic in first quarter 2009. (GUN) expects this new bank-enterprise cooperation to bolster its business and bring new possibilities."

May 2009: Chinese airlines adopted a new pricing standard that effectively will raise fares by approximately +10%. On April 20, carriers began offering discounts on the base price of the ticket only versus the previous practice of discounting on the full rate comprising the base and floating prices. The new standard has upset many travelers in China, although many discounted fares remain available on airlines' websites. Both Air China (BEJ) and China Southern Airlines (GUN) denied the new standard was designed to raise fares, insisting that they are only intent on improving sales systems and plan to adhere to the national ticket policy enacted in 2004. The CAAC (CAC) denied media reports suggesting there was collusion among major Chinese carriers.

Meantime, TravelSky Technology Ltd (eTerm), China's state-owned Information Technology (IT) solutions provider, upgraded carriers' sales systems in accordance with the new standard. TravelSky is the system used by nearly all Chinese airlines. Spring Airlines (CQH) is an exception and has developed its own system.

(BEJ) is expected to establish a branch company in Wuhan, capital of Hubei Province, following the collapse of parent (CNAC)'s deal with East Star Airlines (ESR). (ESR) suspended operations in March and went bankrupt after its decision not to partner with CNAC, and now (BEJ) plans to purchase assets including (ESR)'s routes and slots. It intends to rehire (ESR) staff. "We have applied to the (CAAC) (CAC) to establish our branch company in Wuhan owing to the failure of our stake purchase deal with (ESR)," a (BEJ) spokesperson confirmed.

Based on an agreement signed by (BEJ) and the provincial government in early March, (BEJ) will allocate 15 airplanes to the Wuhan market and launch service to Paris, Tokyo and Singapore by 2010. (BEJ) plans to increase the fleet number to 30 by 2015 and open routes to Los Angeles, London and Berlin. (BEJ) currently accounts for only 5% of the Wuhan market while (GUN) has 40% and (CEA) holds more than >20%. (ESR) took 10%.

(BEJ) also plans to establish a deeper foothold in Shanghai. Chairman, Kong Dong claimed that it aims to raise its market share in China's most populous city to 20% this year from 14%. He also said (BEJ) expects to introduce 27 new airplanes in 2009 and retire 8 to 10 as their lease expire. It plans to purchase wide bodies starting in 2011. Kong also expressed concern over the swine flu epidemic, drawing comparisons to the (SARS) scare in 2003. "We are paying close attention to market changes. Our biggest worry is that swine flu might affect international travel. Hopefully, it won't have too much of a negative impact on market demand that has just started showing signs of recovery," he said.

China Eastern Airlines (CEA) is expected to receive a further +CNY2 billion/+$294 million capital injection from the Chinese government to help the struggling carrier survive. (CEA) was allocated CNY7 billion from Beijing at the end of 2008, which was approved by minority shareholders in February and is awaiting approval from the China Securities Regulatory Commission. "Our biggest problem is insolvency. We would have gone bankrupt if we hadn't received [the] capital injection," (CEA) Board Secretary, Luo Zhuping noted. CEO, Ma Xulun also admitted that the carrier can't solve its financial problems by itself. (CEA) had a debt burden of CNY83.7 billion as of March 31 and its debt ratio reached 115.13% in the same time frame, according to its financial report for the first quarter.

Industry analysts pointed out that the bailout money is meant to pave the way for a merger with Shanghai Airlines (SHA), which is reported to have been discussed at the government level, but no specific plan has been made. (SHA) Chairman, Zhou Chi has stressed that the merger won't happen in the near future.

(CEA) announced that its CNY7 billion capital injection from Beijing has been approved by the China Securities Regulatory Commission.

Hainan Airlines Group plans to relaunch its "Grand China Express Airlines" subsidiary as "Tianjin Airlines" on June 8 after reaching a deal with the local government. Originally started in June 2007, Grand China operated 10 EMB-190s, 12 ERJ-145s and 29 Do 328-300s in April on more than >80 domestic routes. In December, the Tianjin government agreed to inject CNY200 million/$29.3 million into Grand China, giving it a 15.4% stake in the reconstituted carrier, which has been approved by the (CAAC) (CAC). Hainan (HNA) will remain the controlling stakeholder, expanding its share in Tianjin Airlines to to 83.4% with an additional investment of CNY500 million. Its Hainan Airlines (HNA) subsidiary holds the remaining 1.5%. The new airline is expected to operate 100 airplanes on more than >500 routes to 100 cities by 2012.

(HNA) is not the only domestic carrier to seek local government support. It has been reported that Tianjin-based Okay Airways (OKA) also plans to introduce the Tianjin government as its strategic investor. "It had planned to purchase a 40% stake of (OKA), but the sides haven't reached an agreement yet," a source close to the issue said.

(HNA) is expected to receive a CNY3 billion/$439 million capital injection from the Hainan provincial government and its parent the Hainan Airlines Group (HAG) to facilitate fleet expansion and improve its debt ratio. The provincial government and the (HAG) each will provide CNY1.5 billion to (HNA). The money is intended to reduce the Haikou-based carrier's debt ratio to 81%. (HNA) plans to introduce 90 new airplanes in 2009 to 2013. They will cost around CNY24.3 billion; the capital injection is aimed at broadening airplane financing channels available to (HNA), Guotai Junan Securities noted. China Eastern Airlines (CEA), China Southern Airlines (GUN), Shanghai Airlines (SHA) and Grand China Express have received CNY7 billion, CNY3 billion, CNY1 billion, and CNY200 million government capital injections, respectively.

The first A320 assembled outside Europe successfully completed its inaugural flight, taking off from Tianjin International in the morning and landing safely a little more than 4 hours later. The airplane assembled at Airbus (EDS) Final Assembly Line China (FALC) was ordered by Dragon Aviation Leasing and is set to be delivered in June to Sichuan Airlines (SIC). "This A320 assembled in China unquestionably demonstrated the same quality and performance as those assembled and delivered in Hamburg or Toulouse," (EDS) Senior VP Flight & Integration Tests, Fernando Alonso said.

Eleven A319s/A320s are scheduled for delivery in Tianjin this year. The production rate will be ramped up to four airplanes per month by the end of 2011. The A320 (FALC) is a joint venture between (EDS) (51%) and a Chinese consortium comprising Tianjin Free Trade Zone and AVIC (49%).

Hit hard by competition from high-speed rail, Spring Airlines (CQH), the most profitable Chinese Low Cost Carrier (LCC), is abandoning plans to open a second base in Zhengzhou to the north and shifting its attention south to Sanya in Hainan Province. "We have allocated two A320s to Sanya to operate on ten new routes to Xi'an, Guiyang, Hangzhou, Jinan, Nanjing, Nanchang, Nanning, Tianjin, Wuhan and Zhengzhou," a (CQH) spokesperson said. "We intend to establish Sanya as our second domestic base, but it needs to be approved by the (CAAC) (CAC)." (CQH) is expected to allocate three more A320s to Sanya by year end and increase its fleet to 30 A320s with 44 daily departures by 2015.

Zhengzhou was attractive because it boasts China's only low-cost terminal, but Spring (CQH) changed its mind owing to the presence of high-speed rail, "which has exerted a big negative impact on our passenger load factor," the spokesperson said. Hainan, by contrast, "has rich tourism resources, which can guarantee high load factors as we have the support from our tourism agencies around the country," the spokesperson explained. He revealed that Sanya Fenghuang International plans to build a low-cost terminal for the carrier.

(CQH) cancelled its Shanghai - Zhengzhou service in March, but the spokesperson said it is "still optimistic" about Zhenghzou and is considering adding frequencies.

Recovery of the domestic market helped (CQH) post a +CNY15.9 million/+$2.3 million first-quarter profit, up +40% from the year-ago period. But it is cautious about the remainder of the year due to the swine flu scare and an increase in domestic fuel prices. Beijing raised the price by +11.5% to CNY4,450 per ton.

June 2009: Joy Air, the joint venture launched by (AVIC) and China Eastern Airlines (CEA) in the spring of 2008, will begin operations next month following the arrival of two MA60s. The Xi'an-based carrier signed a contract for 13 MA60s at last November's Zhuhai Air Show and plans to acquire 50 of the type, plus 50 ARJ21s, within the next eight years.

(CEA) has partnered with the Yunnan provincial government to launch a joint venture based on (CEA)'s Yunnan branch subsidiary (YUN) that will endeavor to build Kunming into a regional hub. (CEA) is expected to sell a stake in the branch company to the government, although it is widely speculated that (CEA) will remain the controlling shareholder.

In February, (CEA) Chairman, Liu Shaoyong noted that (CEA) is looking to buttress its network with regional hubs at Kunming and Xi'an. Its Yunnan branch commands 45% of the provincial market and was profitable in the first quarter, although it did not disclose that figure. The new venture will face competition. Hainan Airlines (HNA) signed an agreement with the provincial government last June to launch its Yunnan Airlines. It will be comprised mainly of the assets of Lucky Air (LKY), which accounts for 9.6% of the market.

Shenzhen Airlines (SHZ) launched Kunming Airlines (KMG) on February 15 and is looking at expanding its fleet to 10 airplanes by year end operating 10 domestic routes. It hopes to be operating 30 to 40 airplanes by the end of 2010, 80 to 100 by 2015, and 150 to 200 by 2022. It currently operates two 737-700s and one 737-800 provided by Shenzhen (SHZ).

(CEA) is expected to hold 65% of its new Kunming-based joint venture with the Yunnan provincial government, with which it signed an agreement recently. The government will hold the remainder and is investing both real estate and cash. The new carrier will not fly with (CEA)'s logo nor code but will use the green logo of Yunnan Airlines, the predecessor of (CEA)'s local branch company that merged with the larger airline in 2002. It will adopt its own name and flight code.

(CEA) Chairman, Liu Shaoyong shrugged off the competition the new venture will face in the Yunnan market. The government reportedly was expected to inject capital into Lucky Air (LKY), which will form the foundation of its joint venture with Hainan Airlines (HNA). Shenzhen Airlines (SHZ) subsidiary Kunming Airlines (KMG) launched in February. "We are open to market competition, as no company can monopolize the market. But our new venture will be the 'national team' of Yunnan province, which will definitely make it better positioned compared with other companies," Liu said.

(CEA)'s Yunnan branch currently operates 37 airplanes and transports approximately 6 million passengers annually. It plans to expand the new carrier's fleet to 50 airplanes next year and increase passenger boardings to 8 million in the same time frame. In addition, it is committed to boosting its share of the Yunnan market from 45% to 50% this year.

Hainan Airlines (HNA) subsidiary Lucky Air (LKY) received a CNY290 million/$42.4 million capital injection from the Yunnan provincial government. (LKY) now has registered capital of CNY906 million, with (HNA) subsidiary Grand China Airlines (GCH) the controlling stakeholder at 68%. Yunnan will hold the remainder. The parties reached an agreement last June to launch a new carrier (Yunnan Airlines) based on (LKY)'s assets. A Yunnan official said that the Lucky (LKY) name will be maintained for the time being. (LKY) held an 18% market share as of March, second to China Eastern Airlines (CEA)'s Yunnan branch (45%). (CEA) and the government announced their own joint venture. (LKY) currently operates 10 airplanes on 448 weekly flights across 24 routes. (LKY) plans to expand to 30 airplanes over the next three years. This marks the third time (HNA) has received financial support from the government. Hainan Province injected CNY1.5 billion, while the Tianjin government put CNY200 million into Grand China Air (GCH).

The government-prompted merger of China Eastern Airlines (CEA) and Shanghai Airlines (SHA) is expected to happen shortly as Beijing seeks to implement its long-term plan to position Shanghai as an international aviation hub. Both (CEA) and (SHA) suspended trading and are planning an important announcement, according to a statement released by the Shanghai Stock Exchange. (SHA) VP Feng Xin confirmed the trading suspension was related to the pending merger. "Yes, we are going to merge with (CEA) very soon," Feng said, but he would not reveal any details on the process.

Another source close to the issue said the merger plan "has already been approved by China's State Council and most probably will be conducted through cross-shareholding." (CEA) currently code shares with (SHA) on 88 flights across five domestic routes.

(CEA) General Manager, Ma Xulun noted in April that the carrier plans to enhance its position in Shanghai. Ma said it holds just 32% of its home market, less than its "big three"' rivals command at their bases. China Southern Airlines (GUN)'s market share in Guangzhou exceeds 50% and Air China (BEJ) holds 45% of the Beijing market. As (SHA) takes up 18% of Shanghai market, the new (CEA) is expected to occupy about 50% when the merger is finished. (CEA) and (SHA) each suffered big losses last year. (CEA) posted a record deficit of -CN13.93 billion/-$2.04 billion, while (SHA) reported a -CNY1.25 billion net loss. In order to pave the way for the merger, the government already has made capital injections of +CNY9 billion and +CNY1 billion to (CEA) and (SHA), respectively.

Industry analysts have said that (SHA) may have to withdraw from the Star Alliance (SAL), since (CEA) is expected to sign a membership agreement with SkyTeam (STM) this month.

Air China (BEJ), China Southern (GUN), and Shenzhen Airlines (SHZ) are supporting the merger publicly. "Let's wait and see and we will be happy to see they have a successful merger," (GUN) Chairman, Si Xianmin said.

(SHZ) sold its 46% stake in Yalian Business Jet Company, launched in 2007, to New Epoch Leasing Company for CNY66 million.

International Aero Engines (IAE) President & CEO, Jon Beatty said the (V2500), which had a "slow start" in China because it was not the first engine available for the A320, will gain traction now that it is powering nine of the first 10 airplanes assembled at the new Tianjin (FAL). Its first was delivered to Sichuan Airlines (SIC). "I see growing potential here in China," he said. The Chinese government has ordered 600 A320s for delivery in four blocks. "The government buys the airplane and assigns them to the different carriers, but the airline itself selects the engine," Beatty explained. Engines already have been selected for the first two blocks, while the process is underway for the third. Beatty is aiming for a market share of "more than a half." The (V2500) currently powers more than >200 airplanes in China and has been selected for 180 additional planes in the past 24 months.

Goodrich Corporation (BFG) opened a 50,000-sq-ft facility at Tianjin Airport Industrial Park to support nacelle and thrust reverser original equipment as well as Maintenance Repair & Overhaul (MRO) activities. In addition, it will support "engine buildup and podding work" for the new A320 family final assembly line (FAL) in Tianjin. The facility will serve as an interim location until (BFG) opens a permanent 170,000-sq-ft complex directly across from the (FAL).

East Star Airlines (ESR) may avoid bankruptcy thanks to a takeover offer from Shanghai YuField Industrial Company (SYIC), which submitted its application along with airline stakeholder East Star Tourist Agency (ESTA) to the Wuhan court. Shanghai YuField is expected to lead a consortium that will purchase an 85% stake in (ESR), while original stakeholders East Star Group, ESTA and East Star Holding Company will hold the remainder. The (CAAC) (CAC) forced (ESR) to suspend operations in February owing to its inability to pay off debt. (ESR) had rejected a takeover bid from Air China (BEJ)'s parent company just recently. Its debts reportedly exceed CNY500 million/$73 million.

"After (ESR) announced it would go through bankruptcy procedures [in March], we have been looking for strategic investors to save it from bankruptcy. Now we have found Shanghai YuField and reached an agreement," (ESTA) Vice General Manager, Wu Zhiyong said.

(SYIC) apparently is not the only suitor. There are at least three other strategic investors ready to make CNY5 million investments. Approval of the takeover application is not a formality and the court is obliged to hear the views of (ESR)'s debtors, which include (GECAS) (GEF), China National Aviation Fuel Group, and some domestic airports.

Industry analysts pointed out that (ESR) still faces "many difficulties" even if (SYIC)'s application is approved owing to its fleet issues and fierce competition in Wuhan. It had nine A320s before suspending operations, but those airplanes either have been detained by debtor airports or repossessed by (GECAS) (GEF).

Later, (BEJ) launched its Hubei branch company, officially abandoning its pursuit of (ESR) and opening service from Wuhan to Guangzhou, Hangzhou and Shenzhen. (BEJ) is basing six airplanes at Wuhan and plans to introduce another half-dozen by year end, by which time it will have launched service to Xi'an, Urumqi, Nanjing, Shenyang, Macau (July), and Taipei (August). "We will develop our network in the middle part of China on our own. So whether (ESR) goes bankrupt or introduces new investors doesn't bother us at all. We won't have anything to do with it anymore," a spokesperson from (BEJ) parent (CNAC) said. The Hubei branch has hired about 600 former (ESR) employees, including 47 pilots (FC).

Meanwhile, (ESR) suffered a blow as the Wuhan court rejected the takeover offer from the Shanghai YuField Industrial Company. East Star investor East Star Tourist Agency said it would appeal to the Hubei provincial court.

(ESR)'s liquidation team comprising Wuhan government organs had rejected the takeover offer, citing the large debt owed by (ESR). According to the Wuhan Zhonghuan Accounting Firm, (ESR) has debt of CNY1.01 billion/$147 million with a negative net asset value of CNY579.9 million.

CASC (CSC)/Airbus (EDS) Customer Services training and support center in Beijing is looking to adjust its business model as more airlines acquire their own full flight simulators (FFS)s, Managing Director Administration & Programs, Michelle Pierre Petit said. The 18,800-sq-m facility, which opened in 1997, includes two A320 and one A330/A340 simulators. "More airlines buying their own simulators means we have to also focus on training the trainers," Petit said. The facility has about 20 airline customers, but there currently are 16 A320 (FFS)s in China with more to come. The expected addition of an A380 simulator at Malaysia Airlines (MAS) will present competition on that front as well, Petit said.

July 2009: China Eastern Airlines (CEA) shares in Hong Kong rose as much as +14.4% after (CEA) announced it was acquiring rival Shanghai Airlines (SHA) for just under Rmb 9 billion/$1.3 billion as it battled high operating losses. However, the shares lost much of their early gains to close just +2.9% higher at HK$1.79, against a -2.6% decline in the benchmark Hang Seng index. The state-orchestrated tie-up will see (CEA) dominate the Shanghai aviation hub and become China's largest airline by market share.

(CEA) also said it would raise about Rmb7 billion by issuing new shares to strengthen its balance sheet. This followed a +Rmb7 billion cash injection from its state-owned parent last month. In a widely-anticipated agreement, (CEA) said the acquisition would be conducted through a share swap at 1.3 (CEA) shares for each (SHA) shares.

(CEA) has been the worst performer of the country’s struggling airlines industry. Last year, (CEA) saw its total liabilities exceed its total assets by more than >Rmb12.6 billion. It also made a net loss of -Rmb13.9 billion because of falling passenger numbers and massive hedging losses caused by plummeting oil prices, while (SHA) reported a net loss of -CNY1.24 billion. (CEA) said it needed to raise more capital because its gearing ratio remained at a very high level and its net assets were still negative, even after last month’s capital injection. “As a result, (CEA)’s operating and financial condition is under enormous pressure,” (CEA) said.

Following the merger, (CEA)’s market share in Shanghai will increase from 35% to more than >50%. (CEA) will also control 30% of China’s aviation market. The fierce price war between the two Shanghai-based airlines – which had many overlapping routes – had been a major reason for (CEA)’s losses. (CEA)’s domestic yield per seat is -10% and -3% lower than that of Air China (BEJ) and China Southern (GUN), respectively. According to Citigroup analysts, the merger should immediately boost (CEA)’s earnings by +Rmb1 billion to Rmb3 billion. They also expected (CEA) to return to profitability this year.

But analysts also warned that cost savings from the merger would be limited in the longer term. “It will create a dominant airline in Shanghai and synergies will come from some cost cutting. But there won’t be massive layoffs given (CEA) is a state-owned company and it will be hard to see lots of efficiency,” said Kelvin Lau, analyst at Daiwa Institute of Research in Hong Kong.

(CEA) also plans to expand its Beijing market share to 20% from 13% over the next five years, Chairman, Liu Shaoyong said. This month, it launched its Beijing branch company, which is expected to operate nine A330s by year end. Air China (BEJ) plays a dominant role in the capital with a 45% market share, while China Southern Airlines (GUN) occupies 16%.

"After the merger, (CEA) is interested in selling a stake to an Asian carrier that will be its strategic investor. Most likely, it will try to introduce Singapore Airlines (SIA) again. Both carriers have started contact," an internal source said.

In a prelude to an overhaul of the troubled aviation sector, China in December reshuffled top executives among its three largest state-owned airlines (CEA)/(GUN)/(BEJ), paving the way for the industry to consolidate.

China Eastern Airlines (CEA) will benefit the most from the agreement reached in April to expand significantly the number of flights permitted across the Taiwan Strait, according to a cross-strait distribution plan released by the (CAAC) (CAC). The Taipei-based Strait Exchange Foundation and the Beijing-based Association for Relations Across the Taiwan Strait, signed the accord that increases from 108 to 270 the number of direct flights allowed beginning this month. Under the (CAC)'s plan, (CEA) is designated to operate 58 weekly flights to Taipei from Shanghai, Nanjing, Wuhan, Qingdao, Kunming, Xi'an, Hefei, Ningbo, and Nanchang. (CEA) Board Secretary, Luo Zhuping noted that the carrier's cross-strait routes are among its most profitable and have operated at 80% to 90% (ASK) capacity on average.

Air China (BEJ) was assigned 54 weekly flights to Taipei from Beijing, Shanghai, Chengdu, Chongqing, Hangzhou, Tianjin, and Guiyang. China Southern Airlines (GUN) also was allocated 54 weekly flights to Taipei to be operated from Shanghai, Guangzhou, Xiamen, Dalian, Guilin, Shenzhen, Wuhan, Changsha, Haikou, Shenyang, Zhengzhou, Harbin, and Guiyang.

Hainan Airlines (HNA) and Shanghai Airlines (SHA) each were allocated 20 weekly flights, while Xiamen Airlines (XIA) was given 22. Sichuan Airlines (SIC), Shandong Airlines (SHG) and Shenzhen Airlines (SHZ) were granted 14 weekly flights each.

On the cargo front, Air China Cargo (CAO) was assigned 10 weekly flights to Taipei from Shanghai and Guangzhou, while (CEA) subsidiary China Cargo Airlines (CKK) was assigned eight weekly flights from Shanghai to Taipei and China Southern (GUN) was assigned 10 weekly flights from Guangzhou to Taipei.

Okay Airways (OKA) Chairman, Wang Junjin said (OKA) will add one or two new investors within two months that will provide a capital injection of +CNY200 million/+$29.2 million to bolster the troubled airline. The Tianjin municipal government reportedly is one of the potential investors and is expected to purchase a 40% stake, but Wang refused to confirm this. (OKA) currently has a registered capital of CNY300 million. The Juneyao Group (JYA), of which Wang is also the Chairman, controls a 63% stake while Beijing Dadiqiao Investment Company and three other individuals hold the remainder.

Asked if the capital injection will dilute Juneyao (JYA)'s holding, Wang said, "It is not important whether we are the controlling stakeholder or not after the capital injection. It's more important for (OKA) to maintain stable growth."

(OKA) was forced to suspend operations December 15, 2008 to January 15, owing to conflicts between airline management and Juneyao (JYA). Wang admitted the problems remain unresolved, but he insisted that the internal conflicts won't impede the company from attracting new investors. "(OKA)'s stock equity structure will change after we introduce new investors, which will alleviate the conflicts," he said.
However, the problems have had a negative impact on the carrier's safety standards. A (CAAC) (CAC) source revealed that the regulator has told (Oka) to strengthen its level of safety or face the prospect of having its operations restricted. Wang rejected the notion that (OKA) will have to suspend operations again and claimed that it now enjoys a stable cash flow. He added that it recently resumed cargo services.

Hainan Airlines (HNA) opened a branch office in Shenzhen and said the move is part of an effort to expand its presence in the Pearl River region. "We plan to interconnect Shenzhen, Guangzhou and Zhuhai with Hong Kong," (HNA) VP Marketing, Chen Ming said. (HNA) already has set up a branch office in Guangzhou and a sales center in Zhuha and holds 45% stakes in Hong Kong Express Airways (HKE) and Hong Kong Airlines (CRY).

(HNA) currently has an 8% market share in Shenzhen, operating 10 737s and three freighters on 25 domestic routes. It is targeting a 12% share by 2012 and 16% by 2016. It plans to allocate 50 more airplanes to Shenzhen in the five years after the airport's second runway is completed in 2011. It also plans to add two 737F freighters and one 747F freighter to the market by 2010 to open more domestic as well as international cargo routes.

East Star Airlines (ESR) asked the (CAAC) (CAC) for permission to resume operations despite a Wuhan court's rejection of takeover offers from China National Aviation Fuel Holding Company and Shanghai YuField. (ESR) was forced to suspend operations and enter bankruptcy owing to its heavy debt burden and the March collapse of a share sale deal with Air China (BEJ) parent, (CNAC).

(ESR) spokesperson, Zhao Changbing disputed reports that (ESR) owed CNY1.01 billion/$147.6 million. "In fact, our debt was about CNY752 million before we were suspended but we have total capital of CNY1.01 billion, so we still have a net asset of CNY257 million, which proves we don't have a financial problem at all. So we hope the regulator [will] approve us to resume operation," he said. He reiterated (ESR)'s interest in welcoming any investors interested in a takeover even though five (CNAF) subsidiaries, seven airports and Shanghai YuField have made no progress.

Air China (BEJ) (CNY1.5 billion/$219.3 million), China Southern Airlines (GUN) (CNY1.5 billion), and China Eastern Airlines (CEA) (CNY100 million) are expected to receive additional capital injections from the Chinese government, according to "Shanghai Securities News." (CEA) Board Secretary, Luo Zhuping responded by saying that (CEA) will not receive any new money until its merger with Shanghai Airlines (SHA) is complete. It got CNY7 billion from Beijing at the end of last year, helping it reduce its debt ratio to 105% from 115.1%. A (CEA) spokesperson said in May that it expected an additional +CNY2 billion. (GUN) received CNY3 billion last winter, whereas (BEJ)'s request remained under review. Spokespeople for (BEJ) and (GUN) were unavailable to confirm the new capital injection.

Meanwhile, Beijing cut domestic fuel prices by -CNY280 per ton. China Securities aviation analyst, Li Lei said the domestic airline industry would save -CNY2 billion annually as a result. (GUN) is expected to benefit the most, as domestic routes comprise 80% of its total. Li estimated the airline would save -CNY670 million.

August 2009: China's airlines earned a collective net profit of +CNY3.85 billion/+$563 million in the first half of 2009, a +4.1% increase over a +CNY3.7 billion profit in the year-ago period. The earnings improvement was helped by lower fuel prices, elimination of the civil aviation infrastructure tax that was imposed in the second half of last year and an exemption from bunker surcharges, CAAC (CAC) Minister, Li Jiaxiang said. China's domestic jet fuel price lowered -34.7% year-over-year in the first half, leading to an estimated -CNY10.5 billion in savings for the country's carriers.

According to the (CAC), the airlines transported 107 million passengers in the 2009 first half, up +16.4% year-over-year, while cargo traffic volume dropped -7.3%. Although passenger boardings climbed +20.4% on domestic routes, industry analysts pointed out that operating revenue did not increase at a corresponding rate owing to a sharp decrease in fares.

In contrast to the domestic passenger increase, international passenger boardings plummeted -16.8% while international cargo volumes decreased -17.4%. Both were affected by the global financial crisis and the swine flu scare, factors that contributed to a major decline in China's exports and international travel, the (CAC) said.

Li expressed optimism that Chinese carriers would enjoy a better performance in the year's second half. He added that the (CAC) plans to stimulate airlines' recovery on international operations by providing subsidies on long-haul routes.

Spring Airlines (CQH) reported a half-year net profit of +CNY41.17 million/+$6 million, a threefold year-over-year improvement, on a +20% lift in revenue to CNY894 million. (CQH) credited "effective cost control" and a "high load factor" for the result. (CQH) said it saved about CNY28.41 million in fuel expenses for the first six months and maintained a load factor of 95% LF, +17.4% higher than the domestic airline industry average.

Looking ahead, (CQH) expects to earn net income of +CNY100 million for the full year. "The domestic market has been recovering in the first half of this year. It is a peak travel season from July to October, so we expect to enjoy a better performance in the second half of this year," Chairman, Wang Zhenghua said. (CQH) reported net income of +CNY21 million in 2008.

(CQH) plans to launch flights from Shanghai to Hong Kong, Macau, Taiwan, Japan, and South Korea by 2010. Wang revealed that (CQH) has been approved to operate the routes by the (CAAC) (CAC) and said preparations are underway to start the services. It is in the midst of a rapid fleet expansion and he noted that it is scheduled to introduce four or five new A320s by next March or April pending (CAC) approval. (CQH) plans to operate 100 A320s by 2015, up from the current 13.

China Southern Airlines (GUN) became the first Chinese mainland carrier to gain regulatory approval to launch a branch company in Taipei that will be allowed to sell tickets for cross-strait flights. (GUN) in January became the first mainland airline to establish an office in Taipei, but it was only allowed to use it to coordinate ground handling services there. It had to rely on tourism agencies for ticket sales to Taiwanese. China Eastern Airlines (CEA), Air China (BEJ), and Shenzhen Airlines (SHZ) also have set up offices in Taipei this year but have not been approved to sell tickets in Taiwan.

(GUN) said its Taiwan branch company now will be allowed to promote its tour packages to meet diversified market demands. (GUN) currently operates 12 weekly flights to Taipei from Guangzhou, Shanghai and Shenzhen. It also was allocated 54 weekly flights to Taipei as part of the expanded cross-strait deal that was signed in April.

Joy Air was expected to start formal operations with a fleet of three Chinese-produced MA60 regional airplanes. The official launch of the Xi'an-based carrier comes after a one-month trial period. It is expected to introduce three more MA60s by year end and plans to acquire 50 of the type, plus 50 ARJ21s, over the next eight years.
Joy is a joint venture in which (AVIC) is the controlling stakeholder with a 95% holding while China Eastern Airlines (CEA) holds the remaining 5%. Though the (CAAC) (CAC) has announced that it will not approve any new entrants before 2010, Joy was approved because it promised to operate a fleet of domestically manufactured regional airplanes. Joy plans mainly to operate regional routes in northwest China. It also started services to Yan'an and Zhengzhou during its trial operation period.

Hainan Airlines (HNA) earned a net profit in the 2009 first half, according to Chairman, Chen Feng, who declined to reveal the exact figure. (HNA) is scheduled to release a detailed financial report for the year's first six months at the end of August. (HNA) posted net income of +CNY311 million/+$45.4 million in the first half of 2008.

Meanwhile, (HNA) is busy expanding its domestic footprint and revealed that it plans to launch "Dalian Airlines" in conjunction with the local government. It signed a cooperative agreement with the Dalian government but the share proportion hasn't been disclosed. The coastal city in northeast China is a favorite of tourists.

Cooperation with local governments is becoming increasingly common among Chinese airlines. For example, (HNA) subsidiary, Lucky Air (LKY) received a +CNY290 million capital injection from the Yunnan provincial government in June. China Eastern Airlines sold a 35% stake in its Yunnan branch company to the Yunnan provincial government in May while Shenzhen Airlines (SHZ) is preparing to launch Ningxia Airlines with the Ningxia government.

Industry analysts commented that China's carriers not only get cash infusions from their associations with local governments but also favorable regulatory treatment from authorities in the investing government.

The (CAAC) (CAC) approved China Eastern Airlines (CEA)'s acquisition of Shanghai Airlines (SHA), according to (CEA) General Manager, Ma Xulun. The merger still requires the approval of both carriers' shareholders, but (CEA) said it has started the merger process and expects the transaction to be completed by year end. A shareholders conference is planned for October 9 to consider and vote on the merger and approval is expected.

"The total fleet of (CEA) and (SHA) is more than >300 airplanes, so we plan to make a more reasonable utilization of these airplanes during winter and spring flight schedules," Ma said. He revealed that (CEA) plans to promote Express Air Service to denote high frequency on the 22 routes the carriers share. "On some routes, the daily frequencies will be boosted to 14. That is, a flight will be operated every half hour," he said.

Huang Bin, board secretary for Air China (BEJ), said, "(CEA)'s merger with (SHA) will definitely change the competition scenario of the Shanghai air transport market." But he affirmed that it won't affect (BEJ)'s determination to make Shanghai its international gateway.
He added that (BEJ) will "accelerate the preparation process with Cathay Pacific Airways (CAT) to launch a cargo joint venture (JV) based in Shanghai." (BEJ) VP, Fan Cheng told reporters that the asset valuation for the (JV) is "nearing an end," paving the way for it to be launched by year end.

September 2009: China raised the domestic fuel price by CNY300/$43.86 per ton, which is expected to result in a +CNY2 billion increase in annual operating costs for the airline industry, according to China Securities Company aviation analyst, Li Lei. Fuel accounts for more than >40% of Chinese carriers' total operating expenses. According to Li's estimate, China Southern Airlines (GUN) will suffer a CNY760 million profit reduction since 80% of its route network is domestic. China Eastern Airlines (CEA)'s bottom line will sink by -CNY420 million and Air China (BEJ)'s will drop by -CNY460 million. Li said the higher fuel price could lead to reintroduction of surcharges on domestic routes, although it also may be "offset by higher airfares as the domestic market demand is expected to be stronger in the second half of this year with gradual economic recovery."

Hainan Airlines (HNA) posted net income of +CNY175 million/+$25.6 million in the first half based on domestic accounting standards, down -43.7% from the +CNY311 million reported in the year-ago period, on a -3.5% decrease in operating revenue to CNY6.12 billion. Half-year operating expenses fell -5.5% to CNY5.15 billion. It is noteworthy that the carrier reported only a +CNY9.2 million profit, excluding government subsidies, down -96.8% from the comparable figure last year. It attributed the fall to the global financial crisis, H1N1 flu and lower airfares caused by "fierce" domestic competition. It said most airlines redeployed international capacity to the domestic market as demand for long-haul travel slid.

China expects to secure the launch customer(s) for the new C919 large commercial airplane sometime in the first half of 2010, Commercial Aircraft Corporation of China (CCC) Marketing Director, Chen Jin told reporters at the Aviation Expo/China event in Beijing. "A lot of airlines and airplane leasing companies have applied to be the launch customer for the C919, but since launch customers can get a favorable price, the number of launch customers is limited," Chen said. He said the initial order could number as many as 90 airplanes. The C919 is targeted mainly at filling domestic needs, although (CCC) also hopes to explore the overseas market. Its inaugural flight is expected in 2014, with entry into service scheduled for 2016.

Aviation Industry Corp of China (AVIC) subsidiary, Commercial Engine Company (CEC) plans to obtain secure airworthiness certification for a domestically produced engine in 2016 so it is ready to power the large commercial jet planned to enter the market by 2020. (CEC) General Manager, Zhang Jian said the company, along with (CFM) and Pratt & Whitney (P&W), is a candidate to furnish a powerplant for the trunk liner. "As far as I know, we will become one of the providers but won't be the only one," he said.

(CEC) was launched in Shanghai in January with registered capital of CNY6 billion. (AVIC) holds 40% while Shanghai Electric Group and Shanghai Guosheng Group each hold 15%. The remaining 30% has been put up for bid. "There are many companies home and abroad making a bid, including Chinese privately run companies, domestic investment banks and even Western engine companies. But we haven't chosen the strategic investor yet," Zhang said.

Naverus said that Air China (BEJ), with support from the (CAAC) (CAC), successfully completed a Required Navigation Performance (RNP) validation flight to Tibet's Linzhi Airport on September 2 using an A319. Naverus called the 95-mile (RNP) approach into the Himalayan airport at 9,760 ft elevation "one of the longest and most challenging commercial jetliner landing paths." Without (RNP), the airport "is accessible by air only 100 days a year, in daylight only, due to weather and terrain challenges."

Spring Airlines (CQH) plans to establish a base in Shenyang and signed an agreement with the municipal government detailing plans to build the city into an aviation hub for northeast Asia. (CQH) currently operates bases in Shanghai and Sanya in the south. A (CQH) spokesperson said last week that the airline plans to launch service to both provincial capitals and tourism destinations from Shenyang over the next few years, including destinations like Hangzhou, Nanjing, Chongqing, Xiamen, Qingdao, and Sanya. It also is considering opening international routes from Shenyang, which has a population of around 7 million. Shanghai currently is the only city it serves from the airport.

(CQH) Chairman, Wang Zhenghua said he is confident that domestic demand will continue to expand. "The domestic market is recovering very well owing to Beijing's economic stimulation policies. I think it will be even better in the second half than in the first half since the domestic economy and international trade are recovering," he said.

He also called on the (CAAC) (CAC) to liberalize air services. "We hope new entrants [privately run carriers] can have access to some markets in a more fair way, such as the Beijing market and Shanghai market," he said. Based on the China Civil Aviation Domestic Routes Operation Regulation implemented by the (CAC), all air routes among the country's 20 busiest airports have to be approved by the regulator. Owing to "first-come, first-served" policies and the lack of a mechanism requiring under-performing carriers to surrender routes, it is difficult for new entrants to gain approval and access to more popular and profitable routes. Despite these obstacles, Wang said he remains confident that private carriers have a "very bright future" in China.

Chinese regulator the (CAAC) (CAC) is planning a series of measures designed to lift domestic freight carriers out of the red, including increasing shipping rates, providing subsidies and encouraging mergers and consolidation. Foreign airlines currently hold an 85% share of the Chinese international cargo market. There are nine domestic freight carriers operating 70 airplanes as of December 31, 2008.

According to the (CAC), domestic cargo transport growth lags behind passenger growth and has suffered considerably as a result of the global recession. Chinese airlines transported 108,524 tonnes on international routes in July, down -14.5% from the same month last year. An industry insider said that Chinese carriers were forced to reduce rates to stimulate traffic during the downturn, which led directly to a "continuous operating deficit" and the cessation of some international routes.

(CAC) noted it would "raise the cargo rate properly" and would encourage airlines to open new international routes by offering three-year exclusivity. Subsidies will be offered to carriers opening routes from western China. The (CAC) argued that mergers would boost competitiveness and that global alliances also are an attractive option.

Air China (BEJ) was among several airlines responding favorably to the initiatives, and the (CAC) vowed to strengthen regulations applying to foreign carriers intending to establish cargo bases in the country.

Naverus said (CEA), supported by the (CAAC) (CAC), successfully completed a Required Navigation Performance (RNP)-validation flight at Yushu Airport in the Himalayas using an A319 on September 15.

Buoyed by strong domestic Gross Domestic Product (GDP) gains and global economic recovery, Chinese carriers enjoyed robust growth in the domestic and international markets in August. According to the (CAAC) (CAC), Chinese airlines transported 22.64 million passengers in August, up +41.6% over the year-ago period, while cargo traffic jumped +18.1% to 390,800 tonnes. Passenger load factor improved +1.7 points to 79.9% LF.

Domestic boardings rose +43.5% year-over-year to 21.21 million, while international boardings climbed +17.4% to 1.42 million. The Hong Kong and Macau markets also experienced a new peak this year as passenger boarding jumped +16.8% to 483,559 in August.

Industry analysts noted that in addition to the economic downturn, August 2008 figures were affected negatively by the strict security measures put in place ahead of the Beijing Olympic Games.

October 2009: Chinese airlines posted collective net income of +CNY6.13 billion/+$896.7 million for the first nine months of this year, a big turnaround from a -CNY5.55 billion deficit in the year-ago period. The (CAAC) (CAC) credited "economic recovery" and "lower fuel prices" for the positive result. Total operating revenue dipped -2.2% to CNY153 billion, while operating expenses fell -3.8% to CNY153.9 billion.

Passenger boardings climbed +20% to 170 million and load factor increased +1.7 points to 75.9% LF. Cargo traffic rose +0.4% to 3.1 million tones, the first positive growth reported this year, which the (CAC) said was mainly attributable to rapid growth in the domestic airfreight market.

For the month of September, Chinese airlines posted collective net income of +CNY160 million, a turnaround from a -CNY2.96 billion loss in the year-ago month. Operating revenue lifted +1.4% to CNY18.7 billion.

September passenger boardings jumped +17.3% to 19.3 million with domestic passengers carried growing +17.5% and international increasing +14.1%. Load factor was 74.2% LF, down -1.3 points. Cargo volume climbed +24.7% to 456,500 tonnes. Chinese carriers operated a combined fleet of 1,373 airplanes as of September 30, up +24 compared to August 31.

China Southern Airlines (GUN) launched "e-freight" service on its Guangzhou - Dalian route and said it will offer largely paperless cargo carriage on additional routes by year end. It said the initiative could save -CNY1 million/-$146,300 annually. It is the first Chinese carrier to implement e-freight, which is being pushed strongly by (IATA) (ITA). (GUN) noted that it sold the country's first e-ticket in 2000, introduced China's first self-service kiosk in 2005 and was the nation's first carrier to offer an online check-in option in 2006.

October 2009: The Commercial Aircraft Corporation of China (CCC) agreed to purchase a 48% stake in Sichuan Airlines (SIC) subsidiary United Eagle Airlines (UEG) in order to facilitate the sale of its ARJ21 and C919 airplanes. The (CCC) will invest CNY1 billion/$146.3 million in Chengdu-based, United Eagle (UEG), which under terms of the agreement will order 30 ARJ21s after the stake sale is concluded.

(SIC) acquired 76.2% of (UEG) for CNY200 million six months ago as (UEG) was on the verge of bankruptcy. Owing to (CCC)'s investment, Sichuan (SIC)'s stake will be reduced to 40.97%. Sichuan Communication Investment Group will hold the remaining 11.03%.

(UEG) is expected to take delivery of its first ARJ21 at the end of 2010. It currently operates seven A320 family airplanes on 35 domestic routes and is expected to add an eighth airplane at year end.
(UEG) plans to rely on the A320 and ARJ21 in the short term, "but we will phase out the A320s gradually and replace them with C919s for the long term," a Sichuan spokesperson said. (UEG) noted it will continue to help (UEG) with capacity control, operational management, Maintenance Repair & Overhaul (MRO) and human resources.

(SIC) was the first carrier to introduce the A320 into the Chinese market in the 1990s. It also took delivery of the first A320 assembled at Airbus (EDS)'s Tianjin final assembly line in June.
Similarly, (AVIC) launched Joy Air (JOY) with three MA60s in August. (JOY) is expected to introduce three more MA60s by year end and plans to acquire 50 of the type, plus 50 ARJ21s, over the next eight years.

China Southern Airlines (GUN) becomes the first mainland Chinese carrier to allow its passengers in Taiwan to check-in online.

Air China (BEJ), China Eastern Airlines (CEA) and China Southern Airlines (GUN) enjoyed a financial turnaround in the third quarter owing to a strong recovery in the domestic market and gains on their fuel hedges. (BEJ) earned net income of +CNY885.3 million/+$129.5 million in the quarter, a significant reversal from the -CNY1.94 billion loss suffered in the year-ago period, on a +1.3% lift in operating revenue to CNY14.05 billion. Expenses dropped -10.6% to CNY13.45 billion and (BEJ) reported a +CNY554 million profit on its fuel hedges for the period.

China Eastern (CEA) posted a net profit of +CNY23.2 million, reversed from a loss of -CNY2.33 billion. A fuel hedge gain of +CNY154 million was a key driver of the result.

China Southern (GUN) was +CNY284 million in the black compared to a -CNY810 million deficit in the 2008 quarter. Revenue rose +9.5% year-over-year to CNY15.95 billion and expenses dropped -5% to CNY13.37 billion. (GUN) cited "effective cost control" and the "return of the civil aviation construction fund" as reasons for the improvement.

The Big Three were profitable through the first nine months of 2009 as well, thanks to government aid that helped carry them through the recession. (BEJ) posted a +CNY3.81 billion profit through September; (BEJ) received a government subsidy of CNY962 million. (GUN) reported net income of +CNY322 million during the period thanks to CNY1.56 billion in government aid, and (CEA) was +CNY1.2 billion in the black as of September 30.

Despite the results, local analysts continue to say that China's airlines still suffer from overcapacity and inefficiencies. "Domestic demand keeps rising, but airfares are still plummeting and Chinese carriers' international routes have been hit hard by swine flu," an industry insider said, adding that the trio's fourth-quarter profits will fall from third-quarter levels.

Hainan Airlines (HNA) posted a +CNY175.5 million/+$26.3 million third-quarter profit, reversed from a -CNY260.8 million deficit in the year-ago quarter, as operating revenue soared +34.2% to CNY4.57 billion. Like other Chinese airlines, it credited a recovery in the domestic market and favorable financial policies from Beijing for the improved performance. (HYNA)'s third-quarter expenses climbed +18.7% year-over-year to CNY3.65 billion. Nine-month profit of +CNY350.5 million compared to a +CNY50.2 million surplus in the year-ago period.

(GUN) intends to expand its international network as it faces potentially damaging competition from the expansion of high-speed rail within China. "Most of China's big cities and secondary cities will be connected by high-speed rail by 2020, which will have a big impact on domestic carriers," (GUN) Chairman, Si Xianmin was quoted as saying. (GUN) is expected to be hit hardest by the rail expansion, as domestic routes account for 80% of its total. "Cost control and service level will be the two key factors deciding whether we can win out over high-speed rail in the domestic market or not," Si said. (GUN) reported a +CNY284 million/+$41.5 million third-quarter profit, but Si remains pessimistic about the industry's future. "I think the road ahead will be quite bumpy as the economic prospect is still bleak," he told reporters. "So we have to make an in-depth study of the global economic situation and the external operating environment so that we can be fully prepared for it."

November 2009: Hainan Airlines (HNA) parent, the (HNA) Group launched a business jet subsidiary in Shanghai in an attempt to tap the increasing potential of the high-end business (C) and general aviation market. Deer Business Jet Company has registered capital of CNY300 million/$43.9 million, with (HNA) subsidiaries, Deer Air (DER) and Yangtze River Express (YTH) the main stakeholders. The ownership structure has not been made public. It initially will operate two Hawker 800s. China currently has no more than 30 business jets, but it is estimated the country will need 600 to 1,200 over the next 10 years.

Chinese airlines are facing the prospect of canceling once-profitable domestic routes owing to increasing competition from high-speed rail. Spring Airlines (CQH), the country's most successful Low Cost Carrier (LCC), has stopped flying from Shanghai to both Zhengzhou and Wuhan because it was losing passengers to the train. "Currently our solution is to avoid opening short-haul routes that are shorter than 1,000 km," a (CQH) spokesperson said. Sichuan Airlines (SIC) shuttered its Chengdu - Chongqing service on November 16 as loads fell below 50%.

China Southern Airlines (GUN) Chairman, Si Xianmin recently admitted that high-speed rail is a more attractive option for passengers because of its better safety record, convenience and lower fares. "We have more than 160 domestic routes, with about 38 competing against high-speed rail. Most of China's big cities and secondary cities will be connected by high-speed rail by 2020, which will have a big impact on domestic carriers," he said. In response, (GUN) intends to expand its international network and allocate more capacity to profitable international routes. (GUN) plans to raise its proportion of international routes from the current 17% to 20% in the next 3 to 5 years.

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 (CEA) and "is considering selling some or all of its stake" in Grandstar Cargo International Airlines (GSC), the joint venture carrier it launched with Korean Air (KAL) last year. Sinotrans owns 51% of (GSC) while (KAL) controls 25%. A further 13% is owned by Hana Capital Company and 11% by Shinhan Capital Company. The industry source said that the Sinotrans stake would be sold to either (CEA) or Air China (BEJ), 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 (GSC) 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. (GSC) has not expanded beyond its initial Tianjin - Frankfurt route.

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

China has nine cargo carriers that operated a total freighter fleet of 70 airplanes as of December 31, 2008. But hit hard by the global financial crisis, those carriers are suffering from serious financial difficulties, especially on international routes. The (CAAC) (CAC) 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.

Shunfeng Airlines (SHF), which will be China's first express delivery cargo airline, has been approved by the (CAAC). (SHF) was established by delivery company Shunfeng Express and has registered capital of CNY100 million/$14.6 million, according to the regulator. Shenzhen Taihai Investment Company will hold a 75% stake and Shunfeng Express the remainder. The new venture will be based in Shenzhen and is expected to operate two 757-200s initially. It is awaiting approval to introduce a third. Shunfeng Express is one of China's leading express delivery companies and boasts a ground network covering some 200 cities in 31 provinces, as well as Hong Kong and Taiwan. It started operating cargo charter flights in 2003 and leased eight airplanes to operate between Shanghai, Beijing, Hangzhou, and Shenzhen. It decided to launch its own airline in 2007. It is targeting a fleet of 30 freighters within 10 years and intends to schedule flights in order to blend with its ground transport network.

December 2009: 2008 was a terrible year for Chinese airlines, which faced setbacks ranging from natural disasters to governmental visa tightening. Things did get better in 2009, in part thanks to government cash injections and, more importantly, ongoing economic growth and surging domestic traffic volumes. Cross Taiwan Strait deregulation and lower fuel prices also paid dividends.

China's airlines earned a collective profit of +CNY7.35 billion/+$1.07 billion through the first 11 months of 2009, almost triple the +CNY2.53 billion reported in the year-ago period, according to the (CAAC) (CAC). Total operating revenue dropped -3% to CNY193.31 billion, while operating expenses fell -3.6% to CNY192.67 billion. Passenger boardings climbed +19.6% to 211.5 million, comprising a +21.8% jump on domestic routes to 198.2 million and a -5.5% fall on international services to 13.3 million. (CAC) Minister, Li Jiaxiang predicted that domestic traffic will grow by double digits again in 2010.

Cargo volume through November rose +5.7% to 4 million tonnes. Domestic freight grew +8%, while international cargo inched up +0.2% to 1.1 million tonnes, the first year-over-year growth recorded in 2009. The (CAC) cited "steady domestic economic growth" and "global economic recovery" as factors in the turnaround. However, it predicted a slowdown in December owing to the Dubai debt crisis.

In November, domestic carriers posted operating income of +CNY77 million on a +10.7% lift in operating revenue to CNY19.4 billion. Operating expenses dipped -4.3% to CNY19 billion, due to lower fuel prices. Passenger boardings climbed +18.1% to 19.6 million, with an average load factor of 78.2% LF, up +3.5 points year-over-year.

Chinese carriers operated a total of 1,399 airplanes as of November 30, an increase of +18 from October. Airlines added one A321, four A320s, two A319s, six 737-800s, one 737-700, one 737F freighter, one EMB-190 and two EMB-145s last month.

Air China (BEJ) Senior VP, Fan Cheng was named Communist Party Secretary at Shenzhen Airlines (SHZ), increasing speculation in China that (BEJ) will seek control of (SHZ) following the arrest of controlling shareholder, Li Zeyuan. Fan reportedly will oversee day-to-day operations at (SHZ), in which (BEJ) currently holds 25%.

Shenzhen Airlines (SHZ) earned net income of +CNY500 million/+$73.1 million through the first 11 months of 2009, President, Li Kun said, as it signed a financing agreement with the Industrial and Commercial Bank of China covering purchase of 15 737-800s worth CNY5 billion. (SHZ) currently operates 33 737-800s in its fleet of more than 130 airplanes and expects to introduce 10 airplanes annually over the next few years. Li Kun has been in charge since controlling stakeholder Li Zeyuan was arrested last month and vowed to maintain stability at the carrier. Meantime, Air China (BEJ) Finance Director, Li Youqiang was appointed Shenzhen (SHZ)'s Chief Accountant, deepening speculation that (BEJ) is planning a takeover. (BEJ) Senior VP, Fan Cheng took over as (SHZ)'s Communist Party Secretary earlier. (BEJ) is (SHZ)'s second-largest stakeholder at 25%.

January 2010: Chinese airlines earned a collective profit of +CNY7.4 billion/+$1.08 billion in 2009, a big turnaround from the -CNY31.8 billion net loss suffered in 2008, (CAAC) (CAC) Vice Minister, Wang Changshun revealed.

Total operating revenue was CNY212 billion. Industry analysts are crediting the recovery of the domestic economy, government subsidies and the revival of the civil aviation construction fund for the improvement. Hedging gains resulting from rising fuel prices have helped as well. Passenger boardings climbed +19.7% to 230 million and cargo volume rose +9.3% to 4.5 million tonnes.

Looking into 2010, Wang said he is optimistic about the industry's prospects owing to the improved economic situation, the upcoming Expo 2010 in Shanghai and November's Asian Games in Guangzhou. (CAC) expects passenger boardings to rise +13% to 260 million, while cargo traffic should grow +12% to 5 million tonnes. But he warned that "challenges still remain," including high fuel prices, the yuan to USA dollar exchange rate, and the increasing impact of China's new high-speed rail network on domestic flights.

Wang said Chinese carriers' global competitiveness remains quite low. "Passenger boardings still suffered from negative growth on international routes last year and have yet to recover to pre-crisis levels from 2007," he noted. "We are still in a disadvantageous position when competing against foreign carriers in some major international markets. In addition, the "open skies" agreement that is expected to be signed between Japan and the USA in October will pose a stiffer challenge on our international routes." (CAC) vowed to continue encouraging the launch of international services through subsidy distribution.

Meantime, the (CAC) plans to continue controlling capacity increases. Chinese carriers collectively added +158 airplanes last year, 40 fewer than originally planned. The total fleet numbered 1,417 on December 31. This year, airlines plan to add +208 airplanes and phase out 17. In addition, the (CAC) noted it would exert strict control on approving the launch of new carriers.

China Southern Airlines (GUN) reportedly plans to purchase the 65% stake in neighboring Shenzhen Airlines (SHZ) formerly held by Li Zeyuan, who was arrested in November, in an effort to strengthen its position in southern China. According to local press reports, (GUN) already has spoken with authorities in Beijing regarding the potential stake purchase. (GUN) General Manager, Tan Wangeng refused to comment, however, calling the situation "too sensitive."

Shenzhen (SHZ) said it has not had formal discussions regarding the stake with (GUN). (SHZ) is one of China's most profitable airlines. It was +CNY500 million/+$73.1 million in the black through the first 11 months of 2009.

(GUN) has a branch company at Shenzhen Bao'an International airport that is the second-largest airline at the airport and commands a 30% share of passenger boardings. (GUN) signed a cooperation agreement with the Shenzhen municipal government last month outlining its plan to raise its market share to 50% in the next five years. According to the agreement, (GUN) aims to build the airport into a regional hub connecting China with nearby countries.

It has been widely speculated that Air China (BEJ) was planning a takeover of Shenzhen Airlines (SHZ). (BEJ) already holds 25% and has transferred at least two major executives to the carrier in recent months. (SHZ) VP, Zhang Siping has reiterated several times that the municipal government intends to support the airline's status as an independent carrier. The government holds 10%.

Air China (BEJ) parent, (CNAC) is expected to receive a CNY1.5 billion/$219.4 million cash injection from the Chinese government to pay back the loans it used to finalize last year's acquisition of its Air China Cargo (CAO) subsidiary, according to (BEJ) Board Secretary, Huang Bin.

The move is another step toward finalizing the cargo joint venture between Air China (BEJ) and Cathay Pacific Airways (CAT) scheduled to be launched this year in Shanghai. (BEJ) increased its stake in the cargo company to 100% with the CNY718 million purchase of Beijing Capital Airport Holding Company's 24% share last spring.

Air China Cargo (CAO) was launched in 2003 with registered capital of CNY2.2 billion. (BEJ) held 51% initially, while Citic Pacific subsidiary Gold Leaf Enterprises had 25% and (BCAH) 24%. (BEJ)'s acquisition of the remaining 49% cost CNY1.57 billion.

"The CNY1.5 billion government cash injection will be used mainly to pay back our loans for purchasing the remaining 49% stake from minority stakeholders," Huang confirmed. As early as 2008, Beijing had decided to distribute CNY15 billion to the "big three" Chinese airlines. China Eastern Airlines (CEA) already has received CNY9 billion in government funds, and China Southern Airlines (GUN) CNY3 billion over the past two years. The trio now will be vying for the remaining CNY1.5 billion.

United Eagle Airlines (UEG) will re-launch as a state-owned carrier and will be renamed "Chengdu Air." In October, Commercial Aircraft Corporation of China (CCC), manufacturer of the ARJ21 and C919, purchased a 48% stake in loss-making (UEG) from Sichuan Airlines (SIC) for CNY1 billion/$146.3 million. (SIC)'s stake was reduced to 41% and Sichuan Communication Investment Group holds the remaining 11%. (SIC) is controlled by the provincial government and China Southern Airlines (GUN). (UEG) currently operates six A319s and one A320 on 35 domestic routes. The new airline, which has placed an order for 30 ARJ21s, will focus on regional operations. It will take delivery of its first ARJ21-700 at the end of 2010.

China Eastern Airlines (CEA) remains committed to choosing an alliance by the February 14 New Year holiday and is scheduled to negotiate with each of the three global groupings. "We are still evaluating the decision on which airline alliance to join, which will depend on our negotiations with the three alliances regarding route network, frequent-flyer program, code sharing, etc.," (CEA) Managing Director, Ma Xulun said. (CEA) had shown an interest in Oneworld (ONW) as far back as 2005, when it cooperated closely with Cathay Pacific Airways (CAT). But now that (CAT) has executed a cross-shareholding deal with the Star Alliance (SAL)'s Air China (BEJ), (CEA) is thought to prefer the SkyTeam (STM) alliance. China Southern Airlines (GUN) joined (STM) in November 2007. (SAL) will lose Shanghai Airlines (SHA) as well if (CEA) opts for one of the other two alliances owing to their merger.

Lao Airlines (LAO) signed an agreement with the Commercial Aircraft Corporation of China (CCC) to buy two ARJ21-700s, being the first export customer for the narrow body jet.

February 2010: The Jiangxi provincial government plans to build a CNY40 billion/$5.85 billion aviation industrial complex in the capital of Nanchang centering on production of 25% of the fuselage for the country's C919 large commercial transport. Nanchang is about 400 miles southwest of Shanghai. The local government signed a joint venture agreement with (AVIC) in December to cooperate on aviation technology and launch the Nanchang General Aircraft Company, which will support (AVIC) subsidiary, Hongdu Commercial Aircraft Company and produce components for both domestically produced commercial airplanes and business jets. Hongdu signed a Memo of Understanding (MOU) with the Commercial Aircraft Corporation of China (CCC) last spring to produce a quarter of the fuselage for the C919 and also reached a subcontractor agreement with Vought Aircraft Industries in December to produce spares for the 747-8. Since China's trunk liner project was announced in 2007, aviation industrial parks also have been planned in Shenyang, Tianjin, Beijing, and Shanghai, which some local aviation analysts have criticized as "a waste of resources and money."

Shenzhen Airlines (SHZ) earned a net profit of +CNY500 million/+$73.1 million last year, nearly 20 times the CNY26 million surplus posted in 2008. (SHZ) did not reveal its revenue and expense figures. It transported 15.1 million passengers in 2009, up +27.8%, and enjoyed a +22% jump in cargo traffic to 306 million (FTK)s. It introduced 14 new airplanes last year, increasing its fleet to 136, and opened 50 new routes.

Last month, (SHZ) was granted four additional weekly frequencies across the Taiwan Strait for use during the two-week Chinese New Year period. The Shenzhen - Taipei service is one of the most profitable cross-strait routes. (SHZ) and China Southern Airlines (GUN) each operate the route, and (SHZ)'s load factor reached nearly 90% LF.

(GUN) and Air China (BEJ) remain interested in the 65% stake in (SHZ) held by Li Zeyuan, who was arrested in November. It is China's fifth-largest airline after (BEJ), (GUN), China Eastern Airlines (CEA) and Hainan Airlines (HNA), controlling a 6% share of the passenger market. (BEJ) holds 23%, (CEA) 24% and (GUN) 29%. If either (GUN) or (BEJ) takes control of (SHZ), the Chinese industry could shift significantly.

Hainan Airlines (HNA) parent, the HNA Group is expected to launch a new Beijing-based carrier called "Capital Air" in partnership with the city government. Capital Air will be based on the assets of (HNA)'s Deer Air (DER) subsidiary, which operates 18 A319s primarily on charter services. (DER) transported 2.6 million passengers last year and has registered capital of CNY776.5 million. Beijing Capital Tourism Company will represent the city government, although the amount of its investment remains under discussion. (HNA) will be the controlling stakeholder. It is unclear whether Capital Air will focus on charters or scheduled services.

The airline/local government partnership is a growing trend in the Chinese industry. (HNA) subsidiary, Lucky Air (LKY) received a +CNY290 million/+$42.4 million capital injection from the Yunnan provincial government last June; China Eastern Airlines (CEA) sold a 35% stake in its Yunnan branch company to the Yunnan provincial government in May; and Shenzhen Airlines (SHZ) is preparing to launch "Ningxia Airlines" with the government of the autonomous region in north central China. Analysts have said that one key driver of the trend is the favorable regulatory treatment afforded those airlines that align with local government, as well as the investment capital.

China Eastern Airlines (CEA) is moving forward with its efforts to recruit a strategic investor as it finalizes the merger process with Shanghai Airlines (SHA), according to (CEA) General Manager and (SHA) Chairman, Ma Xulun.

"We are quite open to introducing a strategic investor and welcome any strategic investor or financial investor as long as they are interested in promoting development," Ma noted.

An internal source said that (CEA) has been in touch with Singapore Airlines (SIA) regarding further cooperation, including a possible stake sale.

It is noteworthy that Meng Jianmin, Deputy Director of the state-owned Assets Supervision & Administration Commission (SASAC), pointed out at the ceremony celebrating the (CEA)/(SHA) merger that the new (CEA) "should introduce a proper strategic investor to enhance its management level and reduce its debt ratio, which is as high as 95% now." (SASAC) is (CEA)'s controlling stakeholder.

Meantime, (CEA) is progressing with joining an alliance. Chairman, Liu Shaoyong revealed that he talked with all three alliances last month. "Currently we are conducting an internal evaluation and hopefully we can announce our decision this month," Ma said. It is widely speculated that (CEA) prefers the SkyTeam (STM) alliance.

The merged (CEA)/(SHA) is expected to hold about 50% of the Shanghai market and operate a total fleet of 331 airplanes to 151 destinations. "Shanghai needs a strong Shanghai-based carrier that can take up more than a 50% share of the Shanghai market, as Shanghai is targeting becoming an international aviation hub. The merger between (CEA) and (SHA) is an important step toward this target," Shanghai Vice Mayor, Ai Baojun noted at the ceremony.

China Southern Airlines (GUN) received a CNY1.5 billion/$219.6 million capital injection from the Chinese government that is expected to reduce (GUN)'s debt ratio, which stood at around 80% last September 30. (GUN) will suspend trading as it develops a plan to issue additional shares to absorb the new capital. Beijing reportedly has CNY15 billion to distribute to the "big three" state-owned carriers. In 2008 through 2009, China Eastern Airlines (CEA) and (GUN) received CNY9 billion and CNY3 billion in government cash, respectively. Air China (BEJ) last month announced a +CNY1.5 billion injection to pay back loans used to finalize last year's acquisition of its Air China Cargo subsidiary.

In addition to the new CNY1.5 billion, (GUN) also intends to circulate additional tailored shares designed to raise about CNY8.5 billion from the capital market, an industry insider with knowledge of the plan said.

(GUN) reported net income of +CNY322 million through the first nine months of 2009, attributable mainly to China's CNY1.79 billion civil aviation construction fund, and expects to report a full-year surplus.

China Securities analyst, Li Lei pointed out that (GUN) will benefit in the short term from the growth in the domestic market but that Guangzhou's disadvantageous position as an operating base in comparison to nearby Hong Kong, will put the airline under long-term pressure.

Industry analysts also have said that the rebound in domestic demand will make access to additional government capital difficult. State-owned Assets Supervision & Administration Commission Deputy Director, Meng Jianmin said this month that the "big three" should broaden their fund raising options rather than depending on injections from Beijing.

March 2010: Air China (BEJ) and Cathay Pacific Airways (CAT) signed a framework agreement in Beijing establishing a jointly owned, Shanghai-based cargo airline built on the assets of Air China Cargo (CAO).

Air China (BEJ) will hold a 51% stake in the new carrier while Cathay (CAT) will acquire a 25% stake and fund an offshore trust, in the form of a loan, to hold an additional 24%. (CAT)'s total investment in the new venture will be CNY1.67 billion/$244.1 million.

The airlines launched their cooperation in 2006 when they signed a cross-shareholding agreement and announced their intention to form a cargo joint venture. The deal requires approval from relevant authorities and the shareholders of both carriers.

Air China Cargo (CAO) plans to transfer its main operating base to Shanghai Pudong this summer while Beijing will remain an operating base. (CAO) currently operates seven 747F freighters. (CAT) will sell four freighters and two spare engines to the new airline. Launched in 2003, (CAO is China's biggest cargo carrier and focuses on the northern China and Yangtze River Delta region. Cathay Pacific's cargo operation is centered on the Pearl River Delta.

(BEJ) Chairman, Kong Dong noted that "the restructuring of (CAO)'s shareholding comprises two major aspects. First, through fleet expansion, we efficiently set the platform for future growth. Second, two strong partners are teaming up with complementary strengths to enhance our competitiveness." (CAT) Chairman, Christopher Pratt said, "As a strong home-based cargo airline with a firm foothold in the Yangtze River Delta, (CAO) will ensure an efficient capture of cargo movements that may otherwise divert to rival hubs in the region."

It is noteworthy that Chinese cargo traffic recently has grown far more rapidly than passenger traffic. According to the (CAAC) (CAC), January cargo volume climbed +68.2% year-over-year to 450,726 tons. Domestic cargo rose +52.4% while international routes jumped +120.8%.

The Juneyao Group sold its 63% stake in Tianjin-based Okay Airways (OKA) to Chinese cargo and logistics company, the Da Tian W (DTW) Group and said it prefers to concentrate on building its Shanghai-based Juneyao Airlines (JYA).

(OKA) was China's first privately run airline when it was launched in May 2004, but it has yet to turn a profit. The losses have been attributable partly to conflicts between the Juneyao Group and other investors that resulted eventually in (OKA)'s suspension of operations in December 2008. It resumed flying one month later, although disagreement about its future remained. Juneyao Group Chairman, Wang Junjin then revealed he intended to sell its majority share in (OKA) to a strategic investor.

It is noteworthy that Juneyao (JYA) also sold its stake in another privately held carrier, United Eagle Airlines (UEG), last year. "We want to focus our attention on Juneyao Airlines (JYA) from now on, which might work better than making investments in other carriers," Wang explained.

The sale has been approved by the (CAAC), and (DTW) Chairman, Wang Shusheng will become the Okay (OKA) Chairman. (OKA) operates three 737-800s, three 737F freighters, two Yun-8s and one MA60 on more than >20 domestic routes. It will introduce three or four additional 737-800s and two more MA60s by year end and aims to expand its regional fleet to 10 airplanes over the next three years.

(OKA) suffered a -CNY500 million/-$73.1 million net loss last year and (DTW) is negotiating with several companies regarding further investment. Founded in 1992, Beijing-based (DTW) operates 23 international freight forwarding stations and 33 distribution centers. It sold its domestic courier network to FedEx (FED) in 2007.

Shenzhen Airlines (SHZ) CEO, Li Kun was arrested for alleged financial irregularities, allowing Air China (BEJ) to deepen its involvement in the country's fifth-largest carrier through the appointment of Shenzhen (SHZ) Vice Chairman and former (BEJ) VP, Fan Cheng as acting CEO.

Li formerly was Vice General Manager of China Southern Airlines (GUN) and became CEO of (SHZ) in 2005 following its privatization. Li Zeyuan, who outbid (BEJ) and purchased a 65% share of Shenzhen (SHZ) at that time, then was arrested under similar circumstances last November. Li Zeyuan's legal trouble prompted a tussle for control of (SHZ) between (BEJ) and (GUN).

(BEJ) currently holds 25% of (SHZ) and has been angling to increase its share for some time. Following Le Zeyuan's arrest, (BEJ) named Fan as (SHZ)'s Vice Chairman, and (BEJ)'s Finance Director, Li Youqiang to the same role at Shenzhen (SHZ).

Industry analysts have said that Li Zeyuan's stake may be split between (BEJ) and the Shenzhen municipal government, which now holds 10% of the airline. It has been reported that the government also is keen to increase its participation (SHZ). Vice Mayor, Zhang Siping noted at the end of last year that the "Shenzhen municipal government will support Shenzhen Airlines (SHZ), as always, no matter what. It won't change that Shenzhen (SHZ) will remain an independent company and there won't be big layoffs."

China Eastern Airlines (CEA) has taken a 51% stake in Great Wall Airlines (GWZ). The stake, formerly held by China Aerospace Science and Technology Corporation (CASTC), reportedly was transferred at the behest of the state-owned Assets Supervision & Administration Commission, which is the controlling shareholder of both (CEA) and (CASTC). (CEA) said it will integrate Great Wall (GWZ) with its China Cargo Airlines (CKK) subsidiary, as well as with Shanghai Airlines Cargo. (GWZ) was established in 2005 with CNY1.2 billion/$175.5 million from (CASTC) subsidiary Beijing Aerospace Satellite Applications Corporation, Singapore Airlines Cargo and Temasek Holdings subsidiary Dahlia Investments. It operates three 747-400Fs out of Shanghai Pudong (PVG).

Shanghai Hongqiao International (SHA)'s new Terminal 2 became operational as the city prepares for "Expo 2010" scheduled to run from May to October. Eleven carriers: - - China Eastern Airlines (CEA), Shanghai Airlines (SHA), Air China (BEJ), China Southern Airlines (GUN), Xiamen Airlines (XIA), Shenzhen Airlines (SHZ), Shandong Airlines (SHG), Hainan Airlines (HNA), Tianjin Airlines (GCR), Sichuan Airlines (SIC) and Juneyao Airlines (JYA) - - have transferred to the new terminal. The old T1 will continue to house Spring Airlines (CQH) and charter flights to Japan and South Korea.

Total investment in T2 was approximately CNY11.5 billion/$1.7 billion. It can accommodate 30 million passengers annually, triple the intended number for T1, which was overloaded in 2009 with 25 million passengers and nearly 190,000 airplane movements. Hongqiao (SHA)'s new second runway, which can handle the A380, also entered operation. With the greater capacity at (SHA) airport, China Eastern (CEA) is expected to increase its slot holding there by +50%, which General Manager, Ma Xulun has said will boost (CEA)'s Shanghai market share by +3 points to 50%. Spring (CQH) Chairman, Wang Zhenghua said his airline will add five slots.

The (CAAC) (CAC) implemented its toughest measures yet to combat domestic flight delays, announcing that it will suspend an airline's right to operate a particular flight for one year if the carrier is found to be at fault for a single delay exceeding 4 hours.

According to the regulator, the regulation is targeted mainly at domestic airlines operating at Beijing, Shanghai Pudong, Shanghai Hongqiao and Guangzhou. These four airports handle 3,500 airplane movements daily, accounting for half the country's total.

The (CAAC) (CAC) also will rank individual domestic flights' on time performance every 15 days. Airlines operating those ranking in the bottom 20 and with an on time performance below <50% will be warned. If a flight is flagged twice in one month and the carrier is deemed to be at fault, it will lose the flight.

The regulation entered effect this month and appears to have had an impact already. Average on time performance at Beijing was 76.5% through March 10, up +1.8 points from February.

Air China (BEJ) will boost its profile in the Pearl River Delta region by taking control of Shenzhen Airlines (SHZ) with a CNY682.1 million/$99.8 million investment that will see its stake in the country's fifth-largest carrier rise from 25% to 51%.

The Shenzhen municipal government will increase its share from 10% to 25% with a CNY348 million investment, and controlling stakeholder Li Zeyuan's 65% will fall to 24%, according to Air China
(BEJ)'s filing with the Hong Kong Stock Exchange and pending approval from Beijing.

Industry analysts expected (BEJ)'s takeover and have pointed out that the price undervalues Shenzhen (SHZ)'s shares. The airline has claimed it has been profitable for 16 consecutive years and said it was -CNY500 million in the black through the first 11 months of 2009.

But (BEJ) told a different story in its filing. It claimed that Shenzhen (SHZ) suffered a 2009 loss of -CNY863.7 million, which followed a 2008 deficit of -CNY31.3 million. A debt of CNY24.45 billion exceeded total capital of CNY22.39 billion, (BEJ) said. "Although Shenzhen (SHZ)'s current financial performance is not good, we still want to be its controlling stakeholder as we are confident of its prospects and the synergies that can be achieved between Shenzhen (SHZ) and us," (BEJ) explained in its filing.

Li Zeyuan, along with former Chairman, Li Kun, were placed under arrest for unspecified financial crimes recently, placing Shenzhen (SHZ)'s fate in question and allowing (BEJ) to step in.

Air China (BEJ) plans to deepen its cooperation with Shenzhen Airlines (SHZ), in which it plans to acquire a majority stake, through the April 8 launch of a shuttle service between Beijing (PEK) and Shenzhen (SZX). (BEJ)'s CNY682.1 million bid to increase its share in Shenzhen (SHZ) to 51% still awaits government approval. (PEK) - (SZX) is one of China's most profitable business routes. (BEJ) operates nine daily services, while (SHZ) operates six. China Southern Airlines (GUN), which plans to increase its presence at (SZX) in order to compete with the new Air China (BEJ)/Shenzhen Airlines (SHZ) alliance, also operates (PEK) - (SZX) six-times-daily.

(SHZ) transferred its (PEK) operation from Terminal 2 to (BEJ)'s Terminal 3 in order to facilitate the shuttle operation. (SHZ) Marketing Director, Zhu Yixin noted that the carriers will announce similar services on additional routes in the coming days. They also are discussing other areas of cooperation including code sharing and cargo. Through its impending takeover of (SHZ), (BEJ) will increase its share of the South China market to 43%. (GUN) holds 30%.

April 2010: China Eastern Airlines (CEA) signed a letter of intent (LOI) in Shanghai to join the SkyTeam (STM) alliance, a move industry analysts said would allow it to establish a closer relationship with China Southern Airlines (GUN) and better position it to compete against Air China (BEJ).

(CEA) is expected to sign a formal alliance agreement with (STM) in June, setting its official entry into the airline grouping for mid-2011. Its decision to join the (STM) alliance is a disappointment to the Star Alliance (SAL) and the Oneworld (ONW) alliance, both of which had been wooing (CEA), seen as a valuable partner owing to its 50% market share at its Shanghai base.

(CEA) Chairman, Liu Shaoyong described the (LOI) signing as an "engagement ceremony," explaining, "It is time for the 22-year-old (CEA) to get married to the (STM) alliance." He said joining the alliance would expand (CEA)'s global reach and raise its service standards.

Liu guided China Southern (GUN) to formal SkyTeam (STM) alliance membership in 2007 when he served as (GUN)'s Chairman. (GUN) is (CEA)'s sponsor to join the alliance. The two carriers already cooperate on ground handling services and code share on some domestic routes.

SkyTeam (STM) alliance Chairman, Leo van Wijk said in Shanghai that (CEA)'s "1,253 daily flights can increase (STM) alliance daily flights by +10% and add +25 more destinations" to the alliance's network. (CEA)'s joining will "enable (STM) to play a leading role in the Chinese market," he added.

"China Southern (GUN) already covers China through its hubs in Guangzhou and Beijing," (STM) added in a statement. "Together with China Eastern (CEA) and its hub in Shanghai, (STM) will be able to offer service out of three major Chinese markets." (CEA) subsidiary, Shanghai Airlines (SHA) is expected to withdraw from the Star Alliance (SAL) in the coming days.

May 2010: Chinese airlines reported a collective profit of +CNY2.07 billion/+$303.6 million in April owing to rapid domestic economic growth.

The result was more than double net income of +CNY940 million earned in April 2009, according to the (CAAC) (CAC). April passenger boardings climbed +14.3% year-over-year to 21.6 million. Average load factor was 79.2% LF, up +2.7 points. Cargo volume jumped +31.6% to 466,000 tonnes.

It is noteworthy that traffic grew much faster on international than on domestic routes due to the global economic recovery. International passenger boardings rose +28.8% to 1.6 million, while domestic passenger boardings lifted +13.2%.

China's three largest carriers all earned a healthy net profit in April, with Air China (BEJ) the most profitable. (BEJ) carried 3.8 million passengers, up more than +16% year-over-year. Its load factor was 80.2% LF, up +4.6 points.

(SITA) signed a multimillion-dollar deal to handle passenger processing for 55 international airlines flying into Beijing Capital International (BCIA). "The joint managed Information Technology (IT) services business model which (SITA) and (BCIA) are implementing will keep costs down for the airlines and help to develop and expand their presence in China," (SITA) CEO, Francesco Violante said. Beijing was the world's third-busiest airport in 2009, according to Airports Council International, with 65.3 million passengers.

China Southern Airlines (GUN) is accelerating its market exploration at Xinjiang with plans to launch a regional airline to serve the Autonomous Region in northwest China. (CAAC) (CAC) announced a series of measures to encourage air transport development in Xinjiang, including boosting the number of airports from 14 to 21 by 2015, providing financial aid to carriers and increasing regional flight frequencies to domestic hub airports.

(GUN) already has a branch company in Xinjiang that operates more than >30 airplanes and transported 4.35 million passengers last year, capturing a 51% share of the market. (GUN) is scheduled to sign a strategic cooperation agreement with the Xinjiang regional government that will lead to further capacity growth and new routes to central and south Asia, the Middle East, and Russia. Reportedly, the soon-to-be-launched regional airline may use the name "Xinjiang Air" (XIJ). The former Xinjiang Air (XIJ) was launched in 1985 and merged with (GUN) in 2002.

June 2010: In 1990, mainline China had 17 million airline passengers. So far in 2010, it will have more than >260 million.

China Southern Airlines (GUN) now flies nonstop from Guangzhou to Urumqi, China's longest domestic flight.

(GUN) said it remains on track to join the SkyTeam (STM) Cargo alliance formally in November, and sources indicate that it is contemplating a possible merger of its cargo business with that of China Eastern Airlines (CEA).

(GUN), which joined the SkyTeam (STM) passenger alliance in 2007, signed a letter of intent (LOI) to become the first Chinese airline to join a global cargo alliance. Currently, it operates two 747-400Fs and two 777-200Fs from Shanghai Pudong (PVG) to Amsterdam, Frankfurt, and Chicago O'Hare. Cargo Director, Luo Laijun noted that (GUN) is scheduled to take delivery of three new 777Fs in July and August and plans to operate them from (PVG) to Vienna, New York, and Dallas.

Meanwhile, (GUN) has not ruled out merging its cargo business with (CEA)'s. It long has been speculated that Beijing intends to merge the cargo operations of China's big three carriers into one cargo company that would be better positioned to compete against foreign airfreight players. But it may be impossible for Air China (BEJ) to merge its cargo business with (CEA) and (GUN) because (BEJ) has signed a framework agreement with Cathay Pacific Airways (CAT) to launch a cargo joint venture (JV) based in Shanghai. It is still waiting for government approval for the (JV).

Foreign airlines currently have a dominant position in the Chinese air cargo market, in which domestic carriers hold less than a <20% share of traffic. (CEA) Chairman, Liu Shaoyong said that (CEA) plans to introduce a strategic investor in its cargo business by year end and it is widely speculated the partner will be (GUN). (CEA) has agreed to join the SkyTeam (STM) passenger alliance under the sponsorship of (GUN).

China's airlines reported collective net income of +CNY1.23 billion/+$180 million for the month of May owing to continuing domestic economic growth, according to the (CAAC) (CAC).

It is noteworthy that cargo traffic registered much faster growth than passenger traffic, particularly cargo volumes on international routes. Chinese carriers transported 21.5 million passengers in May, up +18.2% year-over-year, while cargo traffic jumped +36% to 467,300 tonnes. Cargo volume increased +76.7% to 165,100 tonnes on international routes. Average passenger load factor improved +4.8 points to 77.1% LF and daily average airplane utilization increased +0.3 hour to 9.3 hours.

In addition to the (CAAC) figures, Air China (BEJ) and China Eastern Airlines (CEA) released May traffic reports. (BEJ)'s capacity (ASK)s increased +14.6% year-over-year, while traffic (RPK)s lifted +25.9%. (ASK)s on international routes rose +9.8%, while international (RPK)s heightened +25%. Passenger load factor was 78.2% LF, improved +7 points over May 2009. (CEA)'s traffic (RPK)s climbed +50% to 7.21 billion with load factor improving +5.3 points to 74.7% LF.

July 2010: China Eastern Airlines (CEA) is moving forward with the integration of its China Cargo Airlines (CKK) subsidiary and the cargo subsidiary of merger partner Shanghai Airlines (SHA), Shanghai Airlines Cargo International, according to (CEA) General Manager, Ma Xulun. (CEA) acquired (SHA) last year. Ma said the companies are in discussions on how to apportion the original shareholders' respective shareholdings in the combined cargo company. He revealed that the investors, including China Ocean Shipping Company and (EVA) Air, are reluctant to sell their stakes. (CEA) Chairman, Liu Shaoyong said previously that (CEA) expects to introduce a strategic investor for its cargo subsidiary this year, with implications for the holdings of China Ocean and (EVA).

But Ma rejected widespread speculation that the cargo operations of China's big three carriers will be merged into a single freight airline. "Currently we are still busy with our internal cargo merger," he said. He pointed out that (CEA) has completed its integration with (SHA) in the areas of marketing, Maintenance Repair & Overhaul (MRO), ground service and Information Technology (IT). The merger is expected to save -CNY680 million/-$99.9 million annually. Owing to the synergy effect, and strong domestic market rebound, (CEA) is expected to report a bigger profit for the first half of this year than in the year-ago period, when it earned +CNY1.173 billion.

China's big three carriers plan to offer in-flight mobile phone service, according to the China Air Transport Association, which said the airlines signed a framework agreement with cellular technology development companies last year. Air China (BEJ), China Southern Airlines (GUN) and China Eastern Airlines (CEA) have submitted an application to the (CAAC) (CAC) seeking permission to offer in-flight mobile phone service but are still waiting for approval from the regulator. Passengers reportedly will be charged CNY15/$2.21 per minute to use the service, a proposed fee that has drawn complaints from some quarters in China as too high. In 2007, Shenzhen Airlines (SHZ) signed a contract with OnAir to equip its airplanes for in-flight mobile phone service, but the initiative was grounded when the (CAAC) declined to grant approval.

Hebei Airlines (NTE) was launched successfully on June 29 using the assets of Dongbei Air (Northeast Airlines). The airline operates one A319 and two ERJ-145s on domestic routes from the capital of Hebei Province, Shijiazhuang, to Qinhuangdao, Guilin, Shanghai, Chengdu, and Hohhot. Hebei Chairman, Wang Sheping noted the carrier will expand the fleet to 10 airplanes by year end and to 20 by 2015. Sichuan Airlines (SIC) took over troubled Dongbei (NTE) by investing CNY400 million/$58.7 million to raise its holding to 97% from 33.5% in June. Shenyang Zhongrui Investment Company has the remaining 3%. A share restructuring is planned over the next year, with Hebei Aviation Group acquiring a 62% stake, while Sichuan (SIC) would hold 35%. Shenyang will retain its 3% investment. Hebei (NTE) is expected to incur operating losses initially, an insider said, but financial help from the Hebei local government is expected to improve its fortunes.

China's airlines are bracing for a CNY140/$20.70 per ton increase in domestic fuel costs after the Chinese government announced it is raising its domestic fuel price from CNY5,470 to CNY5,610 per ton.

August 2010: Chinese carriers earned collective net income of +CNY5.52 billion/+$815 million for the month of July owing to robust domestic demand growth, according to the (CAAC) (CAC).

The country's airlines transported 25.5 million passengers in the month, up +21% over the year-ago month, producing a load factor of 83.6% LF, up +6.8 points, while cargo traffic volume climbed +23.6% to 445,400 tonnes.

Air China (BEJ) transported 3.6 million passengers on domestic routes in July, up +20.2% over the year-ago month, while its passenger boardings on international routes jumped +30.3% to 582,200. For regional routes, the figure rose +59.7% to 143,600. The (CAAC) (CAC) said China Eastern Airlines (CEA)'s July passenger boardings on domestic routes rose +52.8%, while passengers carried on international routes climbed +80.1% and on regional routes grew +74%.

Chinese carriers earned collective net income of +CNY10 billion in the first half of 2010.

The (CAAC) (CAC) continues to refuse to approve new airlines and said no new carriers will be cleared this year without meeting strict conditions. The (CAC) said new airlines will be approved only if they are domestic cargo carriers based in west and northeast China. Carriers approved by the regulator since 2007 include Xi’an-based Joy Air, Youhe Tongdao Airlines, Shunfeng Airlines and Tibet Air.

(CAC) Transport Department Director, Wang Ronghua noted that currently approximately 10 prospective airlines are waiting for the regulator’s approval. “But we don’t encourage the launching of too many carriers as it would trigger…problems owing to limited resources," he said. "Thus, we would decide whether to approve these new carriers by taking various factors and safety into account."

China's airlines reported collective net income of +CNY10 billion/+$1.5 billion in the first half of 2010.

Air China (BEJ) plans to launch a new Beijing-based business jet company in conjunction with the Beijing municipal government to compete with Hainan Airlines (HNA)’s subsidiary, Capital Airlines (DER), according to an industry insider.

(BEJ) is expected to sign a framework agreement soon with the municipal government and plans to hold a 51% stake in the new entity. (BEJ) already has a business jet subsidiary which launched in 2003 that operates a fleet of four airplanes including two G450s, one A318 and one Falcon 7X. Those assets will be taken over by the new company, which plans to introduce more airplanes next year.

(BEJ) is not the only Chinese carrier to join hands with the Beijing city government to explore the business aviation market. In May, Hainan launched Capital (DER) from the assets of its subsidiary business jet unit Deer Jet Company (DER). (HNA) holds a 70% stake in Capital (BTG), while the Beijing Tourist Group (BTG) holds the remaining 30%. (DER) currently operates 25 Airbus (EDS) airplanes and 24 business jets on more than >120 routes, giving it a 90% share of China's fast-growing commercial business aviation market.

The number of business jets operated in China totals fewer than <100 but experts believe the figure could rise to as high as 1,000 over the next decade.

China Southern (GUN) will more than double the size of its operation
in Hainan, the home province of rival Hainan Airlines (HNA) over the coming five years, taking advantage of subsidies offered by the local government. (GUN) says it will deploy airplanes worth more than 10
billion yuan/$1.5 billion to the island province, aiming to promote it as an international tourism destination. The fleet of its Hainan branch company will rise to 50 airplanes from 22 within five years, implying +22% annual growth — - much faster than can be expected in
the overall Chinese airline market in that time. The number of routes serviced from Hainan will rise correspondingly to 93 from 42.

Hainan’s provincial government will support the investment with tax concessions and land, among other forms of assistance. Chinese provincial and municipal governments commonly offer such inducements for companies to set up or expand businesses that will help drive their local economies. In this case, Hainan is doing so despite its investment in Hainan Airlines (HNA).

Although China Southern (GUN) does not mention the issue, exploitation of Hainan as a destination also helps to address one of the carrier’s most pressing concerns: how to develop its international business to offset massive competitive pressure from China’s rapidly developing network of fast railways.

(GUN) Chairman, Si Xianmin says (GUN) will open express services
from Hainan to Hong Kong and Guangzhou and international services to Russia, South Korea, and Japan. Si has previously said (GUN) must respond to the rail threat by increasing international services to 30% of its operations from the current 17%. Of the 93 routes expected to be added, 26 will be international.

(GUN) said it will increase its share of the Hainan market to 40% by 2015 from 33. It currently operates 22 airplanes from Hainan to 42 destinations.

The (CAAC) (CAC) said it started safety inspections of China's passenger airplane fleet in response to the Henan Airlines Embraer EMB-190 crash at Yichun that killed 42.

Official state news agency "Xinhua" said the (CAAC) dispatched six teams to supervise the inspection work, which it stated "will focus on safety awareness, personnel quality, regulations implementation, safety network, aviation equipments, training quality, and accountability."

Separately, the Henan provincial government ordered Henan Airlines not to use "Henan" in its name any longer, though the name revocation still must be approved by other government agencies. The airline was previously known as Kungpeng Airlines.

The (CAAC) (CAC), which has been conducting widespread safety inspections of China's airlines in the wake of last month's Henan Airlines Embraer EMB-190 crash that killed 42, confirmed that an investigation carried out in 2008 to 2009 revealed that more than >200 pilots (FC) had falsified their resumes. Of these, 103 were employed by Shenzhen Airlines (SHZ), parent of Henan Airlines. The (CAAC) noted that the vast majority of the pilots (FC) had been suspended, however, it added that this did not mean the problem had disappeared which is why it initiated a new round of investigations into pilot (FC) qualifications.

In addition to pilots (FC), the (CAAC) is also investigating airplane mechanics (MT), flight instructors and other aviation personnel and vowed to punish any disqualified personnel. In a recent meeting on the crash aftermath, (CAAC) Minister, Li Jiaxiang called on Chinese carriers to "slow down pursuing commercial profit appropriately [and] give priority to improving safety level[s]."

In the crash aftermath, the Henan provincial government ordered the carrier to change its name back to Kunpeng Airlines to minimize damage to its image.

Earlier this month, the (CAAC) ordered China Express Air to suspend operations after the airline experienced a landing incident when the right wing of one of its CRJ-200s scraped the runway at Guiyang in southwest China. The regulator allowed the Guiyang-based carrier to resume half of its flight operations but still suspended its longer domestic routes owing to safety concerns.

October 2010: The Chinese government cut the country's domestic aviation fuel prices by -2.1%, from CNY5,610/$841 per ton to CNY5,490 as of October 1, according to the China Aviation Oil Corporation.
Fuel expenses account for more than >40% of domestic carriers' total operating costs on average. China Southern (GUN), which operates 80% of its flights on domestic routes, could see its fuel costs reduced by -CNY317 million annually owing to the change. Air China (BEJ) and China Eastern Airlines (CEA), which operate 70% of their flights on domestic routes, could reduce their annual fuel costs by -CNY269 million and -CNY277 million, respectively.

November 2010: China Aviation Supplies Holding Company (CSC) has signed with Airbus (EDS) for a total of 102 airplanes of which 66 are new orders. The new orders comprise 50 A320 Family airplanes, six A330s and ten A350 XWBs. The agreement was signed by Li Hai, President of (CSC) and Tom Enders, President & CEO of Airbus (EDS).

COMAC (CCC) announced at the China International Aviation and Aerospace Exhibition in Zhuhai that four Chinese airlines and two leasing companies have placed orders and commitments for up to 100 C919s. The airlines comprise Air China (BEJ), China Southern Airlines (GUN), China Eastern Airlines (CEA), Hainan Airlines (HNA); the lessors are (GE) Capital Aviation Services (GECAS) (GEF) and China Development Bank Leasing Company (CHD).

The orders, the first for the 150 to 170 seat transport, also mark the formal launch of (CFM) International's (LEAP-X1C), which was selected as the exclusive western powerplant for the airplane last year.

COMAC (CCC) Chairman, Zhang Qingwei noted “the big order['s] would lay a solid marketing base for the smooth development of C919 production,” which is scheduled to make its first flight in 2014 and enter service in 2016. "We are obviously honored by the strong show of support from China's major airlines evidenced by these launch orders," said (CFMI) President & CEO, Eric Bachelet. (CFM) said it is on schedule to freeze the (LEAP-X) design by the end of 2011 with the first full (LEAP-X) engine going to test in early 2013.

(CEA) Chairman, Liu Shaoyong said (CEA) would take 20 C919s. It is reported that each of the other three airlines are taking a similar number, while CDB Leasing Company has reportedly ordered 10.

Separately, (GECAS) (GEF) said it signed a letter of intent covering five firm C919s and five options.

Commenting on the order and rising competition from COMAC (CCC), Airbus (EDS) China President, Laurence Barron told reporters at the show that, “The Chinese market is quite big and has enough room for different types of airplanes. Even if the competition hadn’t taken place in China, it would take place in Japan, Russia, and Canada, especially in the 100- to 200-seat airplane market. So when we face this competition, we deal with it.” He also said, “It is not enough just to have government support. Customers care about safety, reliability and financial performance. So if the airplane is a good one, it will sell.”

Boeing (TBC) continues to evaluate the possible time line for launching a successor to the 737, VP & General Manager 737 Program, Beverly Wyse said at the Zhuhai Air Show November 17. “We haven’t made a firm decision yet but we are considering it,” said Wyse. “Right now, we are in the phase of communicating with our customers and gathering information from them on this issue.” (TBC) is seeking a +25% improvement in fuel efficiency over existing types a new airplane would replace in the 100 to 200 seat size range.

(TBC) forecast earlier this month that China will need 3,090 new single-aisle airplanes in the next 20 years, which will account for 71% of total deliveries.

Confronted with the emergence of COMAC (CCC)'s C919, which just received 100 C919 orders at Zhuhai, Wyse said she is confident about Boeing (TBC)’s prospect in the Chinese market. “We fully respect China’s intention to enter the single-aisle airplane market and welcome this competition…[which has been] really powerful for our industry as it continues to cause people to invest in their products and make the products more efficient,” she noted.

(GE) Aviation (GEC) and China's (HNA) Group, parent of Hainan Airlines (HNA), signed a Memo of Understanding (MOU) at the Zhuhai Air Show to form a Maintenance Repair & Overhaul (MRO) joint venture (JV) for (GE)'s (CF34-10A) and (CF-34-10E) engines for the ARJ-21 and Embraer EMB-190/195 regional jets, respectively. The facility will be located in Tianjin province and operated by the (HNA) Group "with technical support and materials from (GE)," (GEC) said.

A Shanghai-based joint-venture (JV) company will gradually take over the civil avionics businesses of General Electric (GE) and Avic.
Establishment of the joint company can now go ahead, following the signing of an agreement of the Shanghai municipal and Shandong provincial governments to invest in the Chinese side. “This will be the main commercial avionics business of Avic and General Electric (GE),” Avic VP, Zhang Xinguo said after the signing ceremony at Airshow China in Zhuhai, Guangdong.

Roger Seager, General Manager of Commercial Aircraft Programs at (GE) says, “This will be (GE)’s store front. Our commercial avionics will be headquartered here in China, at the joint venture (JV).” Since the Chinese side will collectively own half of the joint company, Avic’s effective interest will be less than 50%. The government investors, knowing little about avionics, can be expected to let Avic and (GE) run it, however. The first task for the joint company will be to develop avionics for the Comac (CCC) C919 airliner — - the catalyst for its creation.

(GE) has already begun work on a suite of advanced modular avionics that will form the basis of the C919 system. The second task of the joint company will be to take those modules and develop avionic systems for other airplanes. Both sides will separately continue to build their existing products — which, in Avic’s case, do not enjoy large sales volumes — while the new business gradually expands to take over their whole avionics activities. The partners will continue to make components separately. Within the reorganized Avic, the joint company falls under Avic Avionics, part of what was previously called Avic Systems. The rest of the former Avic Systems will specialized in electrical and mechanical systems under a different name.

Western suppliers to the C919 program have been required to work with
Chinese partners. Several, including (GE), have chosen to set up joint businesses that will address the wider market beyond the C919.

(AVIC) International has signed an agreement with (COMAC) (CCC) to purchase 100 ARJ21s at the Zhuhai Air Show. Both companies said they will work together to market to international customers. So far, there have been 340 ARJ21 orders, mainly from domestic carriers, but Lao Airlines, which ordered two aircraft in January 2010, will likely be the ARJ21’s first foreign operator. COMAC (CCC) ARJ21 Chief Designer, Chen Yong noted that the regional jet is in the phase of making test flights and gaining certification from the (CAAC) (CAC). It is working toward gaining certification from the (FAA) to pave the way for its international marketing plan. The regional airplane is scheduled to enter the market in 2011.

SEE ATTACHED "FLIGHT INTERNATIONAL" ARTICLES - - "CAC-2010-11-ARJ21-UPDATE" AND "CAC-2010-11-C919-UPDATE-A/B/C/D."

December 2010: Airbus (EDS) and the (CAAC) (CAC) signed a Memo of Understanding (MOU) to cooperate on air traffic management (ATM) solutions. The (MOU) states that (EDS) will assist the (CAAC) with the introduction and implementation of new (ATM) technologies and best practices, sharing its experience in Europe as the (CAAC) develops future (ATM) systems in China.

“With the (MOU), Airbus (EDS) has expanded its cooperation with China’s civil aviation into a new area,” said Airbus (EDS) China President, Laurence Barron. “Global interoperability of air traffic management systems — in particular between the future (ATM) system in China and (SESAR) — is key for the air transport industry, and strengthening cooperation between Europe and China will support global interoperability.”

January 2011: Mainland Chinese airlines carried 26 million international passengers in 2010, up +28%.

Chinese carriers earned a collective net profit of +CNY35.1 billion/+$5.28 billion in 2010 owing in large part to surging domestic growth, according to (CAAC) (CAC) Vice Minister, Wang Changshun. The net income represents more than a fourfold increase over a +CNY7.4 billion profit in 2009.

Operating revenue for 2010 climbed +41.5% year-over-year to CNY299.9 billion. The (CAAC) did not reveal total operating expenses. Passenger boardings lifted +15.8% to 267 million, while cargo traffic volume rose +25.1% to 5.57 million tonnes. China's airlines added 187 airplanes to their collective fleet in 2010. The carriers operated 1,604 airplanes as of December 31.

Wang said the (CAAC) would strictly control Chinese carriers' fleet additions in 2011, requiring airlines to limit capacity growth while improving airplane utilization and load factors. The total fleet is expected to reach 1,827 units by the end of this year with an increase of +290 airplanes and the phasing out of 67.

The (CAAC) said it will continue to be restrictive regarding approval of new entrants. Wang predicted that the fast growth of domestic market demand would continue this year but warned unfavorable conditions still remain, such as “uncertainties of global economic developments, rising fuel prices, world terrorism, domestic high-speed rail, shortage of airspace and aviation professionals.”

The (CAAC) projected that Chinese carriers would transport 300 million passengers this year, while cargo traffic volume is likely to total 6.2 million tonnes.

Airbus (EDS) announced the launch of a new subsidiary, "Airbus ProSky." (EDS) said ProSky will become the channel "through which Airbus (EDS) will interact and develop Air Traffic Management (ATM) programs" such as (SESAR) and NextGen. It will also work with other nations' Air Navigation Service Providers, airworthiness authorities and airlines, to assist in updating and modernizing their (ATM) systems. Airbus ProSky has already announced a Memo of Understanding (MOU) with Chinese authorities under which it will "assist the Chinese Air Traffic Management (ATM) Bureau with the introduction and implementation of new (ATM) concepts, airspace design, deployment support, training and best practices," (EDS) said. Airbus Senior VP (ATM), Eric Stefanello will serve as President of Airbus ProSky and will be supported by VP SESAR & NextGen Deployment, Marc Hamy. “With Airbus ProSky we are harnessing the competencies both within Airbus (EDS) and also from the wider (EADS) group, to help transform (ATM) services across the European Union (EU), the USA and other countries globally,” Stefanello said.

General Electric (GE) is counting on a joint venture (JV) with the Aviation Industry Corp of China (AVIC) to propel (GEC) into the front ranks of avionics suppliers, just as its 50-50 partnership with France’s Snecma turned (CFM) International into a powerhouse engine maker. With Chinese President, Hu Jintao and USA Commerce Secretary, Gary Locke looking on, GE Aviation (GEC) President & CEO, David Joyce and (AVIC) Senior VP, Zhang Xinguo signed an agreement in Chicago to form a (JV) — (GE) - (AVIC) Civil Avionics Systems Company Ltd — in Shanghai.

The partners say, “Market potential provides an estimated value” of $2 billion for the company, which was preliminarily agreed to in November 2009. The completion of that deal was timed as part of Hu’s state visit this month with President Obama.

(AVIC) will nominate the Chairman and (GE) the General Manager of (GE) - Avic Avionics Systems. It will initially be located in the Zizhu Digital Hub Science Park in Shanghai until a permanent location is secured.

The (JV)’s first contract is to provide an integrated avionics suite
for the 160- to 190-seat Comac C919, China’s single-aisle transport that will challenge the A320 and 737 families. It is to enter service in 2016 and will be powered by (CFM)’s (Leap-X) engine. But the larger intent is for the partners to turn their as-yet unnamed (JV) into a major avionics supplier for airplanes in any market.

At this stage, timing is fluid. The company expects to develop a certified product on or before 2014 to support the C919’s flight test schedule. Rate production would begin in 2015 to support the airplane’s service entry of 2016. But if upgrade systems are sold for use by other airplanes, production schedules could move up, a (GE) official said.

GE Aviation (GEC) is best known for its gas turbine engines, but its purchase of Smiths Aviation in 2007 signaled an intent to be as strong in commercial avionics. Smiths plays a major role on the 787 as the builder of the common core computing system, but its reputation is as an avionics supplier, not a prime manufacturer. (GE)’s purchase of Smiths was to build it up to become a prime contractor; its partnership with Avic is the means to that end. For Avic, teaming with (GE) is a means to the end of establishing the Chinese company’s importance in avionics manufacture.

The emphasis on civil projects is intended to get past USA export control regulations. The partnership is modeled after the (GE)-Snecma agreement in which each company supports its own investment in (CFMI) and fulfills specific work assignments for engines best known for powering A320s and 737s. (GE) also has joint ventures (JV)s with Honda in (GE) Honda Aero Engines for a business jet engine and Pratt & Whitney (PWC) in The Engine Alliance that produces powerplants for the A380.

Meanwhile, avionics prime contractor Rockwell Collins has opened its
China System Support Center in Shanghai for fundamental and advanced
engineering, program management training, systems integration and avionics system consulting. Also a major C919 supplier, Rockwell Collins expects to expand its reach in China with the support center. The company is providing the 150-seat jet’s communication, navigation, surveillance, cabin management, in-flight entertainment
and simulator components.

February 2011: Owing in large part to surging domestic growth, Chinese carriers earned a collective net profit of +CNY35.1 billion/+$5.28 billion in 2010, according to the (CAAC) (CAC).

ST Aerospace joint venture (JV) company ST Aerospace (Guangzhou) Aviation Services Company received a business license from the Guangzhou Municipality Administration of Industry and Commerce to establish its airplane repair facility in Guangzhou, China. It already received endorsement from the (CAAC) (CAC) and approval from the Ministry of Commerce.

ST Aerospace (Guangzhou) Aviation Services Company is a (JV) between Guangdong Airport Management Corporation (51%) and ST Aerospace (49%), and will perform commercial airplane Maintenance Repair & Overhaul (MRO) for Airbus (EDS), Boeing (TBC) and McDonnell Douglas (TBC) airplanes. The (JV) will be operated and managed as a part of ST Aerospace’s global network of (MRO) facilities. It is expected to begin operations in the second half of 2013.

Chinese carriers reported +CNY2.82 billion/+$428 million in collective net income for the month of January, reversing a collective net loss of -CNY50 million in the year-ago month, according to the (CAAC) (CAC). The (CAAC) credited the turnaround to strong demand growth stimulated by rapid domestic economic expansion.

January operating revenue climbed +36.9% to CNY26.74 billion, while operating expenses increased +22.1% to CNY23.63 billion. China's airlines transported 22.7 million passengers during the month, up +16.7% over January 2010. Passenger boardings rose +25.5% to 1.7 million on international routes and +16.1% to 20.9 million on domestic routes. Average load factor improved +2.5 points to 79.3% LF.

Cargo traffic volume rose +10.1% to 496,200 tonnes. Daily airplane utilization increased by 0.2 hours over the year-ago month to 9.3 hours.

As of January 31, Chinese carriers operated a total of 1,606 airplanes. They introduced 11 airplanes into the fleet during the month, comprising one A330-300, two A330-200s, three A320s, one A319, one 737-700, one Embraer EMB-145, one EMB-190 and one Gulfstream 450.

China’s big three carriers accelerated the pace of their international expansion plans, citing the country's surging economic growth. China Eastern Airlines (CEA) announced it will launch eight-times-weekly, A340-300 Shanghai - Rome service on March 29. (CEA) Chairman, Liu Shaoyong said that (CEA) hopes to change the ratio of international to domestic revenue from 3:7 to 4:6 by 2015.

Meanwhile, Air China (BEJ) said it will launch thrice-weekly, Beijing - Dusseldorf (DUS) service on March 27. (DUS) will be its third destination in Germany, joining Frankfurt and Munich.

Additionally, China Southern Airlines (GUN) will start thrice-weekly, Guangzhou - Auckland service on April 8. (GUN) international service accounts for 22% of (GUN)’s total flights while domestic service accounts for 78%. (GUN) is aiming to raise the ratio of international flights to 30% in the next two to three years.

Hainan Airlines (HNA) signed a strategic cooperation agreement with China Telecom Company to develop in-flight mobile phone and Internet service aboard (HNA)'s airplanes, pending the (CAAC)'s approval.
If approved, (HNA) would become the first Chinese carrier to offer in-flight voice and Internet services. Shenzhen Airlines (SHZ) tried to get approval for a similar agreement with Swiss OnAir Company in September 2007 but the (CAAC) rejected the deal.

Spring Airlines (CQH), China's most profitable Low Cost Carrier (LCC), said it will launch a new four-times-weekly charter A320 Shanghai - Takamatsu service, part of a planned expansion in the Japanese market over the next few years. (CQH) noted it would change the charter flights into scheduled flights when market conditions improve.

(CQH) reported net income of +CNY470 million/+$71 million in 2010, nearly tripling its 2009 net profit of +CNY158 million. In January, it announced it would launch an Initial Public Offering (IPO) to help fund its fleet expansion.

Spurred on by its profitable Shanghai - Ibaraki route, on which load factors average 98% LF, (CQH) said it will accelerate its growth in Japan. It plans to open three or four new routes to Hokkaido, ýHonshu and Kyushu in the short term and open more than >20 new routes to Japan in the long term. A (CQH) spokesman also noted (CQH) plans to open charter routes to Thailand and Indonesia this year.

Juneyao Airlines (JYA) received approval to open routes to Japan and plans to launch Shanghai - Sapporo service this year.

March 2011: The (CAAC) (CAC) appears to be softening its tough stance on restricting approval of new entrants, based on recent remarks by (CAAC) Minister, Li Jiaxiang, who noted that three carriers are applying to launch. “We would support and help them as long as they meet our conditions,” Li said.

His words were a change from the (CAAC)’s statement in January that it would continue to be restrictive. In 2007, the (CAAC) announced it would not approve any new start-ups until 2010 owing to there being too many privately run domestic carriers, the result of a loosening of restrictions in 2004. It also reiterated its intention to continue suspending approval of new entrants owing to safety concerns in the aftermath of the crash of a Henan Airlines jet in August 2010.

Since 2008, only four carriers have been given the green light to launch: Wuhan-based, Uni-Top Airlines; Shenzhen-based, Shunfeng Airlines (both cargo airlines); Xi’an-based, Joy Air; and Lhasa-based, Tibet Air (both based in western China).

An industry insider noted that 18 carriers applied to the (CAAC) to start up in 2008 but were rejected.

Air China (BEJ) is expected to launch its business jet subsidiary, Beijing Airlines, in conjunction with the Beijing municipal government in April or May. The new joint venture (JV) will be set up based on the assets of (BEJ)’s wholly owned business jet subsidiary that was established in 2003. It operates a fleet of seven airplanes, comprising three G450s, one A318, one Falcon 7X, one G200 and one Challenger 605. (BEJ) noted it would introduce more airplanes this year.

The Beijing-based carrier will have a registered capital of CNY1 billion/$152 million. (BEJ) will hold an 80% stake, while the municipal government will hold the rest.

Beijing Airlines will face fierce competition from Hainan Airlines subsidiary Capital Airlines (DER), which was launched last year and operates 24 business jets. It has more than a >90% share of the Chinese business jet market.

China’s commercial business jet market is still quite small, comprising a fleet that is fewer than 40 airplanes. Industry analysts point out there is big growth potential owing to the rapid expansion of the Chinese economy. It is predicted that China may need 600 - 1,200 business jets in the next 10 years.

A group representing China's largest airlines sent a formal notice to the European Union (EU) expressing strong opposition to non-member-state airlines' inclusion in the (EU)'s Emissions Trading Scheme (ETS) from 2012. The China Air Transport Association (CATA), representing Air China (BEJ), China Southern Airlines (GUN), China Eastern Airlines (CEA), Hainan Airlines (HNA), Xiamen Airlines (XIA), Shenzhen Airlines (SHZ), and Sichuan Airlines (SIC), estimated that Chinese carriers will be forced to pay millions of yuan annually to comply with the (ETS). The figure could keep rising with increases in flights between China and Europe planned by Chinese airlines.

(BEJ) is scheduled to launch Beijing (PEK) - Dusseldorf service on March 27, (PEK) - Munich - Athens flights on May 11, and (PEK) - Milan service on June 15. (CEA) plans start flights from Shanghai to Rome in April, while China Southern (GUN) is expected to soon start Guangzhou (CAN) - Amsterdam service and boost flight frequencies between (CAN) and Paris Charles de Gaulle.

The (CATA) said in its statement to the (EU) that the inclusion of carriers from developing countries in the (ETS) is illegal and violates the "common but differentiated responsibility" principle. It called for a global solution to dealing with air transport-related carbon dioxide emissions. "But if the (EU) insists on imposing its (ETS) on our carriers, we would urge the Chinese government to take corresponding measures to protect Chinese airlines' interest in the global air transport industry," the group of carriers warned. The (EU) noted it would maintain communication with Chinese airlines on the issue.

April 2011: Chinese carriers posted collective first-quarter net income of +CNY5.73 billion/+$879 million, up +31.8% over the year-ago period, according to the (CAAC) (CAC), which credited the continuing growth of domestic market demand. Total operating revenue climbed +21% to CNY76.97 billion, outpacing a +17.6% rise in expenses to CNY70.7 billion.

Passenger boardings rose +9.3% compared to the year-ago period; domestic passengers increased +9.1% to 62.2 million, while international passengers heightened +12.3% to 4.9 million. Average passenger load factor improved +1.5 points to 80.4% LF.

Cargo traffic increased +1.2%; freight volumes were up +1% to 859,000 tonnes on domestic routes and up +1.6% to 427,000 tonnes on international routes.

Chinese carriers earned a collective net profit of +CNY1.71 billion in March, down -36.2% from +CNY2.69 billion in the year-ago month. Monthly operating revenue climbed +17.2% to CNY26.07 billion, while operating expenses rose +16.6% to CNY24.34 billion.

March passenger boardings rose +5% to 22.8 million with an average load factor of 81% LF, improved +0.4 point over the year-ago month. The (CAAC) noted that the monthly year-over-year passenger growth rate hit a new yearly low in March, which it attributed to a slow global economic recovery, the unstable political situation in North Africa and Japan's earthquake.

March passenger boardings rose only +2.7% to 1.6 million on international routes while lifting +5.2% to 21.2 million on domestic routes. Passenger boardings climbed +28.4% to 228,600 on routes across the Taiwan Strait. March cargo traffic volume increased +2% to 489,000 tonnes.

As of March 31, Chinese carriers operated a total fleet of 1,622 airplanes. In March, the country's airlines introduced 13 new airplanes, comprising two A321s, one MA-60, one Embraer EMB-190, three A320s and six 737-600s. They phased out six airplanes, comprising two 767-300s, one MD-11F freighter, one MD-90, one 737-300 and one 737-700.

Two Chinese airlines ordered a total of 30 Embraer EMB-190s, plus five options, during Brazilian President, Dilma Rousseff’s visit to China.

Shijiazhuang-based, Hebei Airlines (NTE), which launched in June 2010, committed to 10 EMB-190s, plus options for an additional five units. Deliveries will begin from September 2012.

Embraer also confirmed that China Development Bank (CDB) Leasing Company ordered a “second batch of 10 EMB-190s as a follow-on order to an agreement concluded earlier this year” to be operated by China Southern Airlines (GUN). In addition, (CDB) and (GUN) signed a letter of intent (LOI) for a third group of 10 EMB-190s, which, if confirmed, will bring the total (CDB) order to 30 airplanes, valued at $1.25 billion at list prices, Embraer said. (GUN) is expected to begin taking delivery of the airplanes during the second half of this year.

Embraer noted that with this new order, it has 135 airplanes firm orders in the Chinese market.

Embraer signed an agreement with (AVIC) (CCC), in which both sides will use their Harbin Embraer Aircraft Industry Company joint venture (JV) as the final assembly line for the Legacy 600 and 650 executive airplanes. Harbin, which was established in January 2003, has produced and delivered only 39 ERJ-145s and has been idle since 2009 after Hainan Airlines (HNA) canceled its order for 25 ERJ-145s.

May 2011: Chinese carriers posted aggregate net income of +CNY3.18 billion/+$489 million in April, up +57.9% from a net profit of +CNY2.01 billion in the year-ago period, according to the (CAAC) (CAC). Total operating revenue climbed +20.4% to CNY28.33 billion, while expenses increased +15.5% to CNY24.8 billion.

April passenger boardings on domestic routes increased +13% to 24.4 million and international boardings rose +0.9% to 1.6 million. Passenger boardings climbed +27.3% to 254,700 on routes across the Taiwan Strait. The (CAAC) noted that passenger boardings plummeted -32.2% on routes to Japan, reflecting the impact of the earthquake, tsunami and nuclear crisis. Average load factor was 83.2% LF, up +4 points over the year-ago period. April cargo traffic volume rose +2.6% to 478,300 tonnes.

In April, Chia’s carriers took delivery of 12 airplanes comprising six A320s, two Embraer EMB-145s, one A330-300, two 737-800s and one 737F freighter. They phased out one MD-90. At month’s end, they operated a fleet of 1,633 airplanes.

Chinese airlines continue to post large profits, but Air China (BEJ) and China Southern Airlines (GUN) both saw earnings dip in the 2011 first-quarter compared to the year-ago period, despite strong revenue growth.

(BEJ) reported net income of +CNY1.67 billion/+$255.8 million, down -23% compared to a profit of +CNY2.17 billion in the March 2010 quarter. (GUN) earned +CNY1.24 billion/+$190 million, down -12.9% from a +CNY1.42 billion profit last year.

(BEJ) credited the “continuous growth of domestic market demand,” stimulated by the gradual recovery of the Chinese economy, for its profit. But (BEJ) cautioned, “The impact of the unstable political condition in North Africa, the earthquake in Japan and fluctuations in oil price have slowed down the growth of international traffic and cargo business.”

(BEJ)'s first-quarter revenue climbed +44.6% year-over-year to CNY21.25 billion, while operating expenses jumped +43.9% to CNY19.42 billion. Traffic rose +37.9% to 28.83 billion (RPK)s on a +36.7% lift in capacity to 36.35 billion (ASK)s, pushing load factor to 79.3% LF, up +0.7 point.

Looking ahead, (BEJ) Chairman, Kong Dong said he expects “greater room for growth this year generated by the continuous recovery of the global aviation industry, stable macroeconomic growth in China, and the increasing synergies with Cathay Pacific (CAT) and Shenzhen Airlines (SHZ).” But he warned, “Uncertainties still remain, such as sudden unexpected incidents, jet fuel price hikes, greater competition from high-speed railways and exchange rate fluctuations. We remain optimistic about the overall market this year yet will be prudent about our approach to business.”

(GUN) said robust domestic market growth was central to its first-quarter profit. Its revenue for the year's first three months increased +21.5% to CNY20.51 billion, while expenses rose +14.7% to CNY18.9 billion. Passenger boardings heightened +5.8% to 18.7 million with an average load factor of 79.9% LF, up +1.9 points. Cargo volume increased +5% to 262,690 tonnes.

China Eastern Airlines (CEA) inked a cooperation agreement with Liaoning province in northeast China, seeking to enhance its position in North China by adding capacity and boosting flight frequencies on routes from the provincial capital, Shenyang (SHE), to Shanghai, Xian (XIY) and Kunming (KMG).

According to the agreement, (SHE) - Shanghai service will increase to nine-times-daily in coming days. Flights from (SHE) to (XIY) and (KMG) will increase from three to five-times-daily on each route over the next two years.

Meanwhile, other carriers are also boosting their presence in North China. China Southern Airlines (GUN) also signed a cooperation agreement with Liaoning in February and Shanghai-based Spring Airlines (CQH) is considering establishing an operating base at (SHE).

(GECAS) (GEF) announced it will deliver a total of 20 new leased airplanes to China this year, representing an investment of $7 billion in the country. It will deliver 11 new 737s, two new 777Fs, and seven new A320s in 2011, representing a +10% increase of its leased portfolio in China, it said.

Hainan Airlines (HNA) relaunched Chongqing-based, China West Air (CHO) in conjunction with Chongqing Yufu Capital Management Company, which is controlled by the Chongqing municipal government. (HNA) didn’t reveal the exact figure but noted the combined investment was CNY3 billion/$460.8 million.

China West Air (CHO) was initially launched in 2006 with a registered capital of CNY80 million. (HNA) subsidiary Lucky Air (LKY) and Jianying Investment Company both hold a 35% stake and Shenzhen Guorui Investment Company, Sichuan Sanxing General Aviation Company and Xinjiang Siweida Technology Company all have a 10% stake in (CHO).

China West Air (CHO) operates a total fleet of nine airplanes, comprising four A319s, two 737-300s and three A320s on more than 20 domestic routes. (CHO) is expected to open international routes to Southeast Asia, Japan and South Korea by the end of 2012 and expand its fleet to 40 by 2015.

It is noteworthy that China Southern Airlines (GUN), which launched subsidiary Chongqing Airlines (CGQ) in 2006, signed a cooperation agreement this month with the Chongqing municipal government to enhance its position in Chongqing.

Sichuan Airlines (SIC) launched a Yunnan subsidiary to enhance its position in the lucrative Yunnan market and take advantage of the fast-growing Chinese economy.

(SIC) operates four airplanes in Kunming and plans to expand its fleet to 25 airplanes by 2015. In the next five years, (SIC) expects to open 33 domestic routes to other province capitals and major cities starting from Kunming, which will increase its share of the Yunnan market from 6% to 20% by the end of 2015.

China Eastern Airlines (CEA) enjoys a 50% market share. Hainan Airlines (HNA) (including subsidiaries Lucky Air (LKY) and China West Airlines (CHO)) has 17%, China Southern Airlines (GUN) has 14.9%, and Air China (BEJ) (including subsidiaries Shandong Airlines (SHG) and Shenzhen Airlines (SHZ)) has 12%.

Earlier this year, (SIC) established a subsidiary in Chongqing and set up operating bases in Hangzhou, Beijing, Sanya, Xi’an, Harbin, and Mianyang. (SIC) has a fleet of 60 airplanes, which it plans to increase to 100 in the next five years.

The Chinese government raised domestic jet fuel prices to CNY7,640/$1,175 per ton, up +11.7% from CNY6,840 per ton in April, despite the decline of international oil prices since May. This is the third price hike this year. Fuel costs comprise more than >40% of Chinese carriers’ operating expenses. China Southern Airlines (GUN), which operates 80% of its flights on domestic routes, could see its fuel costs increase by +CNY2.11 billion annually owing to the change. Air China (BEJ) and China Eastern Airlines (CEA), which operate 70% of their flights on domestic routes, could see their annual fuel costs rise by +CNY1.79 billion and +CNY1.84 billion, respectively.

As a short-term solution, most Chinese carriers announced they have increased fuel surcharges on domestic routes. China’s big three carriers are reportedly considering restarting fuel hedging but first must receive government approval.

June 2011: China Eastern Airways (CEA) and its subsidiary, Shanghai Airlines (SHA) officially joined the SkyTeam Alliance (STM) on June 21st - - SEE ATTACHED "AIRLINER WORLD" ARTICLE - - "CAC-2011-06-SKYTEAM ALLIANCE."

Chinese carriers facing pressure from the Beijing - Shanghai high-speed train (HST) rail service scheduled to start this month, are slashing air fares and making other adjustments to remain competitive. The Beijing - Shanghai air route is popular with business travelers. With an average load factor of more than >85% LF, it is the most profitable city-pair for domestic airlines, including China Eastern Airlines (CEA) and Air China (BEJ), the route's two biggest carriers.

(BEJ) Chairman, Kong Dong has expressed concern about the Beijing - Shanghai high-speed train (HST) rail service, noting that the route "is our lifeblood." However, he said (BEJ) is responding by adjusting capacity, simplifying the boarding process, enhancing service levels and improving on-time performance.

(CEA) is taking a similar approach by implementing a series of measures, including simplifying the boarding process, coordinating with air traffic controllers to guarantee on-time performance and improving cabin service. (CEA) Managing Director, Ma Xulun predicted that the Beijing - Shanghai high-speed train (HST) service will reduce air passenger traffic by -15% to -20% initially but that traffic will recover in six months when the (HST) and airline customer groups stabilize.

In addition, both carriers are expected to switch from an A330 to an A320 on the route to maintain high load factors.

An interesting comment by a reader of the above "(HST) vs Airplane" (who signed his name as "Autolycus") follows:

"Train or airplane, which is better, A to B?

Trains: - They have few delays, run on rails, depart almost immediately after doors close, virtually unaffected by weather, comfy (depending on ticket) seats, no baggage restrictions or fees for excess weight, more room to move around during journey, quicker passenger throughput at terminals, no delay waiting for baggage at destination, higher security for and access to baggage during journey, no communication (phone/computer) connection issues - though quiet cars & network coverage will affect these. The final point to consider in the railway's favor is city center-to-city center journey times - which are usually quicker by rail.

Airplanes: They have a lot of catching up to do in terms of passenger comfort and convenience. This includes the unacceptable personal intrusions (particularly by ill-suited "security" apes at USA airports), exorbitant excess baggage - and now other - additional fees, overall journey time from A to B and the cramped cabin conditions in economy (Y) class.

Conclusion: As rail travel improves globally and air travel stagnates, airlines - and airports - are going to have to compete on an equal footing or lose passengers to well-catered, clean, high-speed, Mag-Lev, reliable railway systems . . . And watch the rush increase when first-class (F) rail travel includes a similar range of interactive In-Flight Entertainment (IFE) (perhaps that should be (IJE)), as are enjoyed by even "cattle-class" air travellers now . . .

What happens across China this month will spread across the world next year."

(GE) Aviation (GEC) has been selected to deploy a Required Navigation Performance (RNP) program at Jiuzhai Huanglong Airport in the Sichuan province of China. The cornerstone of the program is a network of (GE)-designed (RNP) paths that will improve access and maximise operational efficiency for airlines serving the airport. This significant contract marks the first airport-sponsored (RNP) program implementation in China.

(GE), in coordination with the airport and the Civil Aviation Administration of China (CAAC) (CAC), will design and deploy highly-precise approach and departure flight paths with custom-engineered vertical paths for each of the eight (RNP)-capable airlines that operate to Jiuzhai. This will enable Jiuzhai Airport to provide a common (RNP) path for all airlines while giving each airline the best performance possible for their fleet-type. (GE) also will provide (RNP) operations approval support and validation for two launch airlines, Air China (BEJ) (A319) and China Eastern (CEA) (737-700), followed by operations approval and validation support for six subsequent airlines.

In total, (GE) will deploy (RNP) procedures and provide maintenance and support services for eight airlines, operating five different airplane types from three airplane families at Jiuzhai.

Furthermore, (GE) will cooperate with the (CAAC) to support the local establishment of expertise through a package of tutoring and on-the-job training to qualified (CAAC) procedure design personnel to demonstrate effective methodologies for designing and validating flight procedures. (GE) also is working with the airport to identify terrain obstacles north of the airport that currently limit aircraft operations. The (RNP) program will solve limitations presented by the obstacle, improving accessibility for the eight operators.

"This joint undertaking marks a significant milestone in airspace modernization efforts in China," said Giovanni Spitale, General Manager for (GE)'s Performance Based Navigation (PBN) Services. "(GE) is proud to work with such forward-thinking organisations around the world that are working toward a common goal of improving airplane and air traffic management (ATM) operations."

Jiuzhai Airport, located at 11,311 feet/3,448 meters in the Himalayan Mountains, is the third highest airport in China. Delays and diversions are common at Jiuzhai due to inclement weather and poor visibility. (RNP) procedures can be deployed at any airport enabling airplanes to fly very precise paths with an accuracy of less than a wingspan. This precision allows pilots (FC) to land the airplane in weather conditions that would otherwise require them to hold, divert to another airport, or even cancel the flight before departure.

"In order to improve operational efficiencies at Jiuzhai, it was essential to be able to offer this solution to not just one airline that serves the airport, but to all the airlines," said Yang Hong Hai, Director of Flight Operations Management Division, (CAAC) Flight Standards Department. "We are confident that this (RNP) program will improve both airline operations and passengers experience when flying to and from Jiuzhai."

Chinese airlines and the (CAAC) are working with (GE) to deploy (PBN) solutions that align with China's (PBN) Implementation Roadmap. Since 2004, (GE)'s (PBN) Services has completed 16 (RNP) (AR) implementations for four Chinese airlines at six airports.

"Air China (BEJ) first began flying (GE)-designed (RNP) paths in 2005 at Lhasa to improve access to the airport," said Captain Chen Dongcheng, Vice General Manager of Operations Quality & Management department of Air China (BEJ) Southwest branch. "Since then, we have deployed (RNP) with (GE) at five other Chinese airports, improving access, schedule performance and lowering fuel usage. We are pleased to now be able to take advantage of similar benefits at Jiuzhai."

"Our daily operations into Lhasa and Yushu have improved significantly since deploying (RNP) in 2009," said Captain Zhao Jinyu, VP of China Eastern Airlines (CEA). "It's crucial to our business and to the communities we serve to provide consistent, reliable flights - - and (RNP) helps ensure this is possible."

(RNP) procedures, an advanced form of (PBN) technology, are very precise flight paths that can be designed to shorten the distance an airplane has to fly en-route, and to reduce fuel burn, exhaust emissions and noise pollution in communities near airports. Because of (RNP)'s precision and reliability, the technology can help air traffic controllers reduce flight delays and alleviate air traffic congestion. (GE) has designed and deployed more than >345 (RNP) flight paths around the world since 2003.

China Southern Airlines (GUN) said in a widely cited filing with the Hong Kong Stock Exchange that it reached an agreement with Boeing (TBC) to purchase six 777F freighters valued at $1.58 billion based on list prices, although it noted that it received "price concessions" making the cost "significantly lower" than list prices. Meanwhile, China Eastern Airlines (CEA) officially relaunched China Cargo Airlines (CKK), finalizing the integration of its cargo unit with Shanghai Airlines (SHA)'s airfreight subsidiary.

(GUN) said the six 777Fs will be delivered between 2013 and 2015 and "will facilitate the optimization of the structure of the group's cargo business, freighter fleet and cargo traffic capacity."

The 777Fs will enable (GUN) to boost its cargo capacity +8.4%. Rival (CEA) is also seeking to buttress its cargo business through the relaunch of China Cargo Airlines (CKK), which is based on the assets of (CEA)'s old subsidiary, China Cargo Airlines (CKK), Shanghai Airlines (SHA) Cargo International and Great Wall Airlines (GWA). The new (CKK) has a registered capital of CNY3 billion/$463 million. (CEA) holds 51%, China Ocean Shipping Company owns 17%, Eva Airways (EVA) controls 16% and Singapore Cargo Airlines (SQC) has 16%.

(CKK) is based in Shanghai and will operate 18 freighters comprising five 747-400Fs, four 777Fs, four MD-11Fs, two 757-200Fs and three A300-600Fs. (CKK) is scheduled to introduce two new 777Fs this year. CEA Managing Director, Ma Xulun said the 747-400F and 777F would become the cargo venture's main fleet types by 2015.

Shanghai is the biggest and most lucrative cargo market in China, but it is dominated by FedEx (FED), (UPS) and DHL, rather than domestic operators. In addition to the new (CEA) carrier, Air China (BEJ) and Cathay Pacific Airways (CAT) formally launched their Shanghai-based joint venture (JV) cargo operation in May. It is noteworthy that (GUN) has also shifted its cargo base to Shanghai.

Hong Kong Airlines (CRY) signed orders for 15 747-8I passenger jets at the Paris Air Show.

China's (HNA) Group has ordered 38 Boeing passenger airplanes for its unit Hong Kong Airlines (CRY). The Memorandum of Understanding with Boeing (TBC) comprises 30 787-9s, six 777F Freighters, and two 787-8s in VIP configuration, says (HNA).

"We have been waiting for the 787 for a long while, and we are very happy to finally order this airplane," says Adam Tan, a director of the (HNA) Group and Chairman of (HNA) Industrial Holding.

He adds that the group, which also owns Hainan Airlines (HNA), China's fourth largest carrier and biggest privately owned airline, hopes to develop Hong Kong Airlines (CRY) into a much bigger player in its market, where it competes with the island's flag carrier Cathay Pacific (CAT).

"There are plenty of routes that are not served and we think that we can grow those. We also believe that there is growing demand for Hong Kong as a hub, and Hong Kong Airlines (CRY) will be able to contribute to that," says Tan.

Hainan Airlines (HNA), he adds, could eventually take some of the 787s that the Group has ordered if there is demand for the airplane type.

"This order is intended for Hong Kong and the airplanes will be based here, but they could be operated by Hainan Airlines (HNA)if we can work that out," he says. Hainan Airlines (HNA), he adds, will continue to grow despite the competition from the three government-owned majors, Air China (BEJ), China Southern Airlines (GUN) and China Eastern Airlines (CEA). "We are looking to add to our market share. It is not about taking market from those three but also about creating a new market and growing with the higher demand in China, he says.

China Aviation Supplies Holding Company (CSC) and (ICBC) Financial Leasing inked an accord with Airbus (EDS) to purchase 88 A320 family airplanes. (ICBC) Leasing signed a purchase agreement for 42 A320 family airplanes and the manufacturer said (CSC) would likely take the other 46 airplanes. The deal was signed in Berlin, where Chinese Prime Minister, Wen Jiabao was meeting with German Chancellor, Angela Merkel.

Airbus (EDS) President & CEO, Tom Enders pointed out the order is the first that (ICBC) Leasing has placed directly with an airplane manufacturer. (ICBC) Leasing currently has 68 airplanes in its portfolio. "This strategic decision to start with the A320 family airplanes will help our customers to develop their business in the most profitable and sustainable way," (ICBC) Leasing Chairman, Li Xiaopeng stated. Deliveries are scheduled to begin next year.

(EDS) noted that 575 A320 family airplanes were in operation in China as of May 31. This signing comes on the heels of the Chinese government's action in Beijing, when dissatisfied with the (EU)'s refusal to back away from non-(EU) airlines' pending inclusion in its Emissions Trading Scheme (ETS), it reportedly blocked Hainan Airlines (HNA)'s subsidiary, Hong Kong Airlines (CRY) from ordering 10 A380s.

Airbus (EDS) signed an agreement with its Chinese manufacturing partners to progressively increase production of A320 rudders at the Hafei Airbus Composite Manufacturing Center. The joint venture (JV) aims to reach an A320 rudder production rate of 21 shipsets per month by 2014, which would represent half of the total production of A320 rudders worldwide. The facility currently produces about three shipsets of A320 rudders per month.

July 2011: Chinese airlines reported an aggregate net income of +CNY12.78 billion/+$1.98 billion for the first half of 2011, up +26% over a net profit of +CNY10.14 billion reported in the year-ago period.

Passenger boardings climbed +9.8% to 139 million. Passengers carried on domestic routes rose +10% and international boardings increased +8.2%. Average load factor improved +2.5 points to 81.3% LF.

Cargo traffic dropped -0.4% to 2.66 million tonnes. Cargo traffic on domestic routes increased by +1.4% and international routes dropped -3.8%, mainly owing to China's declining exports/imports triggered by the slowdown of domestic economic growth and the slow recovery of the global economy, as well as the instability in North Africa.

The (CAAC) noted the passenger growth rate was lower than the goal it set for 2011 in January calling for passenger boardings to rise +13% to 300 million and cargo traffic to lift +1.5% to 6.2 million tonnes for the full year.

As of June 30, Chinese carriers operated a collective fleet of 1,657 airplanes, an increase of +60 airplanes over the same date last year.

The (CAAC) (CAC) gave a green light to Air China (BEJ) to launch Dalian Airlines, which is expected to enhance (BEJ)'s position in North China. According to the (CAAC), the Dalian-based carrier has a registered capital of CNY1 billion/$154.5 million. (BEJ) is the controlling stakeholder with an 80% holding. (BEJ) invested CNY800 million, while the Dalian Baoshui Zhengtong Company put forward CNY200 million to take the remaining 20% stake.

(BEJ) last year signed an agreement with the Dalian government to launch Dalian Airlines. Hainan Airlines (HNA) had previously reached an accord with the local government to start a Dalian-based airline, but disagreements unraveled that deal and opened the door for (BEJ).

According to a cooperative agreement between (BEJ) and the Dalian government, the new airline is expected to launch international service to South Korea and Japan as well as operating a number of domestic routes. It is expected to use 737-800s.

Air China (BEJ) subsidiary, Shenzhen Airlines (SHZ) signed a Memo of Understanding (MOU) with the Star Alliance (SAL) and is expected to formally join the global airline grouping in the second half of 2012.

Parent, Air China (BEJ) said that (SHZ)’s Star Alliance (SAL) membership will help (SHZ) attract more transfer passengers. It noted that (BEJ) reported CNY1.75 billion/$270.3 million in additional operating revenue in 2010 through its cooperation with (SAL) member carriers.

(SHZ) President, Feng Gang pointed out that being a (SAL)) Alliance member will enable (SHZ) to further explore the international market. (BEJ) Chairman, Kong Dong said that (SHZ) plans to launch more international routes. To accommodate the new routes, (SHZ) is scheduled to expand its fleet from 100 airplanes currently to 171 by 2015. (SHZ) is slated to introduce 19 new airplanes while phasing out nine airplanes this year.

(SHZ)’s membership will also enable the Star (SAL) Alliance to enhance its position in prosperous South China. Addressing the (SAL) Alliance’s weak representation in the Shanghai market, Kong said that Air China (BEJ) would try to overcome a “slot shortage” at Shanghai Pudong by allocating more long-haul airplanes for international flying. It also plans to boost flight frequencies from Shanghai Hongqiao over the next five years.

(SHZ) will add five new destinations to the (SAL) Alliance’s network in China: Juzhou (Zhejiang Province), Linyi, Qinhuangdao, Shijiazhuang, and Zhoushan.

(BEJ) joined the (SAL) Alliance in December 2007; Shanghai Airlines (SHA) withdrew from the (SAL) Alliance in October 2010 to pave the way for it to join the SkyTeam (STM) Alliance with parent company, China Eastern Airlines (CEA) last month. China Southern Airlines (GUN) joined the SkyTeam (STM) Alliance in November 2007.

August 2011: The China Air Transport Association and the Arab Air Carriers Organization reiterated their calls for the European Union (EU) to rethink plans to include aviation in its Emissions Trading Scheme (ETS) starting next year. In line with its counterparts in the Americas (the USA Air Transport Association and the Latin American and Caribbean Air Transport Association (CATA) and (AACO) doubt the legality of applying the (EU) (ETS) to international aviation. "Trying to impose a unilateral approach will only lead to conflict and will not lead to a better environment," the (AACO) stated, advocating instead a global solution under (ICAO) to monitor and control air transport carbon dioxide emissions.

(CATA) said the (EU) scheme is "unlawful and violates international law, which directly interferes with other countries' sovereignty and would seriously affect global airline industry's healthy and sustainable development."

(AACO) asserted that including airlines in the (ETS) is only "addressing, and wrongly so, the aviation emissions focusing on financial returns to (EU) governments. Aviation is a global business. The cause of the environment is also global. Therefore, the fight against climate change cannot be but global. Unilateral initiatives will not improve the environment."

Etihad Airways (EHD) revealed that the cost of it complying with the (EU) (ETS) could reach up to €500 million/$719 million total by 2020. "These estimates are based on a number of dynamic factors, including estimates as to the number of free allowances that will be granted to Etihad (EHD), our growth into Europe over the next 10 years, the ability of the industry to reduce emissions growth and the cost of carbon," said (EHD) Head Environmental Affairs, Linden Coppell.

(CATA) estimated the (ETS) will cost Chinese carriers CNY800 million/$123.6 million annually and noted that the costs will keep rising as flights increase between China and Europe. The organization revealed it is assisting Air China (BEJ), which operates a large number of routes to/from the (EU), to prepare a lawsuit against non-(EU) airlines' inclusion in the (ETS).

China Southern Airlines (GUN) signed a strategic cooperation agreement with Dalian Airport (DLC) as part of a plan to enhance its position in the Dalian market in northeastern China and compete with Air China (BEJ). Under the agreement, (GUN) plans to boost its passenger traffic by +15% at (DLC) over the next five years by opening more domestic routes from (DLC) to Guilin, Nanning, Xining, and Baotou. (GUN) also plans to boost frequencies from (DLC) to Taipei.

In the next three years, (GUN) will add four more routes from (DLC) to Japan and three more destinations in Russia. It will also boost frequencies on the (DLC) - Osaka route and (DLC) - Tokyo route.

(GUN) also plans to add two to four more international destinations through connecting flights from Guangzhou and Beijing (PEK) to Europe, USA, Australia, and some Southeast Asian countries.

(GUN) currently dominates the Dalian market with a 40% share.

Earlier this month, Air China (BEJ) launched a Dalian Airlines subsidiary that will launch scheduled services this year. Initially, it will operate three 737-800s on domestic routes from (DLC) to (PEK), Shanghai and Shenzhen. Dalian Airlines plans to expand its fleet to five airplanes in the first half of 2012 and eventually open international routes to Japan and South Korea.

September 2011: The Civil Aviation Administration of China (CAAC) and the Russian Federation’s Ministry of Transport have jointly denounced the European Union Emissions Trading Scheme (EU ETS), saying it violates sovereignty and is a breach of the Chicago Convention. A joint statement was released during a civil aviation session of the (CAAC)’s Transport Subcommittee in Sanya, China.

The two agencies said they would work together to tackle aviation emissions through (ICAO) and using the United Nations (UN) Framework Convention on Climate Change as the main channel, but they oppose any unilateral, mandatory actions without mutual agreement between states concerned.

Separately, the (EU ETS) was also criticized by (IATA) (ITA) Direct5or General & CEO, Tony Tyler, who called the (EU)’s approach “misguided.” “We support the concept as a possible mechanism for the fourth pillar of our environment strategy. But the (EU)’s unilateral and regional approach to (ETS) could not be more misguided. It is distracting governments from focusing on the real solution — a global approach through (ICAO),” Tyler said at the Greener Skies conference in Hong Kong.

“Europe’s plans contravene international law with the extra-territorial application of taxes. What right does Europe have to charge an Australian carrier for emissions over China? It is an attack on sovereignty that is being challenged by governments. China, India and the USA are among states formally opposing the (EU ETS). And the USA is even processing a bill that will prohibit its carriers from participating. While the (EU) sees its actions as supporting a positive environmental agenda, the rest of the world sees it as an attack on sovereignty,” Tyler said.

According to the China Air Transport Association, the (EU ETS) would cost Chinese carriers CNY800 million/$123.6 million annually and costs would keep rising as flights increase between China and Europe. Air China (BEJ), which operates a large number of routes between the (EU) and China, is preparing a lawsuit against non-(EU) airlines' inclusion in the (ETS).

China Southern Airlines (GUN) plans to operate its first A380 on the Beijing (PEK) - Shanghai and (PEK) - Guangzhou routes on October 17.

Chinese carriers earned an aggregate profit of +CNY6.59 billion/+$1.03 billion in August, up +27.4% over a net income of +CNY5.17 billion in the year-ago month, crediting domestic market growth.

Passenger boardings rose +4.5% year-over-year to 27.6 million in August, but that growth rate is sharp contrast with the double-digit growth rates that domestic airlines have maintained in recent years. Passengers carried on domestic routes increased +4.6% to 25.6 million, while international boardings grew +4.3% to 2 million. Load factor improved +0.8 points to 85% LF. Cargo traffic volume decreased by -3.1% to 455,300 tonnes. Daily airplane utilization reduced -0.3 hrs. to 9.6 hours.

As of August 31, Chinese airlines’ operated a combined fleet of 1,693 airplanes. During the month, the airlines added 23 airplanes, comprising one 777-300, two A320s, one 737F, eight 737-800s, six 737-700s, four Embraer EMB-190s and one Gulfstream 450. The airlines phased out three airplanes, comprising one MD-90 and two EMB-145s.

The Commercial Aircraft Corporation of China (COMAC) (CCC) may postpone its first ARJ21 delivery to Chengdu Airlines (UEG), according to an industry insider, who said some key parts haven’t passed flights tests. The ARJ21 is scheduled to be delivered at the end of the year.

A (UEG) spokesperson said that (UEG) has not been informed of any delivery delay and was moving forward with the original delivery plan.

(COMAC) (CCC) is the majority (UEG) stakeholder with a 48% holding, while Sichuan Airlines (SIC) holds 40.97%.

(UEG) was launched in 2004 as United Eagle Airlines (UEG). In March 2009, Sichuan Airlines (SIC) invested $30 million in (UEG), for a 76% stake. In late 2009, these shares were sold to (COMAC) (CCC) and the Chengdu Communications Investment Group. Following this ownership change, (UEG) placed a firm order for 30 ARJ21s. In January 2010, the airline was renamed Chengdu Airlines (UEG).

The ARJ21, which to date has received 340 orders, is in the test-flight phase to gain (CAAC) (CAC) certification. It is working toward gaining (FAA) certification, paving the way to put its international marketing plan into action.

The Chinese government provided Air China (BEJ) with a CNY1 billion/$156.7 million capital injection to allow (BEJ) to increase its holding in Cathay Pacific Airways (CAT), according to a statement from (BEJ) released by the Shanghai Stock Exchange.

(BEJ) and (CAT) established a cross-shareholding deal in 2006. The most recent investment made by (BEJ) in (CAT) was CNY6.34 billion in 2009 to expand its stake to 29.99%, making (BEJ) the second-biggest (CAT) shareholder.

State-owned (BEJ) received CNY1.5 billion from the government in January 2010 to help it reduce its debt ratio.

The Chinese government cut domestic jet fuel prices to CNY7,670/$1,200 per ton, down -1.48% from CNY7,785 in August, because of the decline of international fuel prices. This is the first price reduction this year.

Fuel costs comprise more than >40% of Chinese carriers’ operating expenses. China Southern Airlines (GUN), which operates 80% of its flights on domestic routes, could see its fuel costs fall by -CNY230 million annually. Air China (BEJ) and China Eastern Airlines (CEA), which operate 70% of their flights on domestic routes, also could see their annual fuel costs reduced by -CNY210 million and -CNY190 million, respectively.

With the cut in domestic fuel prices, Chinese carriers announced they would cut fuel surcharges correspondingly. China’s big three carriers are reportedly considering restarting fuel hedging, but they must first get government approval.

Embraer’s ultra-large Lineage 1000 executive jet received Type Certificate from the Civil Aviation Administration of China (CAAC), following the certifications from United States Federal Aviation Administration (FAA), European Aviation Safety Authority (EASA) and Brazil’s National Civil Aviation Agency (ANAC). This paves the way to register and operate the Linage 1000 in China, and marks an important step symbolizing Embraer’s commitment to the Chinese executive aviation market.

The Lineage 1000 is Embraer’s largest executive jet among its full line of seven different models. It provides a balance of performance, intelligent luxury and high reliability. Its range (4,500 nautical miles, or 8,334 kilometers, with four passengers and (NBAA) (IFR) fuel reserves) assures the jet’s capability to fly nonstop from Beijing (China) to Dubai (United Arab Emirates), from Hong Kong to Sydney (Australia), from London (UK) to Dubai, and from New York (USA) to Moscow (Russia). The jet is equipped with the Honeywell Primus Epic® avionics suite and the latest electronic fly-by-wire flight control system, which provide pilots (FC) with a highly intuitive and professional cockpit to guarantee safe and smooth trips.

The airplane also features an extremely spacious interior that can accommodate 19 passengers in five distinct private zones, providing ultimate comfort and elegance, as well as state-of-the-art technologies, to facilitate working during flight. Onboard amenities may include a queen-size bed, stand-up shower, wireless internet access, and complete audio and entertainment systems. A pressurized walk-in aft baggage area, which is the largest in its category, is conveniently accessible throughout the flight. SEE ATTACHED PHOTO - - "CAC-EMBRAER LINEAGE 1000 VIP."

The Asia/Pacific region will require hundreds of thousands of new commercial airline pilots (FC) and technicians (MT) over the next 20 years to support airline fleet modernization and the rapid growth of air travel, according to Boeing (TBC)’s "2011 Pilot & Technician Outlook." The report called for 182,300 new pilots (FC) and 247,400 new technicians (MT) in the Asia/Pacific region through 2030.

The greatest need is in China, which will require 72,700 pilots (FC) and 108,300 technicians (MT) over the next 20 years, said Boeing Training & Flight Services Chief Commercial Officer (CCO), Roei Ganzarski.

“The demand for aviation personnel is evident today. In Asia, we’re already beginning to see some delays and operational disruptions due to a shortage of pilots (FC),” Ganzarski said.

“To ensure the success of our industry as travel demands grows, it is critical that we continue to foster a talent pipeline of capable and well-trained aviation personnel.”

“As an industry we must make a concentrated effort to get younger generations excited about careers in aviation. We are competing for talent with alluring hi-tech companies and we need to do a better job showcasing our industry as a global, technological, multi-faceted environment, where individuals from all backgrounds and disciplines can make a significant impact," Ganzarski said.

(TBC) forecasts global demand for more than >23,000 airplanes in the 737's market segment over the next 20 years at a value of nearly $2 trillion.

November 2011: Former (CAAC) (CAC) Vice Minister Infrastructure Investment & Finance, Wang Changshun was appointed to replace the retiring Kong Dong, Chairman Air China (BEJ), as General Manager of (BEJ) parent, China National Aviation Corporation.

Juneyao Airlines (JYA) is preparing to launch an Initial Public Offering (IPO) in the Shanghai Stock Exchange for fleet expansion.

The privately run airline was launched in June 2005 with a registered capital of CNY150 million/$23.6 billion. The Juneyao Group, the controlling stakeholder, later injected an additional CNY100 million capital to it.

(JYA) operates a fleet of 21 airplanes, mainly on domestic routes. It received (CAAC) (CAC) approval to operate international routes last year and plans to open more routes from Shanghai to Japan, Korea and neighboring Southeast Asian countries.

(JYA) posted a net income of +$416 million in 2010, nearly tripling its net profit year-over-year.

Separately, Shanghai-based low-cost carrier (LCC) Spring Airlines (CQH) also plans to launch an (IPO) in the coming days.

December 2011: Air passengers will have made 290 million trips in China this year, up +8.2% from last year.

Li Jun, Deputy Chief of Civil Aviation Administration of China (CAAC), said that China’s aviation industry has witnessed a surge in passenger volume this year, with total air freight volume also expected to rise +6.6% year-on-year to 57.4 billion tonnes/kilometers this year.

Supported by the steady growth in passenger volume, China’s aviation industry is expected to see a +5.1% growth in net profit to +45.6 billion yuan/+$7.18 billion this year, offsetting rising fuel costs and the grim global market condition, Li said.

A total of 76.5% of scheduled flights in China have been on time in the first eleven months of this year, up +1.9% points from the same period last year, Li added. Regulators will continue to improve flight punctuality and strive to increase the rate by 2% points in the coming year, he said.

The (CAAC) expects air passenger volume to continue to grow by +10.3% to top 320 million next year, with air cargo volume up +10.1% to 63.2 billion tonnes/kilometers, Li said.

Four Chinese carriers (Air China (BEJ), China Eastern Airlines (CEA), China Southern Airlines (GUN) and Hainan Airlines (HNA)) are planning to file a lawsuit against the European Union European Trading Scheme (EU ETS), scheduled to take effect January 1.

The carriers have support from the China Air Transport Association (CATA), which claims the (EU ETS) would cost Chinese carriers CNY800 million/$123.6 million annually. (CATA) said costs would keep rising as flights increase between China and Europe.

(CATA) Director General, Wei Zhenzhong said it would choose the “right timing” to file the lawsuit, although he did admit “there is little hope of winning this case within the (EU) legal framework.”

(CATA) is asking for all Chinese carriers not to take part in the (EU) carbon market trading scheme, not to submit a carbon emission monitoring plan and not to negotiate with the (EU) separately for favorable policies.

(BEJ) submitted its carbon emission monitoring report to the (EU) earlier this year. Other Chinese carriers are expected to follow suit if the legal process fails.

Industry analysts say that Chinese carriers will have to increase air fares to offset extra costs imposed by the (EU ETS), which would probably lead to a reduction of Chinese airlines’ load factor, weakening domestic carriers’ international competitiveness.

China has joined several countries in opposition to the (EU ETS), which will require all airlines flying to/from an (EU) airport to offset their carbon emissions on these flights, regardless of how long that flight is in (EU) airspace. Airlines will be required to pay an emissions tax to the (EU) member state to which they most frequently fly.

Northrop Grumman Corporation (GRU)’s Europe-based air traffic management (ATM) subsidiary, Northrop Grumman Park Air Systems has been granted temporary certification by the Civil Aviation Administration of China (CAAC) for its NOVA 9000 airport surface movement guidance and control system.

Park Air Systems is the first, and currently only, supplier of Advanced Surface Movement Guidance & Control Systems (A-SMGCS) to obtain this certification from the (CAAC). Under (CAAC) regulations, all communication, navigation and surveillance products serving the Chinese civil aviation market require certification as a compulsory prerequisite to site acceptance and operation at airports or en route.

“We congratulate Northrop Grumman Park Air Systems on this vital achievement and are honoured to award the company with the first (CAAC) Temporary Certificate,” said Tian Zhencai, Director Communication, Navigation & Surveillance Department within the Air Traffic Management (ATM) Division of the (CAAC). “We trust that the company will continue to deliver top quality (A-SMGCS) systems, thereby ensuring exceptional ground safety at Chinese airports.”

As a key supplier of (A-SMGCS) in China, Park Air Systems has delivered NOVA 9000 systems to Beijing, Guangzhou and Macau airports, with an additional delivery to Shenzhen airport in progress. Since commencement of the application process in 2009, the company has carried out its activities in compliance with application procedures and (CAAC) requirements. As a result of successful installations and a thorough final evaluation, the company obtained the (CAAC) Temporary Certificate in November 2011.

Northrop Grumman (GRU) has a significant number of (ATM) systems in operation in international markets and its 50-year legacy ranges from individual airport installations to countrywide, multiple-site turnkey integrated system solutions. The company’s state-of-the-art (ATM) systems are in use in numerous countries including Norway, France, Switzerland, Egypt, Brazil, Kazakhstan, Qatar, Oman, Israel, Canada, India, Poland, Romania, Hungary, Croatia, Latvia, United Arab Emirates, USA, and the UK, in both civil and military applications.

January 2012: The Chinese government has cut domestic jet fuel prices to CNY7,360/$1,164 per ton, down -3.83% from CNY7,653 per ton in December. This is the first fuel price reduction this year.

Fuel costs comprise more than >40% of Chinese carriers’ operating expenses. China Southern Airlines (GUN), which operates 80% of its flights on domestic routes, could see its fuel costs fall by -CNY586 million annually. Air China (BEJ) and China Eastern Airlines (CEA), which operate 70% of their flights on domestic routes, could also see their annual fuel costs reduced by CNY535 million and CNY484 million, respectively.

With the cut in domestic fuel prices, Chinese carriers announced they will decrease fuel surcharges accordingly. China’s big three carriers will reportedly resume fuel hedging. (CEA) has received government approval to restart fuel hedging, while China’s other two big carriers, (BEJ) and (GUN), are expected to follow suit.

Chinese carriers earned a collective net profit of +CNY26 billion/+$4.12 billion in 2011, down -26% compared to +CNY35.1 billion from 2010. Industry experts cited a “slowdown of domestic market growth” as the reason for the decline. Based on statistics released by the (CAAC), passenger boardings climbed +8.2% to 290 million while cargo traffic volume dipped -2% to 5.52 million tonnes.

Passenger and cargo traffic grew faster in economically underdeveloped West China than in the more prosperous East China last year. According to the (CAAC), West China passenger boardings and cargo traffic for 2011 increased by +14.9% and +9.5%, respectively, higher than the average industry level.

Chinese carriers have tightened capacity, reducing airplane deliveries by -60 in 2011, because of the “overall slowdown of domestic market growth.”

Looking forward, the (CAAC) said domestic airlines are expected to introduce up to 150 airplanes. (CAAC) plans to encourage Chinese carriers to bring in more wide body airplanes to alleviate airspace shortage.

The Chinese government has given Air China (BEJ) a CNY50.7 million/$8.04 million capital injection for (BEJ)’s sustainable development.

According to a (BEJ) statement released by the Hong Kong Stock Exchange, the funds will be used to install winglets on its fleet and improve fuel efficiencies of its airplane engines.

It is the first time the Chinese government has funded (BEJ)’s environment protection efforts. Because of volatile fuel prices and the European Union Emissions Trading Scheme (EU ETS) that was implemented January 1, Chinese carriers are aiming to reduce their carbon emissions -22% by 2020 compared to 2005 levels.

(BEJ) said it was taking the lead among Chinese airlines to become the "more environmentally friendly carrier." In October, it became the first Chinese carrier to conduct a biofuel demonstration flight, operating a Boeing 747-400 with Pratt & Whitney (PW4000) engines partially powered by jatropha-based fuel. (BEJ) has also ordered more fuel-efficient airplanes, including the 787 and 747-8.

Jade Cargo International (JDC) announced it has “temporarily suspended” all operations due to “overall weak demand.” In a December 31 statement on its website, (JDC) said the suspension “will also provide the shareholders with an opportunity to coordinate with stakeholders to continue with the restructuring of the company’s financial structure.”

According to several German media outlets, (JDC) will ground its fleet of six 747-400ERF freighters and does not have enough money to buy fuel.

Jade (JDC), which was founded in October 2004 as a joint venture (JV) between Shenzhen Airlines (ZHZ) (51%), Lufthansa Cargo (LUB) (25%) and the German development finance institute (DEG) (24%), has faced continuous financial difficulties. According to reports, Air China (BEJ) (which took over (ZHZ)) is considering selling its 51% share.

(LUB) Chairman & CEO, Karl Ulrich Garnadt said in November that (JDC) "would not survive" a massive market downturn in its current fiscal state and was considering selling its holding.

The European Commission (EC) is standing firm despite China’s latest reactions to the inclusion of aviation in the European Union’s Emissions Trading Scheme (EU ETS) as of January 1, and said that airlines must comply with (EU) law.

“As the [European] Court of Justice confirmed last year, our law breaches basically no principles of international law and it is not extra-territorial. And it does not breach the principle of sovereignty,” (EU) spokesman for Climate Action, Isaac Valero-Ladron said at the (EC)'s daily press conference in Brussels.

“If the Chinese want to do business in Europe, like open a restaurant or something, they have to comply with the health and the safety requirement. This is not that different. This is just that if you want to operate in Europe, you have to respect the law. You have to respect the environmental law. I think it is very, very clear,” he said.

China’s Foreign Ministry spokesman, Hong Lei said the country “opposes the European Union (EU)'s unilateral legislation. China has expressed to the (EU) our deep concern and opposition many times on a bilateral level.” He added: “We hope the (EU) can take careful precautions with a cautious and practical attitude, and regarding those aspects involving China, appropriately discuss and handle this matter.”

The China Air Transport Association (CATA) reiterated that its member airlines would not cooperate with the (ETS) and would not pay the charge for their carbon emissions.

Valero-Ladron warned “the law says clearly that if you miss the deadlines, there are a few penalties. But we are confident that the companies and also their shareholders will comply with the legislation because as penalties for no compliance are much higher for basically, the compliance of the legislation.”

He said it was up to airlines whether or not to pass on the costs of participating in the (EU ETS) to customers and noted the (EC) “estimated that on a long flight, price for one way could be increased from €2/$2.60 to €12, and in Europe could be from €1 to €9.”

This week, the Lufthansa (DLH) Group said it would pass on the cost of the (ETS) certificates to passengers in the fuel surcharge as of January. It has calculated the cost for this year for all group airlines at around €130 million/$169 million.

China Eastern Airlines (CEA) parent, China Eastern Air Holding (CEAH) reported 2011 net income of more than >+CNY5 billion/+$793 million, a slight increase over a net profit just under +CNY5 billion in 2010.

Though earnings didn't grow significantly in 2011, (CEA) was able to maintain the large profit jump achieved in 2010. Speaking at the company's annual conference, (CEAH) General Manager & (CEA) Chairman, Liu Shaoyong credited the continued profitability to a “hub effect.” (CEA) is building Shanghai as its multi-point international hub while Kunming serves as its regional hub, a strategy Liu believes is serving (CEA) well. Also, he said, its SkyTeam (STM) Alliance membership enabled (CEA) to enjoy “a remarkable route network effect through cooperation with other member airlines.” (CEAH) said other subsidiaries also contributed to the result.

(CEAH) did not disclose 2011 operating revenue and expenses. Annual (CEA) passenger boardings rose +5.7% year-over-year to 68.8 million with an average load factor of 78.8% LF, up +0.8 point compared to 2010, while cargo traffic volume stayed flat at 1.5 million tonnes. Average daily airplane utilization increased +0.1 hours to 9.84 hours.

Looking ahead, Liu warned that the worsening global economic outlook would increase uncertainties in the airline industry. “In China, it won’t be easy for Chinese carriers to maintain consecutive growth in [the] domestic air transport market in 2012, which would lead to reduction of net profit reported by domestic carriers [this year],” Liu said. He expects (CEA)’s international routes and cargo business to be negatively impacted by global economic sluggishness in 2012.

SkyTeam (STM) Alliance airlines have co-located their check-in counters at Beijing airport’s old terminal.

According to the Civil Aviation Administration of China (CAAC), 135 out of 180 civil airports in China suffered losses in 2011, and the amount of loss reached 1.68 billion yuan. However, local governments interested in investing airports for airlines could bring huge economic benefits, the "Beijing News" reported.

An insider at a large domestic airport group said that the defective airports are mostly secondary airports which do not have enough flight flows to realize profits. Most secondary airports in China survived on local government subsidies during the initial operation stage as costs were very high. For instance, four flights arriving and taking off at a secondary airport in one day costs 240,000 yuan.
However, costs haven’t affected local governments’ enthusiasm for investing in airports.

Li Jiaxiang, Director of the (CAAC) said that the government of Yancheng city, Jiangsu province, spends 34 million yuan of grants-in-aid for local airports annually. The local airport in return helped the auto industry thrive, bringing in 3.4 billion yuan profit tax to the local government every year.

The development of the civil aviation industry in China is greatly imbalanced. Big airline companies are focused on aviation market development in main cities such as Beijing, Shanghai and Guangzhou and ignore the development of secondary aviation markets.

A manager from a large domestic airport said that China should accelerate its airport building process. China will build +60 more civil airports during the 12th Five-Year Plan period (2011-2015), increasing the total number of Chinese civil airports to 240. With over 2,800 civil flights, China will become the second largest aviation market in the world.

The Aviation Industry Corporation of China (AVIC) reported a net profit of +CNY12.2 billion (+$1.94 billion) in 2011, up +18.8% over a net income of +CNY10.3 billion in 2010. Operating revenue increased +23% to CNY258.1 billion, according to (AVIC) General Manager, Lin Zuoming.

Industry analysts said the “successful acquisitions of companies home and abroad” contributed to the improved results. In the past three years, (AVIC) has acquired 58 companies home and abroad, which increased operating revenue by +CNY50 billion and boosted net income by +CNY600 million in 2011.

(AVIC) said it is committed to pushing forward with overseas acquisitions in the future. “Our first goal is to target foreign aviation companies and to acquire relevant manufacturing enterprises, including automobile components manufacturing companies, [which is] our second goal,” Lin said.

Going forward, (AVIC) expects to boost operating revenue by 16.2% to CNY300 billion and increase net profit by +23% to +CNY15 billion. (AVIC) may also launch an initial public offering (IPO) on the Shanghai Stock Exchange in the near future.

February 2012: The Chinese government has raised domestic jet fuel prices to CNY7,465/$1,186 per ton, up +1.43% from CNY7,360 per ton in January, dealing another blow to Chinese carriers that have already suffered from a decline in domestic market demand and air fares following the Chinese Spring Festival.

This is the first fuel price hike this year. In January, the Chinese government cut domestic jet fuel prices by -3.83%. Since July 2011, Beijing has made monthly adjustments to domestic fuel prices based on fluctuating international fuel prices.

Fuel costs comprise more than >40% of Chinese carriers’ operating expenses. China Southern Airlines (GUN), which operates 80% of its flights on domestic routes, could see its fuel costs increase by +CNY273 million annually. Air China (BEJ) and China Eastern Airlines (CEA), which operate 70% of their flights on domestic routes, could see their annual fuel costs rise by +CNY234 million and +CNY242 million, respectively.

(BOC) Aviation (SIL) has placed an order for 20 150-seat Commercial Aircraft Corporation of China (COMAC) (CCC) C919s. It operates a fleet of more than >170 airplanes with average fleet age of four years.

(COMAC) reportedly has 235 orders for the C919 from customers including Air China (BEJ), China Eastern Airlines (CEA), China Southern Airlines (GUN), Hainan Airlines (HNA), Sichuan Airlines (SIC), China’s Bank of Communications Financial Leasing Company, China Development Bank Leasing Company, (ICBC) Financial Leasing Company, China Aircraft Leasing Company and (GE) Capital Aviation Services (GECAS) (GEF).

(CAAC) Minister, Li Jiaxiang said the regulator encourages Chinese carriers to purchase domestically produced trunk liners and supports using the C919 on international routes.

The C919 entered the final design definition phase last year. Detailed design will be completed this year and the first flight is scheduled for 2014. Type certification is expected by 2016, followed by first delivery. By 2020, (COMAC) expects to produce 150 C919s annually.

Despite the increase of domestic fuel price, Chinese airlines cannot raise fuel surcharges to offset rising fuel costs.

February 2012: Chinese carriers reported a collective net profit of +CNY1.98 billion/+$314.5 million in January, down -29.9% compared to +CNY2.82 billion in the same period of last year.

Industry analysts cited higher fuel prices and a sharp decline of cargo traffic as the main reason for the results. Domestic airlines reported a +23.8% increase in operating expenses to CNY29.61 billion against a lift of +18.4% in operating revenue to CNY32.02 billion.

Passenger boardings climbed +13.2% to 25.7 million. Domestic boardings jumped +13.4% while international boardings rose +11.1%.

Passenger load factor improved +1.9 points to 81.3% LF. Average daily airplane utilization rate increased to 9.4 hours.

Cargo traffic volume plummeted -28.7% to 354,151 tonnes, due to gloomy global economic downturn. Domestic routes saw a -26% in cargo traffic, while international routes were down -34.6%.

The Civil Aviation Administration of China (CAAC) (CAC) has approved the launch of Hangzhou-based, (CDI) Cargo. It will initially acquire one 737-300 for conversion to freighter ex-Air China (BEJ) (25891) with plans to introduce two more of the type (27372; 27518).

The new cargo venture (CDI) has a registered capital of CNY200 million/$31.8 million. Huixiang Industrial Investment Company, which invested CNY102 million, has a 51% ownership. Haofu Group holds a 24% stake, Asia Yingsheng Investment Company holds 15%, and Caulfield Investment Company holds the remaining 10%.

The (CAAC) appears to be softening its tough stance on restricting approval of new entrants. In 2007, the (CAAC) said it would not approve any new start-ups until 2010, except cargo carriers, West China-based carriers or those that operate domestically produced regional airplanes. This was because there were too many privately run domestic carriers after restrictions were loosened in 2004.

China has prohibited its airlines from participating in the (EU) Emission Trading Scheme (EU ETS), escalating the row over the new and controversial carbon emissions tax. According to a "Reuters" report, the Chinese government’s State Council issued a statement on its website that said Chinese carriers were prohibited from participating in (EU ETS) without government approval, and they were also barred from using (ETS) as a reason to raise fares.

The Association of Asia-Pacific Airlines (AAPA) Director General, Andrew Herdman told "Reuters" the ruling put Chinese carriers in a difficult position because they have to comply with (EU ETS), or risk large fines, while also being told by their government that they must not comply. “We’re now at the stage that it’s absolutely clear that a whole host of foreign governments are not going to allow the (EU) to do this,” Herdman said.

Chinese carriers are supporting Beijing’s decision to prohibit its airlines from participating in the European Union Emissions Trading Scheme (EU ETS), while still reserving the right to file a lawsuit.

“We are quite supportive of our central government’s decision and we think the real solution should be a global approach through [ICAO],” China Eastern Airlines (MU) Chairman, Liu Shaoyong said. He emphasized that domestic carriers are reserving the right to file a lawsuit against the (EU ETS).

China Air Transport Association (CATA) Director General, Wei Zhenzhong said that “Beijing’s decision reflects Chinese carriers’ wishes and also is quite helpful to protect the real interest of domestic airlines and air travelers.” (CATA) estimates operating expenses of Chinese carriers will increase by +CNY800 million/+$127.2 million annually because of (EU ETS). Air China (BEJ), which operates the most European routes, is expected to see the largest rise in expenses (+CNY200 million). (CEA) is expected to follow at +CNY100 million.

Expenses associated with the (EU ETS) are predicted to keep rising as Chinese carriers open more international routes to Europe to compete with the high speed rail. This year, (BEJ) is scheduled to launch service from Shanghai - Paris and China Southern Airlines (GUN) plans to open a Guangzhou - London route.

Wei said that Beijing’s decision was just the first step in the escalating row over the new controversial carbon emissions tax, as Chinese carriers will most likely be suspended from flying to Europe, a consequence of “not joining (EU ETS).” As a result, the Chinese government is considering counter measures against the (EU ETS) with Russia, India, Brazil, and other countries.

The Civil Aviation Administration of China (CAAC) (CAC) has granted approval for China Eastern Airlines (CEA) to a launch a business jet aviation company based on the assets of subsidiary, China Eastern Airlines Executive Air (CEAEA).

(CEAEA) was established in 1995 as a ground handling company for business jets. The new entity would operate five airplanes and is expected to expand its fleet to 10 this year, according to (CEAEA) Managing Director, Wang Taiping.

All major Chinese carriers have been exploring the burgeoning business jet aviation market in China.

Hainan Airlines (HNA) operates Beijing-based, Deer Jet Company (DER) and Shanghai Deer Jet Company. Air China (BEJ) established Beijing Airlines in conjunction with the Beijing municipal government in April 2011 to enhance its position in the fast-growing domestic business jet aviation market. China Southern Airlines (GUN) and subsidiary, Xiamen Airlines (XIA) also plan to launch business jet aviation companies.

Deer Jet (DER) (CFO), Cao Yongtao said it is not easy for domestic business jet aviation companies to make a profit initially because of the many policy and financial hurdles “such as very high tax.” It is reported that Beijing levies a 22.85% tax to the general aviation industry, which means that business jet aviation companies must pay more than >20% tax on each business jet.

March 2012: Chinese carriers reported a collective net loss of -CNY540 million/-$85.3 million in February, reversed from a net income of +CNY1.34 billion in the year-ago period.

Industry analysts cited rising fuel expenses and the slowdown of domestic market demand for the results. Operating revenue rose +9.2% to CNY26.67 billion in February against a +18.7% increase in operating expenses to CNY27.15 billion.

Passenger boardings climbed +8.6% to 23.49 million. Load factor was 79.9% LF, down -1.2 points compared to the year-ago period. Passenger boardings increased +9.2% on domestic routes but decreased -1.7% on Hong Kong and Macau regional routes. International boardings rose +1.4%.

Cargo transport volume jumped +25.6% to 377.717 tonnes, which was the first increase in the past seven months. Cargo load factor was 69.2% LF, up +1.3 points over the year-ago period. Cargo traffic increased +38.3% and 10.3% on regional and international routes, respectively.

Analysts predict Chinese carriers may face a “tougher time” with high fuel prices and slower growth of market demand due to the slowdown of China’s economic growth and the European debt crisis.

The following comment appeared March 8th in response to an Air Transport World (ATW) report regarding the European Union (EU) Emissions Trading Scheme (EU ETS) :

By Steve Courtie:
"China ((CAAC), the Civil Aviation of China) has today (8th March) blocked all Airbus (EDS) purchases by any Chinese companies as a result of the European Union (EU) Emissions Trading Scheme (EU ETS):
http://www.bbc.co.uk/news/world-europe-17298117
I contacted (EC) VP Transport, Siim Kallas, and Climate Action Commissioner, Connie Hedegaard of the (EU) in November 2011 to state my serious concerns that something like this would happen, and the response I got just shows how out of touch the (EU) is with the real world. Perhaps now the (EU) will get its head out of the sand and try and get an (ICAO)-led solution, which I have been recommending for well over a year now."

Europe’s go-it-alone approach on its controversial airline carbon tax is driving discord where there needs to be harmony, (IATA) Director General, Tony Tyler said. Delivering a keynote speech at the (FAA) Aviation Forecast Conference early this month, Tyler touched on this subject that was repeatedly raised during the conference’s opening day panel discussions and which drew universal condemnation. The (EU ETS) tax was described as a “very, very bad law” and “plain wrong” by USA regulators and airline (CEO)s attending the conference.

Tyler’s speech concurred with their view that Europe had made matters worse by implementing a unilateral tax without international discussion and negotiation. “Unfortunately, Europe has chosen a go-it-alone regional approach with the inclusion of international aviation in the (EU ETS) from this year. This is driving discord at a time when we need harmony. Why? Because non-European states, the USA included, see the intention to tax non-(EU) airlines for emissions over non-(EU) territory as an attack on their sovereignty,” Tyler said.

“No one wants a trade war. But the prospects are growing more likely.” He said it was now time for Europe to sincerely take a stake in making discussions and decisions at an (ICAO) level, a success.

The (EU)’s approach in passing its (EU ETS) tax “was totally wrong,” USA Transportation Secretary, Ray LaHood said in his opening remarks at the (FAA) Aviation Forecast Conference. “The law is bad, and it doesn’t help our relationships with the (EU). What I say is, sit at a table, talk to one another, reach a compromise,” LaHood said.

Admitting he was "very revved up" by the issue, LaHood said he would be working closely with USA Secretary of State, Hillary Clinton on addressing this in the coming year. “This is a very, very bad law that they have passed - - to impose this kind of tax on airlines is wrong,” he said. “There are some things that we can do, such as some enforcement measures.”

The above resulted in the following March 8th comment:
By Jeff Gazzard
Aviation Environment Federation
LONDON
Good to see a conciliatory tone from Mr LaHood concerning the (EU ETS) in his statement: "What I say is, sit at a table, talk to one another, reach a compromise."

I look forward to hearing what the USA Administration has to offer the (EU) as an equivalent measure. Any package to control and reduce aviation's CO2 emissions should have a similar target to the (EU) policy, have the same financial impact to avoid competitive distortions, and commit funds raised by what we hope will be a global cap and trade framework to climate adaptation in the least developed nations.

Over to you Mr LaHood!
Jeff Gazzard

Comment by David Connolly (on March 9th):
Not really Jeff, but things are moving quickly though. As I predicted, China’s (CAAC) has got its retaliation in first. In the interest of reducing European Emissions over China, it has put on hold Airbus orders for 35 A330 Medium Lemmings and 10 A380 Super Lemmings at an aggregate list price of Mega $Billions. The USA has political muscle, China has economic muscle, and all others have varying mixes of economic and political muscle. The (EU)’s (EC) has no muscle of any kind. It has piously declared emissions of bloated inanity and is being treated with well deserved reaction. Is China being a bully? - - yes, but bully tactics are needed as shock therapy to kick the arrogant "BS" out of the obscenely bloated (EC). LaHood is doing a disservice by indulging their "pie in the sky" muppetry. Whenever I meet any Eurocrats in Brussels, I have to make a conscious effort to prevent myself reflexively punching them.

Final comment by Steve Courtie (March 9th):
Bravo David, well said! (and entertaining as always) - has anyone asked you to be on the advisory board of (ICAO)/(IATA) etc? If not, maybe it's time someone did.

Nine European aviation companies and airlines have joined forces in demanding concrete steps to stop the escalating trade conflict with countries opposing the inclusion of aviation in the (EU ETS).

The (CEO)s of Airbus (EDS), Air Berlin (BER), AirFrance (AFA), British Airways (BAB), Iberia (IBE), Lufthansa (DLH), (MTU) Aero Engines, Safran, and Virgin Atlantic (VAA) have written joint letters to the heads of state of the four Airbus (EDS) manufacturing countries (France, the (UK), Germany, and Spain) urging them “to take action and stop an escalating trade conflict with China and other countries” opposing the (EU ETS). Airbus (EDS) led the initiative, and (CEO), Tom Enders signed all four letters.

European Commission (EC) President, Manual Barroso, (EC) VP Transport, Siim Kallas, Trade Commissioner, Karel De Gucht, and Climate Action Commissioner, Connie Hedegaard are copied on the letters.

The companies’ (CEO)s argue that the threat of retaliation is becoming “concrete” and this will have “serious” consequences on the European aviation business. “In many of the countries opposed to the (EU ETS), countermeasures and restrictions on European airlines are in preparation, such as special taxes and even traffic rights limitations. In China, approval for $12 billion worth of Airbus (EDS) orders has been suspended.” It estimates that this action will jeopardize more than >1,000 Airbus (EDS) jobs in Europe and at least another >1,000 in the supply chain.

The (CEO)s are requesting “urgent consultations” at the level of the (EU) Council and with the governments taking retaliatory trade action. “The aim must be to find a compromise solution and to have these punitive trade measures stopped before it is too late,” they wrote.

“We have always believed that only a global solution would be adequate to resolve the problem of global aviation emissions. This solution can only be found in (ICAO), which has recently appointed a high level dedicated group to propose a global framework for international aviation emissions by the end of this year,” they said.

The Commercial Aircraft Corporation of China (COMAC) (CCC) and Boeing (TBC) announced a collaboration agreement to partner in areas that will enable commercial aviation industry growth in China and potentially around the world. This is the first collaboration agreement between COMAC (CCC) and Boeing (TBC) which was signed in Beijing.

As part of the agreement, both companies will create the Boeing (TBC)-(COMAC) (CCC) Aviation Energy Conservation & Emissions Reductions Technology Center which will be located at (COMAC)'s Beijing Civil Aircraft Technology Research Center.

The Boeing (TBC)-(COMAC) (CCC) Center will support research projects to increase commercial aviation's fuel efficiency and reduce greenhouse gas emissions. Meanwhile, (TBC) and (CCC) agreed to have annual leadership engagements and exchange commercial aviation market forecasts.

"Through this collaboration agreement, Boeing (TBC) and (COMAC) (CCC) will build relationship and will further sustainable growth and fuel efficiency for China's fast-growing aviation market," said Jim Albaugh, Boeing Commercial Airplanes President & (CEO). SEE PHOTO - - "CAC-2012-03-BOEING COMAC AGREEMENT."

The companies will collaborate with China-based universities and research institutions to expand knowledge of technologies and will jointly select and fund research projects.

"We are hoping that innovative emissions-reduction technologies developed through the Boeing-(COMAC) Center will advance aviation in China and around the world," said Marc Allen, Boeing China President.

Hainan Airlines (HNA) may order 747-8s airplanes, citing repeated delivery delays of the 787. However, (HNA) confirmed it has no plans to cancel its order for 10 787s. It denied news reports that it may swap out its 787 order for the 747-8s.

“We are indeed considering ordering [the] 747-8 now as the continuous delivery delays of [the] 787 have affected our operation. But we won’t cancel our 787 orders,” (HNA) said.

According to the original schedule, (HNA) should have taken delivery of its first 787 Dreamliner in December and introduced five more this year.

When asked about the delivery delay, a Boeing (TBC) spokesperson said “We are working diligently to deliver these airplanes to our customers.”

Last October, China Eastern Airlines (CEA) canceled an order for 24 787s, replacing it with an order for 45 737s, citing delivery delays and a weakening economy. China Southern Airlines (GUN) and Air China (BEJ), the nation's other two big carriers, still hold 787 Dreamliner orders. (GUN) is expected to be the first Chinese carrier to receive the 787 but the delivery date has been postponed to July, four years after it was first promised.

The 787 entered service October 26, 2011 (more than three years late due to production delays) when launch customer All Nippon Airways (ANA) flight NH7871 took off from Tokyo Narita bound for Hong Kong.

China Eastern Airlines (CEA) Chairman, Liu Shaoyong has called on the Chinese government to make an $18 billion to $20 billion capital injection into China’s big three state-owned carriers to alleviate increasing financial pressure. The debt ratio of China’s big three airlines ((CEA), Guangzhou-based China Southern Airlines (GUN) and Beijing-based Air China (BEJ)) all reportedly exceed 70%.

All three carriers have previously received capital injections from Beijing. In 2008, (CEA) and (BEJ) received CNY3 billion/$473 million in government aid, respectively. In 2009, (CEA) received another CNY6 billion from Beijing. In 2010, (GUN) and (BEJ) each received CNY1.5 billion. (BEJ) received another CNY1 billion one year later.

Liu also called on Beijing to reduce the tax imposed on domestic carriers. “Chinese airlines are shouldering too heavy tax burdens. Last year China’s big three carriers paid a total of more than >CNY15 billion tax, which was almost equal to the total net income reported by these three carriers last year,” Liu said.

Other Chinese carriers are also facing cash shortages due to rising fuel prices and the slowdown of domestic market demand. Shanghai-based carriers, Spring Airlines (CQH) and Juneyao Airlines (JYA), are preparing to launch (IPO)s for their fleet expansions.

(CQH) will reportedly post a net income of CNY500 million in 2011, while (JYA) will reportedly post a net profit of +CNY400 million to +CNY500 million for 2011.

April 2012: The Chinese government has raised domestic jet fuel prices to CNY8,061/$1,275 per ton, up +4.35% from CNY7,725 per ton as international fuel prices keep rising.

This is the third time the Chinese government has raised domestic fuel prices this year. Beijing increased domestic fuel prices by +1.43% and +3.48% to CNY7,465 per ton and CNY7,725 per ton, respectively, in February and March.

Fuel costs comprise more than >40% of China’s big three carriers total operating expenses.

China Southern Airlines (GUN), which operates 80% of its flights on domestic routes, could see its fuel costs increase by +CNY873.6 million annually. Air China (BEJ) and China Eastern Airlines (CEA), which operate 70% of their flights on domestic routes, could see their annual fuel costs rise by +CNY748.2 million and +CNY774.1 million, respectively.

Chinese carriers have also raised fuel surcharges on domestic routes but industry analysts say it cannot offset rising fuel expenses. They reported a collective net loss of -CNY540 million in February, citing the rising fuel expenses as the main reason to the big reversal from a net income of +CNY1.34 billion in the year-ago period.

(GUN) expects its first-quarter net profit to drop by more than half compared to the +CNY1.24 billion/+$190 million reported in the year-ago quarter, according to a statement released by the Shanghai Stock Exchange. (GUN) cited the slowdown of the domestic growth rate, high fuel prices and the “reduction of exchange gain by a big margin” as main reasons for the gloomy forecast.

China’s other carriers are also bracing for a profit drop. “In the first quarter, domestic carriers increased operating expenses [mainly fuel costs] by -22%, which has a big negative impact over Chinese airlines’ financial performance. To make matters worse, domestic carriers got less exchange gain this quarter over the year-ago quarter,” Great Wall Securities aviation analyst, Liu Kun said.

Chinese carriers reported a collective net loss of -CNY540 million in February and -CNY200 million in March, reversed from a collective net profit of +CNY1.71 billion in the year-ago month, due to high fuel prices and a decline in cargo traffic.

Passenger boardings increased +8.6% to 25.03 million, up +8.3% on domestic routes and +12.8% on international routes compared to the same month in 2011. Cargo traffic dipped -6.1%, up a slight +0.4% on domestic routes and plummeted -18.3% on international routes.

Industry analysts said market demand started to pick up in April with continuous domestic economic growth and slow global economic recovery but rising fuel expenses still remain a major challenge.

Fuel costs rose +16% in March, an increase of +CNY1.64 billion over the same period last year. Analysts said that fuel surcharges revenue, which was CNY1.17 billion, was not enough to offset rising fuel expenses.

Earlier this month, the Chinese government has raised domestic jet fuel prices to CNY8,061/$1,275 per ton, up +4.35% from CNY7,725 per ton.

“In the first quarter, domestic carriers increased operating expenses [mainly fuel costs] by +22%, which has a big negative impact over Chinese airlines’ financial performance. To make matters worse, domestic carriers got less exchange gain this quarter over the year-ago quarter,” Great Wall Securities Aviation Analyst, Liu Kun said.

It is widely expected that financial results of domestic airlines will improve in the third quarter.

China Eastern Airlines (CEA) and Cathay Pacific Airways (CAT) have downgraded their first-quarter profit forecasts citing the slowdown of market demand and high fuel prices. They also pointed to increasing global economic uncertainties and political turmoil in the Middle East for the forecast downgrade.

(CEA) expects its first-quarter profit to drop by more than half from CNY1.01 billion/$155.8 million reported in the year-ago quarter.

(CAT) said it may have to park airplanes and reduce the number of flights if weakening demand and high fuel costs persist, according to Dow Jones. (CAT), which had already warned of a very challenging 2012, said business has worsened over the last month with falling passenger yields for its economy-class (Y) products as well as its more profitable first- (F) and business-class (C) cabins.

“Fuel prices remain at crippling highs and our cargo business still shows no sign of any sustained pick-up,” (CAT) (CEO), John Slosar said. “The recent turmoil in the euro zone reinforces the fact that the world is still balancing on a knife edge.”

China Southern Airlines (GUN) earlier this month predicted a sharp first-quarter decline, citing similar reasons.

Air China (BEJ) and China Southern Airlines (GUN) saw their first-quarter income plunge due to high fuel prices and the slowing of yuan appreciation, according to carrier statements released by the Shanghai Stock Exchange.

(BEJ) reported first-quarter net income of +CNY239 million/+$37.8 million, down -85.7% over +CNY1.67 billion in the year-ago quarter. Operating revenue increased +7.7% to 22.9 billion against an increase of +16.9% in operating expenses to CNY22.71 billion.

(GUN) posted a first-quarter net income of +CNY319 million, down -74.2% from +CNY1.23 billion in the same quarter of last year. Operating revenue climbed +15.5% to CNY23.7 billion, while operating expenses jumped +23.8% to CNY23.4 billion.

Industry analysts also cited market demand slowdown as the main reason for the results.

China Eastern Airlines (CEA) earlier predicted its first-quarter profit will drop by more than half from CNY1.01 billion reported in the year-ago quarter, citing similar reasons.

May 2012: Chinese carriers earned a collective profit of +CNY1.84 billion/+$290.5 million) in April, down -46%, from a net income of +CNY3.4 billion in the year-ago month. Chinese domestic airlines also reported a net loss of -CNY540 million in February and -CNY180 million in March due to high fuel prices and the slowdown of market demand. “Chinese carriers started to see market recovery in international routes operation, but air cargo is still in depression,” an industry insider said.

According to the (CAAC) (CAC), Chinese carriers transported 26.05 million passengers in April, up +6.9% compared to the same month last year. Passenger load factor decreased -0.7 points to 82.5% LF. Cargo traffic volume reduced -6.9% to 445,000 tonnes.

Industry analysts point out that domestic carriers are expected to benefit from the gradual recovery of market demands, yuan appreciation and lower fuel prices in the second quarter, but capacity discipline remains the key to their financial performance.

The Chinese government has cut domestic jet fuel prices to CNY7,932/$1,257) per ton, down -1.6% from CNY8,061 per ton as international fuel prices keep fluctuating.

This is the second time the Chinese government has reduced domestic jet fuel prices this year. Beijing cut domestic fuel prices -3.8% to CNY7,360 per ton in January from CNY7,653 per ton in December. The Chinese government has raised fuel prices three times this year.

Fuel costs comprise more than >40% of China’s big three carriers total operating expenses, so it is expected the reduction will give some relief to Chinese carriers.

China Southern Airlines (GUN), which operates 80% of its flights on domestic routes, could see its fuel costs decrease by -CNY335.4 million annually. Air China (BEJ)) and China Eastern Airlines (CEA), which operate 70% of their flights on domestic routes, could see their annual fuel costs reduce by -CNY287.26 million and -CNY297.2 million, respectively.

The European Union (EU) said that there has been “systematic non-reporting” of emissions data by Chinese and Indian airlines, a violation of the carriers’ legal responsibilities under the (EU) Emissions Trading Scheme (EU ETS).

More than >1,200 airlines that fly to/from the (EU) submitted data by the March 31 deadline, though many of those airlines oppose aviation’s inclusion in the (ETS). The (EU) said 10 airlines from China and India, none of which were named, failed to report the required data. It noted that the data would “not trigger obligations to surrender allowances this year.”

Indian Civil Aviation Minister, Ajit Singh took a strong stand against the (EU)’s efforts to enforce the (ETS) in comments to "Reuters." ”You cannot enforce laws outside your sovereign area,” he said. “Its implications are huge. Now you are talking about aviation, tomorrow you will talk about shipping.”

(EU) Climate Commissioner, Connie Hedegaard told reporters in Brussels that the Chinese and Indian airlines have until mid-June to report the data before enforcement action is taken. Conceivably, the (EU) could eventually deny the airlines the right to operate to (EU) airports.

Chinese carriers are still refusing to join the European Union Emissions Trading Scheme (EU ETS) despite (EU) Climate Commissioner, Connie Hedegaard’s warning of their violation of new reporting rules.
Hedegaard said that Chinese and Indian airlines have until mid-June to report their data before enforcement action is taken, according to the China Air Transport Association (CATA) Director General, Wei Zhenzhong.

“(EU ETS) is a unilateral action and lacks any basis to enforcement action and punishment,” Wei Zhenzhong said. “Currently (ICAO) is working on formulating a global solution to it and we would prefer to rely on technological advancement and promotion of biofuels to reduce carbon emissions,” he said, adding that the (CAAC) (CAC) is working on how to confront the (EU ETS), which include retaliatory measures.

In February, the Chinese government’s state council issued a statement prohibiting Chinese carriers from participating in the (EU ETS) without government approval.

“If the (EU) really makes any punishment on our Chinese carriers, we can take counter measures against them” (CATA) Marketing Director, Zhu Qingyu said.

In March, Airbus (EDS) (CEO), Louis Gallois said the Beijing (CAAC) blocked approval for $12 billion worth of Airbus (EDS) orders to protest the European aviation carbon tax.

(CATA) estimates Chinese carriers’ operating expenses will increase by +CNY800 million/+$127.2 million annually because of the (EU ETS). Expenses associated with the (EU ETS) are predicted to keep increasing as Chinese carriers open more international routes to Europe to compete with the high speed rail.

Air China (BEJ) plans to launch a new airline with the Inner Mongolian government to expand its domestic market share, according to (BEJ) Chairman, Wang Changshun. Wang said (BEJ) will be the controlling stakeholder of the new entity, which will be based on the assets of (BEJ)’s branch company in the Inner Mongolian region. The new carrier is subject to Civil Aviation Administration of China (CAAC) approval.

In recent years, China’s big three carriers ((BEJ), China Eastern Airlines (CEA) and China Southern Airlines (GUN)) have forged closer cooperative relationships with local governments.

(BEJ) has launched Dalian Airlines (DLN) and business jet subsidiary, Beijing Airlines with local government support. (CEA) received cash injections from the Yunnan and Wuhan provincial governments to relaunch their branch companies in these two provinces. (GUN) is negotiating with the Henan provincial government to raise stakes in (GUN)’s Henan subsidiary, Zhongyuan Airlines (ZHO).

The Commercial Aircraft Corporation of China (COMAC) (CCC) has launched a joint venture (JV) airplane finance lease company with the Pudong Development Bank and the Shanghai International Group.

The new (JV) has a registered capital of CNY2.7 billion/$426 million. The Pudong Development Bank is the controlling stakeholder with a 66.67% stake, (COMAC) holds 22.22% stake and the Shanghai International Group holds 11.11% ownership.

Industry analysts say the new venture is expected to pave the way for (COMAC) to sell its C919 as the Chinese manufacturer explores the fast-growing domestic airplane leasing market.

The C919 has won some orders from other domestic banks’ finance lease companies. Last year, the Industrial & Commercial Bank of China (ICBC Leasing) placed a firm order for 45 C919s and the Bank of Communications Financial Leasing Company ordered 30 C919s.

June 2012: The Chinese government has cut domestic jet fuel prices by -5% to CNY7,509/$1,181 per ton as international fuel prices keep falling.

This is the third time the Chinese government has reduced domestic jet fuel prices this year. Beijing cut domestic fuel prices -3.8% to CNY7,360 in January and -1.6% to CNY7,932 per ton in May. The Chinese government has raised fuel prices three times this year.

Fuel costs comprise more than 40% of China’s big three carriers’ total operating expenses, so the reduction may give some relief to Chinese carriers.

China Southern Airlines (GUN), which operates 80% of its flights on domestic routes, could see its fuel costs decrease by -CNY1.2 billion annually. Air China (BEJ) and China Eastern Airlines (CEA), which operate 70% of their flights on domestic routes, could see their annual fuel costs reduce by -CNY1.1 billion and -CNY1.1 billion, respectively.

It is reported that (CEA) and (BEJ) has received approval from Beijing to restart fuel hedging this year.

The Chinese government will inject about CNY2 billion/$315 million into China Southern Airlines (GUN) for its fleet expansion, according to an industry insider. It is expected to reduce (GUN)’s debt ratio, which was 70.88% at the end of 2011.

(GUN) suspended trading as “the parent company plans to make government capital injection to the carrier.” It will be the third time (GUN) has received a capital injection from Beijing. It received CNY3 billion and CNY1.5 billion in 2008 and 2010, respectively.

Separately, (GUN) announced it has entered into 12-year lease agreements with Air Lease Corporation (ALE) for 18 new airplanes, scheduled for delivery in 2013, 2014 and 2015. The airplanes comprise 12 737-800s, four A320-200s and two A321-200s.

Earlier this year, (GUN) sealed a deal with Boeing (TBC) for an order of six 777F freighters and 10 777-300ERs, which will be introduced between 2013 and 2016.

China Eastern Airlines (CEA) and Air China (BEJ) have also received government capital injections of CNY9 billion and CNY2.5 billion, respectively.

Chinese carriers posted a collective net loss of -CNY 1.37 billion/-$216 million in May, reversed from a net profit of +CNY1.88 billion year-over-year. The industry attributes the reversal to the slowdown of domestic market demand and exchange losses resulting from yuan depreciation.

According to the Civil Aviation Administration of China (CAAC), domestic carriers transported 25.4 million passengers, up +5.5% over the year-ago period; cargo traffic volume rose +0.6% to 450,000 tonnes. “The growth rate of domestic market demand continues to slow down and the passenger load factors also continue to drop, especially on international routes (due to the global economic uncertainties increase),” Ping An Securities aviation analyst Sun Chao said.

The cargo market also recorded weak growth demand due to the worsening European debt crisis, the fragile USA economic recovery and Chinese export slowdown.

During China´s Prime Minister, Wen Jiabao’s visit to Brazil for the "Rio+20" Conference, in a signing ceremony witnessed by leaders from both nations, Embraer (EMB) and the Aviation Industry Corporation of China (AVIC) signed an agreement to build Embraer’s (EMB)'s Legacy 600/650 executive jets in China, using the infrastructure, financial resources and workforce of their joint venture (JV) Harbin Embraer Aircraft Industry Company, Ltd. (HEAI), which started operations in 2002.

The agreement is based on the understanding of both parties about the potential demand of China’s flourishing executive aviation market, and their wish to extend their decade-long strategic partnership. (HEAI)’s first executive jet is expected to be delivered by the end of 2013.

“Today´s announcement marks another milestone in the history of (EMB)’s long term commitment to China and of Brazil-Sino bilateral relations. This new phase of (AVIC)-Embraer (EMB) partnership corroborates what has been referred to by state leaders of both countries as ‘a model of South-South cooperation’,” said Frederico Fleury Curado, (EMB) President & (CEO).

“The achievement of Sino-Brazil cooperation in the field of aviation is a hard-won, indispensable of the joint efforts from state leaders and the industry players of both countries. The cooperation on executive jets manufacturing, as the continuation of what the two parties have attained via the joint venture, fits in the strategic development of all parties. It is undoubtedly a win-win strategic international cooperation. As the leader of China’s aviation industry, (AVIC) will seize the opportunity to develop a platform building executive jets that will meet the demand of the global and China markets, and ultimately assist China’s executive aviation industry progressing into a new stage,” said Tan Ruisong, President of Aviation Industry Corporation of China.

Embraer (EMB)’s presence in China dates back to 2000, when its Beijing Representative Office was established. In June 2010, in light of its increasing customer base, the Company set up its first wholly owned subsidiary in China, the Embraer (China) Aircraft Technical Services Company Ltd., focusing on after sale support.

To date, Embraer (EMB) has 154 firm orders from China market, with 116 airplanes already delivered. (EMB) accounts for around 78% of China’s regional aviation market and is gaining strength in its executive segment with 18 firm orders for executive jets in the year 2011. The cooperation with (AVIC) on the Legacy 600/650 program further consolidates Embraer (EMB)’s presence in China’s executive aviation market.

Jetstar Hong Kong, the joint venture (JV) low-cost carrier (LCC) being set up by China Eastern Airlines (CEA) and the Qantas Group subsidiary Jetstar (IMU), is on track to formally launch by the end of 2012 or early next year, according to (CEA) Chairman, Liu Shaoyong.

The (JV), which will have a registered capital of $115 million with each partner owning 50%, was announced in March. The company has applied for its air operator’s certificate (AOC) from the Hong Kong government.

(CEA) General Manager, Ma Xulun asserted that (LCC)s have great potential in the Chinese market. “(LCC)s account for more than a >25% share of the global air transport market and the figure is more than >33% in Southeast Asia, while comparably speaking, this figure is less than <5% in China,” Ma said.

Industry analysts pointed out that challenges remain for Chinese carriers developing (LCC) business models, including high import taxes for foreign-made airplanes and a shortage of pilots (FC) and airports. Liu conceded that “the operating environment for domestic carriers still needs to be improved,” but added he is confident Jetstar Hong Kong can make a profit by its third year of operation.

The only (LCC) in China is Shanghai-based Spring Airlines (CQH), which has been profit-making since its launch in 2004. It reported net income of +CNY500 million/+$79 million) in 2011. Spring (CQH) is preparing to launch an Initial Public Offering (IPO).

July 2012: Chinese carriers reported a collective profit of +CNY3.78 billion/+$598 million in the first half, down -70.5% from a net income of +CNY12.83 billion year-over-year. The industry attributes the drop to high fuel prices and slowdown of domestic market demand growth.

The Civil Aviation Administration of China (CAAC) (CAC) did not reveal operating revenue and operating expenses.

Passenger boardings climbed +8.7% to 151 million and cargo traffic volume was 2.52 million tonnes. For the first six months, Chinese carriers introduced 89 airplanes and operated a collective fleet of 3,098.

In April, China Southern Airlines (GUN) and China Eastern Airlines (CEA) said their net income would dip more than -50% for the first half compared to the same period last year. Both carriers cited slowdown of economic growth, higher fuel prices and yuan depreciation as the main reasons.

Looking ahead, industry analysts predict domestic airlines will post a “better than expected” third-quarter performance due to the stronger growth of market demand in the summer peak period, domestic consumption upgrade and lower fuel prices.

Earlier this month, the Chinese government cut domestic fuel prices -9% to CNY 6,724 per ton as international fuel prices keep falling.

The Civil Aviation Administration of China (CAAC) (CAC) has cleared Air China (BEJ) to launch a subsidiary in Inner Mongolia, paving the way for (BEJ) to further expand in the North China market.

According to the (CAAC), the new airline has a registered capital of CNY1 billion/$159 million, in which (BEJ) holds an 80% stake, while the local government of Inner Mongolia holds a 20% stake.

The new venture, which is expected to be based at Hohhot Baita, will operate either a 737-300 or 737-700 on domestic routes.

(BEJ) has seven subsidiaries, comprising Shandong Airlines (SHG), Shenzhen Airlines (SHZ), Tibet Air (TBZ), Kunming Airlines (KMG), Beijing Airlines, Dalian Airlines (DLN) and Henan Airlines. China Eastern Airlines (CEA) also has a Yunnan subsidiary, while China Southern Airlines (GUN) has a Chongqing subsidiary (CGQ). Hainan Airlines (HNA) has a Yunnan subsidiary and Beijing-based Capital Airlines (DER).

Industry analysts point out that subsidiaries enable China’s domestic carriers to receive cash support and enjoy favorable policies from different local governments. However, safety concerns remain a challenge because of the severe shortage of pilots (FC) and other aviation professionals in China.

August 2012: The Chinese government has raised domestic jet fuel prices +1.43% to CNY6,820/$1,079 per ton as international fuel prices stabilize.

Beijing has adjusted domestic jet fuel prices every month as costs fluctuate. Last month, Beijing cut domestic fuel prices -9% to CNY6,724 per ton.

Fuel costs account for more than >40% of China’s big three carriers’ total operating expenses. China Southern Airlines (GUN), which operates 80% of its flights on domestic routes, could see its fuel costs increase by +CNY249.6 million annually. Air China (BEJ) and China Eastern Airlines (CEA), which operate 70% of their flights on domestic routes, could see their annual fuel costs increase by +CNY214.08 million and +CNY221.17 million, respectively.

Chinese airlines are not expected to raise fuel surcharges as domestic fuel prices have not exceeded the required CNY250 per ton. (CEA) and (BEJ) have received approval from Beijing to restart fuel hedging this year to offset rising fuel expenses.

Chinese carriers reported a collective net profit of +CNY 6.4 billion/+$1 billion for July, up +7% compared with the net income of +CNY 5.7 billion a year ago.

According to the (CAAC) (CAC), passenger boardings increased +9.6%, while cargo traffic volume dipped -3.4%.

Industry analysts credited lower domestic fuel prices and stronger market demand in the summer peak period as the main reasons for the profit hike. Beijing cut domestic jet fuel prices by -9% in July.

Ping An Securities aviation analyst Sun Chao noted domestic airlines will post a “better than expected” third-quarter performance.

High fuel prices and a slowdown of domestic market demand growth led to Chinese airlines reporting a collective -70.5% drop in net profit for the 2012 first half to +CNY 3.78 billion.

Hainan Airlines (HNA) has signed a cooperation agreement with the Fujian provincial government to launch a new subsidiary, Fuzhou Airlines, as it expands into the South China market. (HNA) did not give a specific timetable for the launch, which needs approval from the Civil Aviation Administration of China (CAC). The regulator has raised the bar for new entrants in recent years, citing safety concerns.

Industry analysts point out Fuzhou Airlines would compete with Xiamen Airlines (XIA), which uses Fuzhou as one of its main operating bases. (XIA) holds a dominant position in the Fuzhou market with a 50% market share.

In recent years, China’s major carriers have forged closer cooperative relationships with different local governments, enabling them to receive favorable policy support as well as cash support.

Air China (BEJ) has launched Dalian Airlines (DLN) and Beijing Airlines with local government support. China Eastern Airlines (CEA) received cash injections from the Yunnan and Wuhan provincial governments to relaunch their branch companies in these two provinces.

The Industrial & Commercial Bank of China (ICBC) Financial Leasing has placed an order for 30 A320ceo and 20 A320neo aircraft. The deal, worth about $3.5 billion at list prices, was announced during German Chancellor, Angela Merkel’s visit to China.

(ICBC) Leasing becomes the first Chinese customer for the A320neo.

(ICBC) Leasing Senior Executive VP, Li Xiaopeng said the order will “enhance our portfolio in anticipation of increasing demand of the aviation markets in China, Asia Pacific region and the world as well.”

(ICBC)’s airplane order was made amid ongoing Chinese government protests against the European Union’s Emissions Trading Scheme tax (EU ETS). It is reported that Beijing is encouraging Hong Kong Airlines (CRY) to cancel its A380 order to retaliate against the (EU ETS).

September 2012: All Chinese major carriers have seen first-half profits decline. Air China (BEJ) has reported a first-half net profit of +CNY945 million, down -76.7% over a net income of +CNY4.056 billion for the year-ago period. China Southern Airlines (GUN) has reported a first-half net profit of +CNY449 million, down -83.7% compared to a net income of +CNY2.75 billion in the year-ago period. China Eastern Airlines (CEA) reported a net income of +CNY 806.9 million in the first half of this year, down -64.6% over a net profit of +CNY 2.28 billion year-over-year.

The Chinese government has raised domestic jet fuel prices +11% to CNY7,583 per ton/$1,195 as international fuel prices escalate. Beijing has adjusted domestic jet fuel prices every month this year as costs fluctuate. Last month, domestic jet fuel prices were raised +1.43% to CNY6,820 per ton.

Fuel costs, which account for more than >40% of China’s big three carriers’ total operating expenses, contributed to sharp profit declines for all airlines in the first half.

China Southern Airlines (GUN), which operates 80% of its flights on domestic routes, could see its fuel costs increase by +CNY1.98 billion annually. Air China (BEJ), and China Eastern Airlines (CEA), which operate 70% of their flights on domestic routes, could see their annual fuel costs increase +CNY1.7 billion and +CNY1.76 billion, respectively.

Chinese carriers are expected to raise fuel surcharges. (BEJ) and (CEA) plan to restart fuel hedging, which is expected to offset rising fuel prices, by 50% and 20%, respectively.

China Southern Airlines (GUN) has entered into a joint venture (JV) agreement with government-owned, Henan Civil Aviation Investment to launch a subsidiary, China Southern Henan Airlines Company. The deal will relaunch the former Shenzhen Airlines, subsidiary, Henan Airlines, which has been grounded since a fatal Embraer EMB-190 crash in August 2010.

The (JV) has a registered capital of CNY6 billion/$946 million. (GUN) will invest CNY3.6 billion for a 60% stake in the (JV) and the Henan government will invest CNY2.4 billion for a 40% stake.

INCDT: USA airplane safety investigators have called for grounding certain Boeing (TBC) 787s and 747-8s powered by General Electric (GEC) engines until they are inspected for cracks and also revealed that a cracked fan midshaft was discovered on a third engine last month.

The recommendations issued by the National Transportation Safety Board (NTSB) offer the clearest explanation yet for the rash of zero- or low-time (GEnx) engine failures since 28 July.

The (NTSB) letter sent to the Federal Aviation Administration (FAA) also reveals that an analysis of the fan midshaft fractures do not point to metal fatigue as a likely cause. The fan midshaft connects the low pressure turbine to the fan and booster stages at the forward end of the engine.

Instead, the cracks in the critical engine component are "typical of environmentally assisted cracking of certain high strength alloys such as that used on the (GEnx) [fan midshaft]", the (NTSB) letter says. The (NTSB) is continuing to investigate what is triggering the environmentally assisted cracking. According to (GEC), such metals crack as a result of galvanic corrosion caused by a moist environment with the presence of hydrogen.

A potential trigger of the galvanic corrosion could have been revealed earlier. (GEC) said it has changed the coating process for the fan midshaft on the production line as a result of the engine failures. (GEC) says that the new coating process changes the dry film applied to the midshaft, and replaces the lubricant used when a retaining nut is clamped to the midshaft.

The (NTSB)'s letter to the (FAA) indicates all three engine failures discovered to date could be linked to the same cause.

The latest engine failure to be revealed actually was discovered during an ultrasound inspection on 13 August, but it was not disclosed to the public until now. The ultrasound check on the engine, which was installed on a 787 that had not been flown, revealed an indication of a "similar" crack on the fan midshaft.

The first such incident occurred on 28 July. An engine on an Air India (AIN) 787 in Charleston, South Carolina, failed in a low-speed taxi test. The flight crew (FC) was accelerating the 787 through 40 kt when the low-pressure speed rolled back on the No 2 engine. The flight crew (FC) aborted the test and a visual inspection revealed the first stage of the low pressure turbine had shifted backward, colliding into trailing stages.

Six weeks later, a 747-8F operated by AirBridgeCargo (ABC) with about 1,200 flight hours and 240 cycles, experienced a similar problem. As the airplane accelerated through 50 kt, the low-pressure turbine speed of the No 1 engine dropped. The flight crew (FC) rejected the take-off and an inspection revealed "extensive damage" to the low pressure turbine.

The (NTSB) highlighted the potential safety danger of repeated failures on low-time engines. The (NTSB)'s letter highlighted the "possibility that multiple engines on the same airplane could experience a [fan midshaft] failure".

In the event of an extended twin-engine flight over water, for example, the airplane would have to operate on only a single engine for up to 5.5 hrs, the (NTSB) letter says.

In response, (GEC) says that it has already recommended repetitive inspections to the (FAA) and is close to completing ultrasonic inspections of the fan midshaft for all (GEnx) engines in service.

Boeing (TBC) adds that is working with (GEC) to inspect nine 747-8Fs within a "few days" to complete ultrasound inspections on the operational (GEnx) fleet.

No cracks were found on a 747-8F freighter (GE) Aviation (GEC) (GEnx-2B) engine that experienced a power loss during takeoff roll at Shanghai Pudong International Airport, preliminary investigations show.

In an updated statement later on the continuing investigation into a separate incident involving a (GEnx-1B) engine on a 787, the USA (NTSB) confirmed it was participating in the 747-8F investigation, which is being led by the Civil Aviation Administration of China (CAAC) (CAC). The 747-8F freighter was operated by AirbridgeCargo (ABC) and the incident occurred on September 11.

Attention has turned to the (GEnx)’s fan midshaft (FMS) after cracks were discovered on two (GEnx-1B) engines, but the cause of the fracture is still being established.

Examination of other pre-delivery engines revealed a second (GEnx-1B) engine with a cracked (FMS) that was installed on a 787-8 airplane that had not yet flown.

As part the (CAAC)’s investigation and in relation to the (NTSB)’s ongoing investigation of the July 28 engine failure, preliminary findings from the examination of the Shanghai incident engine revealed the (FMS) was intact and showed no indications of cracking. The examination and teardown of that engine is continuing under the direction of the (CAAC).

The USA (FAA) issued an airworthiness directive (AD) on all (GEnx) engines in light of the incidents. The (AD) requires initial and repetitive ultrasonic inspections of a particular part number (FMS). “We are issuing this (AD) to prevent failure of the (FMS) resulting in one or more engine failure(s) and possible loss of the airplane,” the (FAA) said.

The (AD) requires the (GEnx) (FMS)s be re-inspected at intervals of not more than 90 days.

October 2012: INCDT: A China Southern Airlines (GUN) 757-200 made a forced landing in northwest China’s Gansu province on October 8th after receiving an anonymous terrorist threat, (GUN) and local security sources confirmed.

(GUN) sources told "Xinhua" news that the 757-200, Flight CZ680, traveling from Istanbul to Beijing via Urumqi, made a forced landing in Gansu Zhongchuan Airport in Gansu’s capital of Lanzhou, hours after take-off from Urumqi, capital of northwest China’s Xinjiang Uygur Autonomous Region.

The 757 was scheduled to take off from Urumqi at 2:30 pm and land in Beijing at 5:50 pm, according to the flight’s timetable. Sources with the airport and the local provincial government said the plane made its forced landing in Gansu at around 5:30 pm. All the 196 on board, including 186 passengers and 10 (FC)/(CA)crew members, were evacuated by 5:45 pm.

Officials with the local public security bureau are handling the incident. All the luggage on the plane went through security check at the parking apron at Gansu Zhongchuan airport. No other flights at Zhongchuan airport have been disrupted.

An Internet user who claimed to be one of the passengers on the plane said she was not given any explanation before or after the landing.
“Without the maps app on my mobile phone, I would not even have known where I was,” said Baimifan at Sina Weibo, China’s Twitter-like microblogging website. She was identified as a designer with Puma by the website.

Airbus (EDS) has delivered the 100th A320 family airplane assembled at its final assembly line (FAL) in China. The A320 was delivered to Air China (BEJ) and will be deployed on domestic routes.

The Chinese government has raised domestic jet fuel prices +5.2% to CNY7,929/$1,254 per ton as international fuel prices fluctuate.

Beijing has adjusted domestic jet fuel prices every month this year to keep pace with changes in international fuel prices. Last month, domestic jet fuel prices were raised +11% to CNY7,583 per ton.

Fuel costs, which account for more than >40% of China’s big three carriers’ total operating expenses, contributed to sharp first-half profit declines for all airlines. It is widely expected that most Chinese airlines will post better third-quarter results as market demand rebounds in the traditional peak season.

China Southern Airlines (GUN), which operates 80% of its flights on domestic routes, could see its fuel costs increase +CNY1.015 billion annually. Air China (BEJ) and China Eastern Airlines (CEA), which operate 70% of their flights on domestic routes, could see their annual fuel costs increase +CNY871.2 million and +CNY901.9 million, respectively.

Chinese carriers are expected to raise fuel surcharges. According to an industry insider, (BEJ)’s fuel surcharge revenue climbed +20% to CNY1.4 billion in the first half but fuel prices increased +CNY2 billion in the same time frame.

The Chinese conglomerate (HNA) Group (parent of Hainan Airlines (HNA), China Xinhua Airlines (XIH), Chang'an Airlines and Shanxi Airlines) has acquired a 48% stake in French airline, Aigle Azur Transports Aeriens (AZU). The deal makes the (HNA) Group the second largest shareholder of (AZU), after Go Fast Transport, and the first Chinese aviation enterprise to invest in a European airline, according to (HNA). It is reported the deal is worth about $40 million.

(AZU), established in 1946, is a scheduled and charter carrier. It operates a fleet of 12 A320s from its bases at Paris Orly and Charles de Gaulle airports, serving destinations in Algeria, Mali, Portugal, Russia, and Tunisia. In 2011, (AZU) carried 1.8 million passengers.

(HNA) is planning to add two wide body airplanes to (AZU)’s fleet, although it did not disclose the type. (AZU) will also open new routes from Paris to Beijing and other destinations. Chinese industry analysts point out that (HNA) has difficulty getting approval from the Civil Aviation Administration of China (CAC) to directly open this profitable business route, due to the severe slot shortage at Beijing Capital International Airport and fierce competition in the domestic airline industry.

Alongside its European and Asian network development, (AZU) will grow its North and West African links. (HNA) is a co-investor in a new Ghanaian airline, Africa World Airlines (AWA), which launched September 21.

Under the agreement, (HNA) will name two of (AZU)’s five board members. It also has the right to appoint a VP and Deputy Chief Financial Officer (CFO).

The (HNA) Group was founded in 2000 and is active in several sectors, including air transport and airport management. Its aviation arm, HNA Aviation, has a portfolio of more than >270 airplanes. It has invested in Turkey and Hong Kong, spanning passenger and cargo transport, maintenance and flight schools.

Hainan Airlines (HNA) plans to invest more than >CNY1 billion/$159 million in its new subsidiary, Fuzhou Airlines, to be launched in conjunction with the Fuzhou provincial government.

According to an industry insider, (HNA) would be the controlling stakeholder with a 60% stake. The Fuzhou provincial government, represented by Fuzhou National Assets Investment Holding Company, would hold a 20% stake and the other two unidentified companies would each hold a 10% stake.

There is no specific timetable for the launch, which needs approval from the Civil Aviation Administration of China (CAAC).

(HNA) hopes to increase its routes between East China and West China through the new venture.

Xiamen Airlines (XIA) dominates the Fuzhou market with a 50% market share.

China’s Qingdao municipal government is in negotiations with Air China (BEJ) and its subsidiary Shandong Airlines (SHG) to launch Qingdao Airlines, according to Qingdao Municipal Transport Committee Deputy Director, Zhao Haibin.

Qingdao Airlines (based at Qingdao Liuting International airport (TAO)) is the proposed name of a new joint venture, the local municipality administration of Qingdao plans to set-up in cooperation with a major Chinese airline. It is currently in talks with both Air China (BEJ) and Shandong Airlines (SHG) about its plans. While (BEJ) just serves Beijing, Chengdu Shuangliu International (CTU), Seoul Incheon International (ICN) and Shanghai Hongqiao International (SHA) from Qingtao, Shandong (SHG) (in which Air China (BEJ) owns a large minority stake) however, has a major base in Qingtao, from where it serves 40 domestic destinations as well as Seoul Incheon, Taipei Taoyuan International (TPE) and Tokyo Narita New Tokyo International (NRT).

According to industry analysts, the Qingdao government is seeking to partner with an established Chinese carrier as new Civil Aviation Administration of China (CAC) standards for new entrants make it difficult to launch new carriers.

All major Chinese carriers have been forging closer cooperative relationships with local governments. Industry analysts say that subsidiaries enable China’s domestic carriers to receive cash support and enjoy favorable policies from different local governments.

China Southern Airlines (GUN) last month launched Chongqing Airlines and entered into a joint venture agreement with government-owned Henan Civil Aviation Investment to launch a subsidiary, China Southern Henan Airlines Company.

November 2012: China’s major carriers have all reported a third-quarter profit decline, mainly due to foreign exchange losses resulting from yuan depreciation. The fluctuation between the Chinese yuan and the USA dollar is a major factor for Chinese carriers because much of their airplane purchasing cost is in USA dollars.

Air China (BEJ) reported a third-quarter net profit of +CNY3.17 billion/+$504 million, down -16.5% compared to net income of +CNY3.8 billion in the year-ago quarter. Operating revenue rose +2.17% to CNY28.75 billion against a +5.52% increase in operating expenses to CNY24.65 billion. (BEJ) reported CNY2.1 billion in net finance expenses for the first nine months due to the “depreciation of the (RMB) against the (USD),” a sharp contrast from CNY1.39 billion in exchange gains earned in the year-ago period.

China Eastern Airlines (CEA) posted a third-quarter net income of +CNY2.63 billion, down -20.5% from a net profit of +CNY3.3 billion in the year-ago period. Operating revenue grew +2.78% to CNY25.13 billion, while operating expenses increased +6.6% to CNY22.66 billion. (CEA) said foreign exchange losses cost (CEA) CNY143 million in the third quarter.

Hainan Airlines (HNA earned a third-quarter net profit of +CNY1.20 billion, down -25.4% compared to a net income of +CNY1.7 billion in the year-ago period. Operating revenue increased +5.5% to CNY8.23 billion compared to CNY5.44 billion in the year-ago quarter. (HNA) posted CNY2.24 billion in net finance expenses for the third quarter, up +55.6% compared to CNY1.44 billion year-over-year.

China Southern Airlines (GUN) reported a third-quarter net income of +CNY2.22 billion, down -29.3% compared to a net profit of +CNY3.2 billion in the year-ago quarter, mainly due to foreign exchange losses.

Looking to the fourth quarter, local industry analysts predicted Chinese carriers’ profit will continue to decline due to the global economic depression and the fact that the fourth quarter is the traditional low season for all Chinese carriers.

Air China (BEJ) expanded its domestic network on 8 November when (BEJ) launched a new service from Tianjin (TSN) on the coast, east of Beijing via Chongqing (CKG) in the southwest of the country, to Lijiang (LJG) near the border to Burma in Yunnan Province. Flights operate three times a week with 737s. On the Tianjin to Chongqing sector, (BEJ) faces competition from West Air (CHO)’s and Tianjin Airlines (GCR)’s each daily flights as well as Sichuan Airlines (SIC)’s three flights a week, while the Chongqing to Lijiang route faces further competition: West Air (CHO) operates twice-daily and Chongqing Airlines (CGQ) 11 times weekly, while Xiamen Airlines (XIA), Lucky Air (LKY) and Sichuan Airlines (SIC) each operate daily.

Shenzhen Airlines (SHZ) joined the Star Alliance (SAL) on November 29 becoming the (SAL) Alliance’s 27th member. (SHZ) is the (SAL) alliance's second Chinese carrier after Shenzhen Airlines majority shareholder, Air China (BEJ) which holds 51% in the new (SAL) alliance member. (BEJ) became a (SAL) Alliance member in December 2007. Air China (BEJ) was (SHZ)’s mentor for the joining process. Shenzhen Airlines (SHZ) is China’s fifth largest carrier.

By joining the (SAL) Alliance, (SHZ) hopes to accelerate the pace of its international expansion as well as strengthen the alliance position in China and across Asia. (SHZ) will add some +400 daily flights to 70 (SAL) Alliance destinations, including five new cities for the (SAL) alliance — Juzhou, Linyi, Qinhuangdao, Shijiazhuang, and Zhousan.

(SHZ) operates bases in Shenzhen and Guangzhou.

“Our customers now benefit from improved access throughout the economical Pearl River Delta and across Southern China . . . I feel pretty good with the [Star (SAL) Alliance] network in China,” (SAL) Alliance (CEO), Mark Schwab said.

Taiwan-based, (EVA) Air is expected to join the (SAL) Alliance in June 2013.

Shenzhen Airlines (SHZ) operates 116 passenger and cargo airplanes, comprising 5 A319-100s, 53 A320-200s, 2 737-300s, 4 737-700s, 49 737-800s and 5 737-900s from its home base and bases at Guangzhou Baiyun (CAN), Nanjing Lukou International (NKG), Nanning Wuxu International (NNG), Shenyang Taoxian International (SHE) and Wuxi Sunan Shuofang International (WUX) airports. By the end of 2015, the fleet should grow from 122 to more than >170 airplanes by 2015.

(SHZ) is predominantly a domestic carrier only serving Hong Kong Chep Lap Kok International (HKG), Macau International (MFM), Osaka Kansai International (KIX), Seoul Incheon International (ICN), Singapore Changi International (SIN) and Taipei Taoyuan International (TPE) outside mainland China.

The China Air Transport Association (CATA) has welcomed the European Union’s (EU) decision to suspend its Emissions Trading System (EU ETS) for flights into and out of Europe for one year to allow time for (ICAO) to finalize a global scheme. (CATA) Deputy Secretary General, Chai Haibo called the decision a “sensible choice.” “The (EU’)s (ETS) development showed that it started to move from unilateral action to a global solution through (ICAO)’s multilateral negotiations. China will take an active part in (ICAO)’s negotiations to address the aviation carbon emission issue and, hopefully, (ICAO) can develop a global system to tackle airlines’ carbon emissions [by its next general assembly in September 2013],” Chai said.

The Association of Asia Pacific Airlines (AAPA) has given a “cautious welcome” to the (EU ETS) development. “In making this long overdue move, the (EU) has finally bowed to the inevitable — in effect acknowledging that it cannot unilaterally impose the scheme on non-(EU) airlines without the consent of other governments,” (AAPA) Director General, Andrew Herdman said.

China is among the countries that voiced the strongest opposition against (EU ETS). In February, the Chinese government’s state council issued a statement prohibiting Chinese carriers from participating in the (EU ETS) without government approval. In addition, China also threatened to launch a possible trade war against (EU ETS) following reports that Hainan Airlines (HNA) threatened to cancel an order for 10 A380s for its Hong Kong Airlines (CRY) subsidiary. In addition, China’s opposition to the (EU ETS) prevented Lufthansa (DLH) from obtaining rights to operate an A380 on its Shanghai - Frankfurt route, according to (DLH) Chairman & (CEO), Christoph Franz.

The Commercial Aircraft Corporation of China (COMAC) (CCC) has won 50 orders for the 150-seat C919 at the Zhuhai Air Show. The orders comprise 20 from Hebei Airlines (NTE), 20 from Joy Air (JOY) and 10 from (GECAS) (GEF).

In addition, (COMAC) also signed a memorandum of understanding (MOU) with USA-based defunct Eastern Air Lines for future sales of the airplanes to the USA. "Reuters" is reporting “sporadic reports of efforts to relaunch the airline, whose forked logo was seen on display as a backdrop to the signing ceremony.”

The International Airlines Group (IAG) and Ryanair (RYR) have also signed (MOU)s for the C919.

To date, (COMAC) has received 380 orders for the C919. The C919 entered the final design definition phase last year. Detailed design will be completed this year and the first flight is scheduled for 2014. Type certification is expected by 2016, followed by first delivery. By 2020, (COMAC) expects to produce 150 C919s annually.

According to the most recent market forecast released by (COMAC) at the Zhuhai Air Show, China will need 4,960 airplanes by 2031 in which 3,405 will be narrow body airplanes.

SEE THIS MONTH'S ATTACHED AIR TRANSPORT WORLD (ATW) ARTICLE - - "CAC-2012-11- CHINESE OFFSPRING-A/B."

December 2012: The Chinese government has reduced domestic jet fuel prices by -4.23% to CNY7,436/$1,184 per ton as international fuel prices fluctuate. Fuel costs, which account for more than >40% of China’s big three carriers’ total operating expenses, contributed to sharp first-half profit declines for all Chinese airlines.

China Southern Airlines (GUN), which operates 80% of its flights on domestic routes, could see its fuel costs reduce -CNY783.8 million annually. Air China (BEJ) and China Eastern Airlines (CEA), which operate 70% of their flights on domestic routes, could see their annual fuel costs increase +CNY 708.7 million and +CNY 620.9 million, respectively.

Chinese carriers are also expected to cut fuel surcharges. Ping’an Securities aviation analyst, Sun Chao said that overall market demand still has not picked up, although the domestic market is gradually rebounding; the international market is still declining. However, yuan appreciation is still accelerating, which could increase exchange gains for domestic carriers. Chinese airlines are expected to report a stable fourth-quarter financial performance.

There is no doubt that Chinese carriers will be a force to be reckoned with. They are working with the world’s largest population and when travel propensity increases this will quickly make China the biggest market; they have the potential to maintain a low cost base; and they have favourable geography – through hubs in each corner of the country they will be able to route traffic efficiently, their sixth-freedom operations posing a threat to existing hubs in Asia and the Middle East. Realizing all of this remains a question of when, how and with whom.

Long-haul airplane deliveries are scheduled to pick up around the middle of the decade and ensure expansion (the short-term deliveries are mostly single-aisle equipment). The key will be to ensure profitable expansion. Service delivery and international marketing still lags noticeably. Functional non-Chinese-language websites can be a novelty.

China's domestic aviation market is vast, even mystifying. Although 12 mainland carriers have scheduled international services (the largest amount for any country besides the United States) most have a low profile externally, where China’s top four airlines comprise 86% of international seats. And then there are another 11 mainland carriers still nestled within China’s boundaries, giving the country 23 scheduled carriers compared to the 27 in the USA, still a much larger market. Overall, China’s domestic market is half the size of the USA, but through expansion, consolidation and more expansion, China has created three formidable main carriers as well as more balanced medium and small carriers. The top 10 carriers in the USA account for 96% of domestic capacity, but in China, the top 10 represent 87%.

The average top 10 USA carrier has +54% more domestic seats than the average top 10 Chinese carrier, but the 11th through 20th biggest Chinese carrier has +40% more seats than its respective USA counterpart.

The (CAAC) (CAC) has not yet cleared the Boeing (TBC) 787 to fly in China because of safety concerns and delivery delays. Chinese carriers have ordered 41 787s, comprising 15 for Air China (BEJ), 10 for China Southern Airlines (GUN), 10 for Hainan Airlines (HNA) and six for Xiamen Airlines (XIA).

Six complete 787s are awaiting a type certificate that the Civil Aviation Administration of China (CAAC) (CCC) probably will not issue until March. Hainan Airlines (HNA), owner of three of the airplanes, needs the 787s to open a route from Beijing to Chicago planned to begin in April 2013. China Southern (GUN) wants to put its three 787s into domestic service first.

Hainan Airlines (HNA) Chairman, Chen Feng said last year it has considered switching its 787 order to 747-8s because of the continuous delays. In October 2011, China Eastern Airlines (CEA) canceled an order for 24 787 Dreamliners and replaced it with an order for 45 737NGs, citing delivery delays and a weakening economy.

The Chinese were ready to issue the type certificate some years ago but, because of the 787’s development delays, the results of its preparatory work expired before the airplanes could go into service.

The Chinese Ministry of National Defense confirmed this month that a large transport airplane is being developed as part of the military’s modernization drive. The long-range airplane, named the Y-20, will improve the military’s air transportation, according to ministry spokesman, Yang Yujun, who spoke to reporters at a news briefing in Beijing. SEE ATTACHED - - "CAC-Y 20 MILITARY TRANSPORT - 2012-12."

The move is not only in line with the military’s modernization, but also serves the purposes of providing disaster relief and assistance in emergency situations. “Research and development is proceeding as planned,” he said, without saying when the airplane will make its debut. He added that the development needs to undergo a series of phases such as designing, experiments and trials, because “the technology is complicated”.

January 2013: The Chinese government has lowered domestic jet fuel prices -0.6% to CNY7,389/$1,173 per ton from CNY7,436 per ton as international fuel prices fluctuate. Fuel costs, which account for more than >40% of China’s big three carriers’ total operating expenses, contributed to sharp first-half profit declines for all Chinese airlines in 2012.

China Southern Airlines (GUN), which operates 80% of its flights on domestic routes, could see its fuel costs reduce -CNY95.6 million annually. Air China (BEJ) and China Eastern Airlines (CEA), which operate 70% of their flights on domestic routes, could see annual fuel costs increase +CNY86.4 million and +CNY75.7 million, respectively.

Looking forward, Ping’an Securities Aviation Analyst, Sun Chao said domestic airlines would see lower fuel expenses this year than in 2012, but domestic market demands will see slower growth. “I think it’s not optimistic for the Chinese air transport market in the first half of this year, but the situation will turn better in the second half of this year,” China Eastern Airlines (CEA) Chairman, Liu Shaoyong predicted.

The (CAAC) continues to loosen its grip and approve more new domestic airline entrants. However, a (CAAC) insider said even though the regulator is approving more new carriers, it plans to raise the bar on safety.

According to reports, Air China (BEJ) subsidiary Shandong Airlines (SHG) plans to launch Qingdao Airlines with China’s Qingdao municipal government and the Nanshan Group.

In addition, Xi’an-based Joy Air is preparing to launch Hefei Airlines with the Hefei municipal government. A Joy Air insider said there are no specific details on the amount of registered capital and ratio of investments for the new Hefei-based carrier.

(CDI) Cargo Airlines, which was launched last summer and is backed by the Zhejiang government, plans to expand to passenger transport. Fuzhou municipal government also plans to launch Fuzhou Airlines in conjunction with Hainan Airlines (HNA).

In 2007, the (CAAC) suspended approval of new domestic entrants until 2010 because there were too many privately run domestic carriers after restrictions were loosened in 2004. Following the crash of a Henan Airlines Embraer EMB-190 jet in August 2010, the (CAAC) continued to adopt this policy for safety concerns indefinitely.

China conducted a successful test flight of its first domestically made jumbo airfreighter. The Yun-20, or Transport-20, is a huge, multi-function airfreighter which can perform various long-distance air transportation tasks targeting cargo and passengers.

The successful maiden flight of the Yun-20 is significant in promoting China’s economic and national defense buildup as well as bettering its emergency handling such as disaster relief and humanitarian aid.

The giant airplane will continue to undergo experiments and test flights as scheduled.

February 2013: Chinese carriers reported a net loss of -CNY1 billion/-$158.9 million in January, reversed from a net profit of +CNY1.7 billion in the year-ago period.

Ping An Securities Aviation Analyst, Sun Chao said the loss was due to the oversupply of domestic capacity before the Spring Festival, a slowdown of premium market demand, and the impact of high-speed rail.

Operating revenue dropped -10% to CNY28.7 billion, which was mainly due to the change in timing of this year’s Spring Festival. Operating expenses rose +2% to CNY26.2 billion due to rising fuel costs.

Passenger boardings remained flat at 25.7 million year-over-year. Load factor dropped -3.1 points to 78.2% LF. Cargo traffic volume climbed +34.6% to 476,600 tonnes compared to the year-ago period.

Looking forward, Sun is not optimistic for China’s domestic market. “Domestic market demand still hasn’t fully recovered and there is no sign premium market demand would pick up in the following month,” Sun said.

The Chinese government has increased airport charges for domestic carriers. Effective April 1, domestic airlines will pay the same fees as foreign carriers on international routes. Currently, domestic airlines pay -40% less in airport charges to operate international routes than their foreign counterparts.

Air China (BEJ) is expected to be hit the hardest. According to an aviation analyst who declined to be named, (BEJ) is expecting its annual operating costs to rise from CNY800 million/$127 million to CNY1 billion. (BEJ) operates half its flights on international routes.

China Eastern Airlines (CEA) and China Southern Airlines (GUN) are also expecting their operating expenses to rise as both carriers operate 30% of their flights on international routes.

SkyTeam (STM) Alliance member carriers that currently operate out of Beijing Capital Airport are planning to move to the new airport in Daxing. The new airport, currently under construction, is expected to be completed by October 2017; formal operations are scheduled to begin in 2018.

China’s (STM) Alliance members (including China Southern Airlines (GUN), China Eastern Airlines (CEA) and Xiamen Airlines (XIA)) currently operate in Beijing Capital Airport’s Terminal 2. (STM) Alliance Managing Director, Michael Wisbrun has reportedly discussed the plan to move to the new airport with the Civil Aviation Administration of China (CAAC) (CAC).

The new airport, which was approved at the end of last year, will have six runways for civilian use and will be located in southern Beijing’s Daxing district. It has not officially been given a name yet.

Once the airport is operational, the Beijing Nanyuan Airport (which serves as a military and civilian base for China United Airlines (CUL) in the southern Fengtai district) will be closed. China United Airlines (CUL), a wholly owned subsidiary of China Eastern Airlines (CEA), is also expected to move to the new airport.

The new airport, which has been in the planning stage for years, will shoulder part of the traffic at Beijing Capital Airport. Last year, Beijing Capital handled 80 million passengers, exceeding its planned capacity of 76 million passengers by 2015. The planned capacity for the Beijing Daxing airport is 70 million passengers a year, but will initially handle 45 million passengers a year after the first stage is completed.

Hainan Airlines (HNA) parent, the (HNA) Group is planning to launch Urumqi Airlines (UMQ), in conjunction with the Urumqi municipal government. The new subsidiary will further explore the market potential in West China.

The new venture will be launched based on the assets of Hainan Airlines (HNA) Xinjiang Branch Company (XIJ), which is the second biggest carrier in the Xinjiang Uygur Autonomous Region, following China Southern Airlines (GUN).

According to an industry insider, Haikou-based, Hainan Airlines (HNA) is expected to be the controlling stakeholder, but the ownership ratio has not yet been determined.

(HNA) President, Wang Yingming said the new subsidiary is expected to operate not only on regional routes in the Xinjiang Uygur Autonomous Region, but would open new routes to Middle Asia and Europe from Urumqi. It is also planning to launch an Initial Public Offering (IPO) “at the appropriate time.”

The new entity is expected to face fierce competition from China Southern Airlines (GUN), which plans to build Urumqi as its key hub in West China and open more new international routes to the Middle Asia, West Asia and Europe from the Xinjiang Uygur Autonomous Region.

It has become a growing trend for domestic carriers to strengthen their cooperation with local governments.

Hainan Airlines (HNA) has launched Capital Airlines (DER), in conjunction with the Beijing government; West Air (CHO) with the Chongqing government; Lucky Air (LKY) with the Yunnan government; and Tianjin Airlines (GCR) with the Tianjin government.

Additionally, Hainan Airlines (HNA) plans to invest more than >CNY1billion/+$159 million to establish Fuzhou Airlines (FZO) in conjunction with the Fuzhou provincial government.

Chinese carriers have accelerated the pace of their international expansion plans to offset the impact of the fast-growing high-speed rail.

Air China (BEJ) said it will open three international routes over the next few months. The routes comprise Beijing - Geneva to launch May 7, Chengdu - Frankfurt to begin May 19, and Beijing - Houston to open July 11.

In April, China Eastern Airlines (CEA) is scheduled to resume its Shanghai - San Francisco service, which was suspended in 2000. Hainan Airlines (HNA) will open two new Beijing - Chicago routes in September.

Chinese carriers reported a net loss of -CNY1 billion/-$158.9 million in January, reversed from a net profit of +CNY1.7 billion in the year-ago period. Ping An Securities Aviation Analyst, Sun Chao cited “the impact of domestic high-speed rail” as one of the main reasons for the reversal. As a result, the Civil Aviation Administration of China (CAAC) said it would encourage more Chinese carriers to open more international routes to optimize their route network, improving global competitiveness.

March 2013: Hainan Airlines (HNA) parent, the (HNA) Group is planning to launch Heilongjiang Airlines in conjunction with the Heilongjiang provincial government.

The new subsidiary will further explore the market potential in Northeastern China. No details about ownership ratio have been released, but it is widely speculated that (HNA) would be the controlling stakeholder. The owners have not decided whether to launch this new venture as a regional carrier, a trunk carrier or a business aviation company.

The new entity is expected to face fierce competition from China Southern Airlines (GUN), which has a strong presence with its Shenyang-based Northern branch company in Northeastern China.

It has become a growing trend for domestic carriers to strengthen their cooperation with local governments.

Hainan Airlines (HNA) last month announced it will launch Urumqi Airlines (UMQ) with the Urumqi municipal government. It has also launched Capital Airlines (DER) with the Beijing government; West Air (CHO) with the Chongqing government; Lucky Air (LKY) with the Yunnan government; Tianjin Airlines (GCR) with the Tianjin government; and Fuzhou Airlines (FZO) with the Fuzhou provincial government.

The Chinese government has increased airport charges for domestic carriers. Effective April 1, domestic airlines will pay the same fees as foreign carriers on international routes. Currently, domestic airlines pay -40% less in airport charges to operate international routes than their foreign counterparts.

Air China (BEJ) is expected to be hit the hardest. (BEJ) is expecting its annual operating costs to rise from CNY800 million/$127 million to CNY1 billion. (BEJ) operates half its flights on international routes.

China Eastern Airlines (CEA) and China Southern Airlines (GUN) are also expecting their operating expenses to rise as both carriers operate 30% of their flights on international routes.

April 2013: Shanghai Pudong expects its fourth runway to be completed at the end of 2013 but new slots are unlikely to be available until some point in 2014. It is not clear (not even to Chinese carriers) how many new slots will be available, but an early estimate of 242 additional movements (121 round trips) between 7 to 22 each day could be possible. A more deciding factor will be how much additional airspace is opened by China's military for the runway.

The majority of the new slots at Shanghai Pudong Airport (and even upwards of 75%) will likely be allocated to China's domestic carriers. China Eastern (CEA), based at Shanghai, will have to battle Air China (BEJ), which is based at Beijing but looking to establish a hub at Shanghai. As the national flag carrier, Air China (BEJ) and its lobbying network may do well. Private carriers Juneyao (JYA) and Spring Airlines (CQH) will also look to expand their home bases.

A number of carriers, including low cost carriers (LCC)s, will seek to move midnight services to daylight hours, while any number of foreign carriers will seek to expand their presence or enter Shanghai for the first time. Strategic allocation will help Pudong, but the decision will be heavy, almost entirely, political.

The use of head-up displays (HUDs) in Chinese commercial airplanes has made a key advance in China with the decision by one of the country’s three biggest airlines, China Eastern (CEA), to introduce the technology into its narrow body airplanes.

With the Civil Aviation Administration of China (CAAC) (CAC) targeting near-universal use of (HUD)s by 2025, (CEA) has ordered Rockwell Collins (HUD)s for 58 737s, with deliveries due from mid-2013 to 2015.

Okay Airways (OKA), a much smaller carrier, has ordered the same equipment for 10 737s, with similar delivery dates to (CEA)’s.

(HUD)s are becoming steadily more common in commercial aviation globally because they increase safety and landing opportunities in bad weather by keeping pilots (FC)’s attention outside of the airplane, and they also can help guide the landing. But the (CAAC)’s policy is making manufacturers optimistic that the Chinese market will mature early.

Thales (THL) and Rockwell Collins are well positioned as the suppliers for the A320 family and the 737, respectively.

The Chinese market alone is considerable. Rockwell Collins, for example, says its (HUD), the Head-up Guidance System (HGS), has a catalog price of about $350,000 per set. On that basis, the two contracts announced on April 2 are worth about $24 million, before discounts.

Shandong Airlines (SHG) appears to have been the first Chinese carrier to begin using (HUD)s. It ordered the (HGS) for 737s around the middle of last decade, says Rockwell Collins Commercial Systems in China.

China Southern (GUN) ordered its five A380s with Thales (THL) (HUD)s. Xiamen Airlines (XIA) uses Rockwell Collins (HUD)s on its 737s.

May 2013: Lucky Air (LKY), one of the many airline affiliates of the privately-owned (HNA) Group, has applied to China's aviation regulator (CAAC) for permission to expand its business licence from domestic services only, to include regional flights to Hong Kong, Taiwan, and Macau. Expansion to "regional" markets in greater China is usually the first step for Chinese carriers to eventually open international markets.

Kunming, the capital of Yunnan province in southern China, is already linked to Hong Kong and Taiwan but not Macau. Kunming - Hong Kong is served by Hong Kong Airlines (CRY), also affiliated with (HNA). Hong Kong sees the most international seats from Kunming, while Taipei is the sixth-most popular international route.

Siberia - China seat capacity grew 202% between 2003 and 2012 and China's northern City of Harbin is now jockeying to become a network hub for Siberia. The airport accounts for 15% of Siberia - China capacity, far less than the largest Chinese airport, Beijing, 1000 km to its southeast. Harbin offers geographical advantages to Siberian cities in the far east while Beijing can serve those with some circuitry as well as western Siberian cities. Urumqi in China's far west could also be a hub for Siberia, supporting China Southern's development of Urumqi as a West Asia/(CIS) hub.

The motivation is simple. Siberia's 40 million population has proven an increasingly important trade relationship for China – so much so that in the economic turmoil of 2009, Siberia was the only part of Russia to maintain a positive investment trend. China is tapping Siberia for resources ranging from wood to oil and, increasingly, hydroelectricity from Siberia's numerous rivers. Russia's largest private energy company forecasts Siberia's (GDP) could triple in 15 years.

The Civil Aviation Administration of China (CAAC) has issued a Flight Simulation Device Certificate for Baltic Aviation Academy’s Airbus A320 Full Flight Simulator (FFS). Air China (BEJ) is considered to be the first Chinese client to attend the training center.

The Baltic Aviation Academy (CEO), Egle Vaitkeviciute said, “Being approved by the (CAAC), Baltic Aviation Academy is enabled to enter the China’s market as the reliable aviation training provider. We are very keen to start business development in this market and hopefully be a part of pilot (FC) shortage problem solution.”

According to (CAAC) data, in 2010, there were 24,000 pilots (FC) in China. The (CAAC) forecasts show that by the year 2015, the numbers should reach 40,000. This substantial growth confirms that an average of 3,200 new pilots (FC) is needed every year; however, existing flight training schools are currently only producing 2,000 new pilots (FC) a year.

The Civil Aviation Administration of China (CAAC) has granted an airworthiness certificate for the Boeing 787, clearing the way for China Southern Airlines (GUN) to take delivery of its first 787 at the end of May or early June.

June 2013: This month, China Southern (GUN) became the first Chinese airline to take delivery of the game-changing 787 airplane which will be used as part of its international expansion plans.

(GUN) has 10 787 Dreamliners on order. According to (CEO), Tan Wangeng, the rest of the airplane order will be delivered by the end of next year. Tan noted the (GUN)’s first 787 will be initially operated on its Beijing - Guangzhou route beginning June 6. Later, it will be used on long-haul routes to Paris, Vancouver, London, and Auckland.

(GUN) is the tenth customer worldwide to take delivery of the 787, which was granted an airworthiness certificate from the Civil Aviation Administration of China (CAAC) in May.

In recent years, (GUN) has accelerated its international expansion pace, especially on its Canton route between Australasia and major European gateway cities, as part of an overall strategy to grow its international network and attract more business (C) travelers.

Air China (BEJ) has 15 787s on order, Hainan Airlines (HNA) has ordered 10 787s and Xiamen Airlines (XIA) has six of the type on order.

Hainan Airlines (HNA) is scheduled to introduce its first 787 at the end of June, while Xiamen Airlines (XIA) is expected to take delivery of its first 787 in July 2014; the rest of the airplanes will be introduced between 2014 and 2015. Xiamen (XIA) plans to operate its 787 Dreamliners to open more international routes to Europe and the USA.

July 2013: Chinese carriers reported a collective net income of +CNY4 billion/+$647 million in the first half of the year, down -23% compared to CNY5.2 billion year-over-year. Revenue increased +0.8% to CNY183.5 billion, while operating expenses climbed +5.3% to CNY154.2.

CDI Cargo Airlines (CDC) has applied to the Civil Aviation Administration of China (CAAC) (CAC) to transport passengers to meet growing demand. The cargo carrier, which is expected to receive approval, has been renamed China Loong Airlines

China Southern Airlines (GUN) will launch international 787-8 operations with Guangzhou to Auckland International, New Zealand set to début from December 4. Despite having taken delivery of two 787 Dreamliners thus far, owing to restrictions placed on new airplane types operating on the Chinese registry by the Civil Aviation Administration of China (CAAC) (CAC), the 787 is presently only allowed to operate on domestic Chinese flights between Beijing Capital, Guangzhou, and Shanghai Hongqiao.

SEE ATTACHED - - "CAC-2013-07 - 787-8."

The Civil Aviation Administration of China (CAAC) is planning to adopt a policy of encouraging domestic low-cost carrier (LCC) growth to fend off increased competition from the high-speed rail and foreign (LCC)s that are flooding the Chinese travel scene.

The Civil Aviation Administration of China (CAAC) announced on its website that it has given the green light to the establishment of Qingdao Airlines. The move follows the recent revision of new airline registration rules, making it easier for new carriers to be established. The (CAAC) suspended all new airline applications in 2007, and reinforced the ruling following the crash of a Henan Airways passenger airplane in 2010.

The revised rules however, mean that the Nanshan Group, which is based close to Qingdao in Shandong province, can proceed with plans for the creation of Qingdao Airlines. The new carrier will be based at Qingdao’s Liuting International Airport, and will initially operate a fleet of Airbus A320 jets on domestic routes. The Nanshan Group will inject CNY550 million/US$89 million into the new airline, with a further CNY250 million to be injected by Qingdao Transportation Development Group. Air China (BEJ)’s subsidiary, Shandong Airlines (SHG), will supply Qingdao Airlines with CNY200 million worth of airplanes.

The creation of Qingdao Airlines would mark the second new airline launch since the (CAAC) lifted the suspension on the creation of new airlines, following the approval of Yunnan-based, Ruili Airlines on May 6th 2013.

August 2013: Chinese carriers have reported a collective net profit of +CNY5.2 billion/+$843 million in July, down -19% over a net income of +CNY6.4 billion in the year-ago period.

Lion Air (MLI) and Garuda Indonesia (GIA) have helped Indonesia to replace China as the fastest growing Asian air travel market. The latest edition of Boeing (TBC)’s annually updated "Current Market Outlook" (2013 - 2032) predicts that demand (as measured by Revenue Passenger Kilometers (RPK)s in the Asia-Pacific region will grow by an average of +6.3% per annum during the next 20 years, and that by 2032 the region’s airlines will account for over one-third of the world’s fleet of commercial airplanes, up from around 24% at present.

Last year when one looked at what was happening to Asia’s leading airlines, airports and country markets, the analysis was dominated by China’s growth, which far exceeded that of the rest of Asia. So what has changed 12 months on?

Using schedule data provided by the airlines to "Innovata," a comparison has been made between the months of August 2012 and August 2013, for all the airports designated as being in Asia. Since last year, the biggest change has been that the airlines comprising the AirAsia (ASW) group, have passed Japan Airlines (JAL)/(JAS) to break into the top 5 in the region. Hainan Airlines (HNA) and Shenzhen Airlines (SHZ), both moved up a place in the top 10, as Korean Air (KAL) dropped two places to number 10.

Of the top 30 airlines, just three (Korean Air (KAL), Cathay Pacific (CAT) and Shanghai Airlines (SHA)) have reported a drop in monthly seat capacity. New entrants in the top 30, are Tianjin Airlines (GCR) (at number 28), and Beijing Capital Airlines (DER) (at number 30). They replace Philippine Airlines (PAL) and Spring Airlines (CQH). Tianjin Airlines (GCR) is also the fastest-growing in the top 30, reporting an increase in monthly seat capacity of just over >+42%.

SEE ATTACHED - - "CAC-2013-08 - TOP 30 AIRLINES IN ASIA BY ASK."

After the recent problems in the Indian market, it is good to see both Jet Airways (JPL) (+4.3%), and Air India (AIN)/(IND) (+13.0%) growing once again, joining IndiGo (IGO) (+19.1%) and SpiceJet (ROJ) (+14.4%), as the Indian market appears to be regaining some growth momentum. It is worth noting that although all of the top 30 airlines are, not surprisingly, based in the region, Dubai-based Emirates (EAD) ranks only just outside the top 30, in 33rd place.

In 2012 China’s airports handled just over >680 million passengers, +9.5% more than in 2011. (CAAC) (CAC) data for the first half of 2013 indicates that Chinese airlines have carried around +11% more passengers than in the same period in 2012. Capacity growth at Chinese airports in August of this year is just over >+12%. Whereas last year, China’s capacity growth was higher than for any other country in the top 12, this year it ranks only fifth by that measure, behind Indonesia, Malaysia, Vietnam, and Thailand. Indonesia’s rapid growth has enabled it to move up to third place, pushing India down to fourth. Malaysia has benefited from the arrival of Lion Air (MLI)’s Malaysian partner airline, Malindo Air (MXD), which launched services this year.

SEE ATTACHED - - "CAC-2013-08 - TOP 12 ASIAN SUMMER MARKETS."

Japan and India both report growth of between +8% and +9%, while South Korea (+1.5%) and Taiwan (+0.6%) are the slowest growing major Asian country markets.

Asia’s top 30 airports account for around 53% of all scheduled seat capacity across Asia, but although capacity was up +8.6% at these airports, capacity across all other airports combined was up almost double, at +15.0%. Among the top 10 airports, Beijing (PEK)’s capacity is up less than <+2%, while seat capacity at Bangkok’s main airport is down just over -2%, as a number of carriers have been allowed to transfer flights back to Bangkok’s older Don Mueang airport. Jakarta’s rapid growth (+20%) has seen it move past Hong Kong into third place.

The two fastest-growing airports in the top 30 are Kunming in China (+43.7%), and Surabaya in Indonesia (+37.9%), which is also the only new entry in the rankings, replacing Urumqi in China. India only has two airports in the top 30 (compared with 11 for China and six for Japan), but both Delhi (+8.5%) and Mumbai (+12.2%) are once again growing.

SEE ATTACHED - - "CAC-2013-08 - TOP 30 ASIA AIRPORTS."

The Chinese air force appears to have had enough of being held responsible for the country's notorious flight delays, or it is at least trying to shift the blame. The largest cause of flight delays is poor airline management, not the air force, according to statistics issued through official media by “relevant departments.” And, contrary to common belief, civil aviation has plenty of air space, says a report by the "China News Service," a state news agency. The lack of clear attribution in the report and its implication that the air force is not to blame for the country's increasingly unreliable air services both point to military authorship.

With poor airline timekeeping now a cause of popular discontent, it is not surprising that the air force is ducking for cover. Figures compiled by flight data provider FlightStats and widely published in China last month, only confirmed what most Chinese frequent travelers could have guessed: of 35 major airports in the global survey, Beijing Capital International Airport had the most delays; Shanghai Pudong was the second-worst. Only 18% of flights at Beijing in the first half of this year left within 15 minutes of their scheduled departure time, while Shanghai managed 29%.

Admittedly, those two cities are China's largest, with the most congested airspace. But across the nation, only 76% of flights were on time in 2012, the worst performance in five years, says the Civil Aviation Administration of China (CAAC). For an authoritarian government obsessed with social stability, an alarming aspect of this is the frequency of disorderly confrontations between furious passengers and airport and airline staff, some verging on riots. Such disturbances seem increasingly common, although they are an old tradition in Chinese commercial aviation. (One night in 2006, this reporter spent extra hours on an already late airplane when passengers refused to take their seats for takeoff; they demanded an explanation and apology for the delay from a suitably high airline official. Toward dawn, they got the apology; no one ever had an explanation.)

Airline management causes 42.3% of Chinese flight delays, say the “relevant departments” quoted by the "China News Service," while the volume of air traffic is responsible for 26.1%. The implication is that if airspace matched the traffic demands, there would be fewer delays, but still plenty, because the airlines could not prepare their airplanes to leave the gate in time. No details of airline ineptitude were offered.

Bad weather is blamed for 20.9% of delays, air force activities (exercises, presumably) for 7%, and airport security for 3.7%.

The (CAAC) last month declared it would punish airlines whose flights were delayed when others from the same airport operated on time. It has made such threats before, but in a new policy it has named eight major airports as being immune from flow-control directives by other airports. According to the new rule, if an airplane is ready to go from one of the big airports, the destination must accept it, weather and air force exercises permitting. Officials say the idea is to prevent the smaller airports from favoring “certain” carriers, probably meaning those that are locally based, and above all to ensure that passengers are not trapped in airplanes that cannot take off.

The destination airport can still keep the airplane waiting in the air when it arrives, however. The (CAAC) seems to calculate that passengers will be more patient circling near their destination than sitting in a stationary airplane. Accordingly, airlines are loading more fuel, say local media. Yet even if destination airports allow prompt landings, the effect of the rule will surely be only to give priority to flights from the big airports, delaying other flights instead; it does not create capacity.

The abysmal schedule performance by Chinese civil aviation is most commonly blamed on conservative airplane separation rules combined with inadequate airspace allocation by the air force, which ultimately controls China's skies. But all airspace is in fact available for military and civil use, says the "China News Service," again evidently reporting what the air force wants. The space that is more or less permanently allocated to civil use is 34% of the country's total, it says, while the air force gets just 25% and there is little flying in the rest.

Much of the unused airspace is probably in China's vast and sparsely populated western zone. The calculation of the share enjoyed by civil aviation may be affected by new allocations of low-altitude space to general aviation.

The air transportation system is under great pressure from traffic growth, the "China News Service" points out, with airplane movements rising +29% at Beijing Capital over the past five years, +36% at Shanghai Pudong, and +33% at Guangzhou Baiyun.

Nantong-based regional, Sutong Airlines is scheduled to launch in 2014, according to the Jiangsu provincial government.

Twenty-one Chinese carriers are expected to receive CNY433 million/$70.2 million in subsidies to operate regional routes, according to the Civil Aviation Administration of China (CAAC) (CAC).

September 2013: Spring Airlines (CQH) has applied to launch a low-cost carrier (LCC) in Japan, becoming the first Chinese carrier to set up a joint venture (JV) outside of China.

During its 199th Session, the (ICAO) Council endorsed a recommendation from the Secretary General to establish a Regional Sub-Office (RSO) for the Asia-Pacific Region in Beijing, China. Ms Nancy Graham, Director of the (ICAO) Air Navigation Bureau announced that the office is now ‘open for business.’

According to (ICAO), based on Passenger Kilometers Performed (PKP), the Asia-Pacific Region is the largest market, carrying 30% of world traffic. Last year, the airlines of this region posted a +6.4% increase over 2011. (ICAO) therefore felt it necessary to create a more effective presence in the region. The office is now operational and strategically located in Beijing, China where the domestic market has increased by +10.3% over 2011.

The new (RSO) will operate on a project-oriented basis, focusing on three key success criteria, namely:

* Improve safety and efficiency of flight operations through innovative procedures.

* Enhance airspace capacity and efficiency to accommodate Asian aviation growth.

* Optimize Air Traffic Management (ATM) operations via collaborative management of traffic flow.

Ms Graham remarked, “(ICAO), working closely with (IATA), (ACI) and (CANSO), established this common success criteria that is in the best interests of aviation and important for all”.

Key focus areas in projects planned in the short-term, some of which are already underway, are Performance Based Navigation (PBN) procedures for high-density airports in the region, and across (ATS) continental and oceanic routes with clear targets. Flexible Use of Airspace (FUA) as a cooperative mechanism between civil and military authorities has been conceptualised and 50% of States that have military airspace are to establish conditional (ATS) routes that go through military airspace by 4th quarter 2015. An Air Traffic Flow Management (ATFM)/Collaborative decision-making (CDM) unit under the (RSO) will develop a regional framework for collaborative management of traffic flows between (ATS) Units. 50% of the area centers and aerodromes serving high density traffic are targeted to implement (ATFM) with (CDM) during 2015.

(CANSO) Regional Director for the Asia-Pacific Region, Mr Hai Eng Chiang welcomed the move, adding that the (RSO) would provide additional resources and greater focus on the priority areas for (ATM) in the region.

Airbus (EDS) on September 4th announced a new agreement with China's Air Traffic Management Bureau (ATMB) to begin modernizing the nation's air traffic system. The Civil Aviation Administration of China (CAAC) (CAC) authorized the new partnership, which calls for Airbus "ProSky" (the air traffic management (ATM) subsidiary of Airbus) to focus on launching four projects this year, including; air traffic flow management, airport collaborative decision making, implementation of Required Navigation Performance Authorization Required (RNP AR) approaches at Chengdu Airport and Instrument Landing Systems (ILS) at Beijing Capital Airport.

The (CAAC) is looking to improve the air traffic management (ATM) practices of one of the most delayed air transportation systems in the world. According to flight data provider FlightStats, just 18% of flights from Beijing Capital Airport took off on time for the month of June, and the second most delayed airport in the same month was Shanghai.

According to the (CAAC), Chinese airlines handled 319 million passengers in 2012, a +9.2% rise from 2011. The (CAAC) attributed 26% of delays last year to air-traffic management (ATM), thus leading to the need for the new partnership with Airbus (EDS).

"The cooperation will help us draw on the experience of other regions to develop our future ATM systems, which will be more integrated with global systems," said Wang Liya, Director General of (CAAC) (ATMB).

According to the International Air Transportation Association (IATA), China is expected to lead the global increase in passenger demand on domestic routes through 2016 with an additional 193 million passengers projected to travel domestically on Chinese carriers over the next three years.

Hard on the heels of its memorandum of understanding (MOU) to help modernize China’s air traffic management (ATM) system, Airbus (EDS) has signed another (MOU) to extend its cooperation in aviation safety with the Civil Aviation Administration of China (CAAC) for a further five years.

Airbus (EDS) began the first day of the Aviation Expo China 2013 securing commitments and orders from several Asia Pacific region carriers for up to 168 A320 family airplanes worth $15.3 billion based on current list prices.

(BOC) Aviation (SIL), the Singapore-based airplane leasing subsidiary of Bank of China, signed a firm order to purchase 13 A320ceo and 12 A320neo airplanes. The order comes less than a year after (BOC) Aviation signed a purchase agreement for 50 A320 family airplanes.

Eastern Chinese carrier, Qingdao Airlines signed a firm order for 25 A320 family airplanes, including five A320ceos and 18 A320neos. Delivery of the new airplanes is scheduled to begin in 2016. Qingdao will begin operating in 2014 with a fleet of leased A320 airplanes.

Zhejiang Loong Airlines, another East Chinese carrier, signed a (MOU) for 20 A320 family airplanes, including 11 A320 ceo and nine A320neo. The airline will begin operating regional flights later this year, with plans to expand into international routes by 2016, according to Airbus (EDS).

The orders came a day after Airbus (EDS) increased its 20-year global market forecast, projecting the world's fleet of commercial airplanes would double by 2032, led by increased demand from Asia Pacific region carriers.

October 2013: Chinese carriers reported a collective net profit of +CNY3.2 billion/+$522 million in September, up +43% compared to a net income of +CNY2.24 billion in the year-ago period.

China Eastern Airlines (CEA) and Air China (BEJ) experienced a profit decline for the first nine months of the year. Industry analysts said the profit drop was due to reduced domestic market demand (especially in the premium market resulting from the slowdown of China’s economic growth), fierce competition from the domestic high-speed rail, and reduced air fares.

Spring Airlines (CQH) is expected to become the first Chinese low-cost carrier (LCC) to operate flights between China’s mainland and Taiwan.

Boeing (TBC) recently completed the first Required Navigation Performance Authorization Required (RNP AR) demonstration flights at Kanas Airport in China, as (TBC) looks to assist airlines flying in low visibility conditions in the region.

Kanas Airport is located in the Altay Mountains region of China, an area where weather conditions often lead to flights diverted to other airports or cancelled altogether. Boeing (TBC) and China Southern Airlines (GUN) conducted demonstration (RNP AR) flights using a Next-Generation 737 passenger jet.

(RNP AR) uses on board avionics and Global Navigation Satellite Systems (GNSS) to allow pilots (FC) to fly predefined flight paths with no assistance from ground-based navigational aids. The curved approach paths enabled by (RNP AR) allows airplanes to avoid difficult terrain and complete landings in low visibility conditions.

Chuck Steigerwald, manager of Boeing Airspace Solutions said the procedures will help airlines flying into Kanas Airport to "enhance safety and improve their bottom line efficiency."

China Southern (GUN) is seeking Civil Aviation Administration of China (CAAC) approval of the new procedures, which will be the first (RNP AR) procedures in China to use (RNP) levels of less than <0.2 nautical miles.

The Boeing Company (TBC) has secured commitments for around 200 of its 737 Max airplanes, the upgraded variant of its best-selling short-haul planes, from multiple Chinese customers, said two sources familiar with the deals.

The deals are worth a combined $20.7 billion at list prices and must be approved by the Chinese government, a usual practice for airplane orders in the country, before the customers can be identified, the sources said.

These are the first commitments for the 737 Max from China, the world’s fastest-growing airline market. Officials from both (TBC) and Airbus (EDS), which makes the A320 that competes with the 737, have said China is likely to overtake the United States as the world’s largest market over the next 20 years.

The commitments come from a range of customers including state-owned airlines via the national procurement agency, China Aviation Supplies Holding Company (CSC), as well as leasing firms associated with the country’s banks, the sources said.

November 2013: Juneyao Airlines (JYA) is planning to launch a Guangzhou-based low-cost carrier (LCC) (initially to be named Jiuyuan Airlines) to tap into the labor market in the Pearl River Delta region.

December 2013: Air China ( (IATA) Code: CA, based at Beijing Capital) (BEJ), China Eastern Airlines ((IATA) Code: MU, based at Shanghai Hongqiao) (CEA), China Southern Airlines ((IATA) Code: CZ, based at Guangzhou) (GUN) and Hainan Airlines ((IATA) Code: HU, based at Haikou) (HNA) will be the biggest beneficiaries of CNY 912 million/USD 150 million in subsidies the Civil Aviation Administration of China (CAC) will disburse to local carriers in 2014. (WCARN) says the subsidies on offer for 2014 are more than double those for 2013 and will be used to develop domestic aviation. China Eastern (CEA) received the biggest subsidy of CNY 211 million, followed by China Southern (GUN) (CNY 198 million) and Air China (BEJ) (CNY 62.1 million). Hainan Airlines (HNA) has been allocated CNY 7.8 million, while its subsidiaries, among them Tianjin Airlines ((IATA) Code: GS, based at Tianjin) (GCR), the country’s biggest regional carrier, and Capital Airlines (China) ((IATA) Code: JD, based at Beijing Capital) (DER), have secured a total of CNY 200 million in funding. Smaller carriers, such as Sichuan Airlines ((IATA) Code: 3U, based at Chengdu) (SIC), Okay Airways ((IATA) Code: BK, based at Tianjin) (OKA) and Tibet Airlines ((IATA) Code: TV, based at Lhasa) (TBZ), were allocated over >CNY 10 million each.

Effective December 1st, civil operations flown by home-based pilots (FC) will only need the approval of the Civil Aviation Authority of China (CAAC), meaning consent will take just hours, rather than days.

Ed Bolen, (CEO) of the National Business Aviation Association, which supports the recent announcement, said: "This development is the latest in a series of encouraging signs that China is committed to the industry's growth." He believes the move will open up China's aviation industry. "We hope to see further easing of flight restrictions on general aviation (GA) operations, as the government gains comfort with the industry and becomes more aware of its future growth potential."

Speaking at an industry conference, Tan Wangeng, (CEO) of China Southern (GUN) explained that China's passenger volume rose +9% last year to 320 million. Yet, each Chinese citizen took just 0.22 flights on average; this compares with Europeans and Americans who took on average two to three. "There is an unimaginable potential for the Chinese market with a population of 1.3 billion," Wangeng said.

The decision represents a major change for China. However, some areas such as borders and military zones will continue to be controlled by the People's Liberation Army. It also came with another decision that seems to have taken China back a few steps.
Recently, the country also declared a new 'air defence identification zone', which includes islands in the East China Sea that already fall within Japan's remit. China said airplanes flying through the airspace must identify themselves and obey China's rules or the military will view them as hostile.

Japan, Taiwan, South Korean, the Philippines and the USA are strongly opposed to China's new air zone. Indeed, the USA sent two B-52 airplanes into the disputed airspace in what was widely considered a statement by the USA that it does not recognize China's new rules.

In a press briefing, The Department of Foreign Affairs' spokesman, Raul Hernandez, said: "Its deployment does not contribute to regional stability... Instead, [it] serves to threaten the status quo."

China Southern Airlines (GUN) plans to establish a branch company in Yunnan province to further explore the tourism market in West China. It is awaiting approval from the Civil Aviation Administration of China (CAAC) (CAC).

Currently, (GUN) has allocated three to four airplanes in the Yunnan province capital of Kunming. (GUN) launched A380 operations on its Kunming - Beijing route in July.

Other domestic carriers are also exploring the Yunnan market. Xiamen Airlines (XIA) set up an overnight base in Kunming in July and distributed one 737-800 to Kunming airport. Hainan Airlines (HNA) subsidiary, Beijing Capital Airlines (DER) has opened several new routes from Kunming and Lijiang (in the Yunnan province) and has allocated two airplanes to Lijiang airport. Hainan (HNA)’s other subsidiary, Kunming-based Lucky Air (LKY), has boosted capacity to Yunnan by opening new routes and increasing flight frequencies. China Eastern Airlines (CEA), which has a major share of the Yunnan market, has also increased capacity to Yunnan by allocating nine more airplanes to its Yunnan branch company this year to open more than >10 new routes and add frequencies.

In May, Kunming-based, Ruili Airlines received (CAAC) approval and is preparing to launch operations.

Most domestic carriers in Yunnan (one of the most popular tourist destinations in China) are suffering from operating losses owing to fierce competition and price wars as they must reduce fares to attract leisure travelers.

Hainan Airlines (HNA) parent, the (HNA) Group has received approval from the Civil Aviation Administration of China (CAAC) (CAC)to launch Urumqi Airlines in an effort to enhance its position in West China. The new venture is expected to launch based on the assets of Hainan Airlines (HNA) Xinjiang Branch Company, which is the second biggest carrier in the Xinjiang Uygur Autonomous Region, following China Southern Airlines (GUN).

The Urumqi-based carrier has a registered capital of CNY3 billion/$490 million, in which Hainan Airlines (HNA) would make an investment of CNY2.1 billion to hold a 70% stake.

Hainan Airlines (HNA) President, Wang Yingming said earlier this year the new subsidiary is expected to operate not only on regional routes in the Xinjiang Uygur Autonomous Region, but would open new routes to Middle Asia and Europe from Urumqi. The (CAAC) had previously granted preliminary approval for the new carrier to operate passenger and cargo services, both domestically and internationally, with a fleet of Boeing 737s.

It has become a growing trend for domestic carriers to strengthen their cooperation with local governments. Hainan Airlines (HNA) has launched Beijing Capital Airlines (DER), in conjunction with the Beijing government; West Air (CHO) with the Chongqing government; Lucky Air (LKY) with the Yunnan government; and Tianjin Airlines (GER) with the Tianjin government.

Additionally, Hainan Airlines (HNA) plans to establish Fuzhou Airlines, Guangxi Airlines (GUX), Heilongjiang Airlines and Chang’an Airlines (CGN) with different local governments.

As Chinese domestic carriers partner with local governments, they seek cash support and favorable policies in terms of tax, Heilongjiang Airlines and Chang’an Airlines landing fees, ground handling fees and land resources. Local governments hope to stimulate economic growth by launching the airlines.

Yuantong Express, one of China’s largest express delivery companies, has applied to the Civil Aviation Administration of China (CAAC) to launch a cargo carrier. Yuantong Express currently relies on domestic carriers’ charter flights and ground transport for its deliveries, but it has become increasingly necessary for the company to establish its own cargo carrier to meet the fast-growing express delivery market demands.

Yuantong Express operates four charter airplanes leased from domestic carriers and plans to expand to six next year. The company expects the cargo carrier to begin formal operations at the end of next year with three Boeing 737s, although it would continue to operate charter cargo service.

Shunfeng Express and (EMS) have set up their own cargo carriers in China. Industry analysts point out it that Chinese express delivery companies should launch their own cargo carriers to improve logistics efficiency although they require a large investment.

China’s Nantong Tongzhou Bay Aviation Industry has signed a letter of intent (LOI) to acquire 30 firm Bombardier (BMB) DHC-8-Q400 airplanes, as it prepares to launch commercial airline operations in China through an airline to be named Sutong Airlines. The value of the deal is approximately $995 million based on current list prices.

The Nantong, Jiangsu-based carrier plans to operate an all-Bombardier (BMB) fleet of DHC-8-Q400 airplanes when it starts operations in 2015.
“With its regional aviation model set to revolutionize air service in Jiangsu, one of China’s most affluent and fast-growing provinces, Sutong Airlines will not only make traveling increasingly convenient for the people of Jiangsu, but will also bring tremendous economic benefits to the economies and communities of the province,” Nantong Tongzhou Bay Aviation President, Zhou Binzhen said.

Bombardier Commercial Aircraft President, Mike Arcamone said the manufacturer is “pleased to support China's five-year plan that calls for the expansion of regional airlines to allow ease of movement within China.”

As of September 30, Bombardier (BMB) said it had booked 476 firm orders for DHC-8-Q400 and DHC-8-Q400 NextGen turboprops.

China Eastern Airlines (CEA) plans to convert its subsidiary, China United Airlines (CUL) into a low-cost carrier (LCC). The transformation should be completed next year.

China United (CUL) was launched in 2004; its main operating base (Beijing Nanyuan Airport) is a former military airport. Last year, (CEA) relaunched China United Airlines (CUL) by consolidating it with the Hebei Branch Company to be better positioned in the North China market.

China Eastern (CEA) also plans to set up two operating bases for China United (CUL) in Foshan (Guangdong Province) and a city in West China, in addition to Beijing Nanyuan.

China United (CUL) operates a single fleet of 25 Boeing 737s and plans to introduce two more airplanes in 2014. It is scheduled to expand its fleet to 50 airplanes by 2015. The subsidiary operates more than >50 domestic routes; passenger boardings are expected to exceed >5 million this year, up +43% compared to 3.5 million last year.

More and more (LCC)s are springing up in China after the Civil Aviation Administration of China (CAAC) (CAC) adopted more favorable policies to lower standards and simply procedures to take advantage of China’s domestic market potential and continuous economic growth.

(CEA)’s joint venture (JV), Jetstar Hong Kong, has not yet received approval from Hong Kong’s aviation regulator.

Panasonic Avionics and China Telecom Satellite Communications signed a firm agreement to jointly support in-flight connectivity for domestic and international airlines flying over Chinese airspace.

The firm agreement follows a Memorandum of Understanding (MOU) signed between the two companies in July. Under the terms of the agreement, China Telecom will operate a Beijing-based teleport to provide Panasonic's aeronautical broadband service for all 39 of the Lake Forest, California company's airlines and new airlines based in China or abroad that seek connectivity in the region's airspace.

According to Panasonic, the teleport is ready to launch the Ku-band service commercially as both companies await final approval of the partnership and service from China's Ministry of Industry and Information Technology (MIIT).

"Over the past six months since we announced the (MOU) with China Telecom Satellite, we have made great progress and now have completed the cooperation agreement. Now we are collectively ready to begin this very important service to our airline customers and their passengers," said Paul Margis, (CEO) of Panasonic Avionics.

The service is expected to launch immediately following all necessary regulatory approvals.

China’s Zhejiang Loong Airlines has ordered 20 Airbus (EDS) planes of the A320 series, firming up a deal made in September. The carrier, which is based in Hangzhou, east China, had been given the green light for the transport of passengers, when it signed the Memorandum of Understanding (MOU) with Airbus (EDS) at the 15th Aviation Expo China 2013 in Beijing.

Zhejiang Loong Airlines’ order concerns 11 A320ceo and nine A320neo airplanes. Zhejiang Loong Airlines “made its first commercial flight with a leased A320, thereby becoming a new Airbus user.” The carrier is “determined to contribute to the economic and social development of Zhejiang province offering efficient transport services,” Airbus quoted company chief, Liu Qihong as saying. The airline plans to offer services within a range of four hours around Hangzhou.

January 2014: The (CAAC) Southeast Regional Administration has granted a green light for Hainan Airlines (HNA) Company Ltd to set up Fuzhou Airlines, a joint venture (JV) invested by Hainan Airlines (HNA), Fuzhou State-owned Assets Investment Holdings Ltd, the Century Golden Resources Group, and the Ningbo Ruitong Network Technology Company, Ltd, according to a notice released on the website of the aviation watchdog.

According to the notice, the new entity has a registered capital of 2 billion yuan, of which 60% was contributed by Hainan Airlines (HNA) with 1.2 billion yuan in cash, 20% by Fuzhou State-owned Assets Investment Holding Company, Ltd. with 400 million yuan, and the rest 20% by another two shareholders with 400 million yuan, accounting for 10% respectively.

As a limited liability company, Fuzhou Airlines is licensed for domestic passenger and cargo transportation businesses. Based at Fuzhou Changle International Airport (FOC), the carrier is set to operate Boeing 737 airplanes.

In the initial stage, the new entrant will introduce professional & technical staff from Hainan Airlines (HNA) including pilots (FC), mechanics (MT), flight dispatchers, and cabin crew (CA).

The (CAAC) has begun soliciting submissions on Fuzhou Airlines and said that the approval will be granted unless it is informed of reasonable grounds to reconsider the plan before February 10, 2014.

An industry insider said that most flights between Fuzhou and other major cities are operated by Xiamen Airlines (XIA) Company, Ltd. at present. Once (HNA) joins this market and sets up the Fuzhou Airlines, Fuzhou Changle International Airport will certainly open more routes, which are helpful for the airport expansion, thus it will lay a foundation for Fuzhou airport's effort to build an aviation hub.

Registered in Haikou with 4.1 million yuan, Hainan Airlines (HNA) is the nation's fourth largest airline with a fleet of nearly 390 airplanes, mainly engaged in international and domestic air passengers & cargo transportation as well as related business in air transportation. Fuzhou State-owned Assets Investment Holdings has a total asset of 1.79 billion yuan and a registered capital of 510.5 million yuan. The cooperation between the two sides will boost the local economy.

Hainan Airlines (HNA) parent, the (HNA) Group plans to launch Guilin Airlines in conjunction with the Guilin municipal government in May, pending approval by the Civil Aviation Administration of China (CAAC). The new venture is expected to operate three airplanes initially with plans to expand its fleet to 30 airplanes in three years.

The (CAAC), which is expected to approve the launch, has loosened its grip on allowing new domestic start-ups. The (CAAC) has recently approved the launch of Jiuyuan Airlines and Fuzhou Airlines.

China’s local governments are competing to develop airlines’ business by increasing capacities or setting up new airlines to stimulate local economic growth.

The Guilin local government also plans to establish an air travel group with the (HNA) Group to partner in the fields of air travel, including finance and network.

As Chinese domestic carriers partner with local governments, they seek cash support and favorable policies in terms of tax, landing and ground-handling fees, and land resources.

Later, Hainan Airlines (HNA) was given the go-ahead by the (CAAC) Southeast Regional Administration to establish its new subsidiary, Fuzhou Airlines (Fuzhou). Fuzhou Airlines is a joint venture between Hainan Airlines (60%), the Fujian state-owned Assets Investment Holdings Ltd (20%), Century Golden Resources Group (10%) and Ningbo Ruitong Network Technology Company Ltd (10%). Backed by CNY 2 billion/USD 33 million in start-up capital, Fuzhou Airlines is a limited liability company licensed to operate domestic passenger and cargo services. The (CAAC) has begun soliciting submissions on Fuzhou Airlines and said that, notwithstanding any objections to the start-up's application, approval to launch operations using 737s should be granted before February 10, 2014.

Air China (BEJ) parent, China National Aviation Holding Company (CNAH) on January 17th named Cai Jianjiang as new General Manager. Cai, who is currently Air China (BEJ) President, will succeed Wang Changshun, who is to be appointed as Vice Minister, Ministry of Transport of China. Wang Changshun, who is a former Vice Minister of the Civil Aviation Administration of China (CAAC) (CAC), has served as Air China (BEJ) General Manager since November 2011. He has also served as Air China (BEJ)'s board Chairman and is expected to resign from this position after he takes over his new position.

Cai, 49 years old, joined Air China (BEJ) in 2001. He has been President and Executive Director of Air China (BEJ) since 2007. Before that, Cai served as Vice President of Air China from September 2004 to February 2007. He has been Chairman of Shenzhen Airlines (SHZ) since April 2010. He also used to be General Manager of Shanghai Branch, Assistant President, and Manager of the Marketing Department in Air China (BEJ). He graduated from a college that later became the Civil Aviation University of China.

A total of 61 extra flights with 19,486 seats available on a single trip, will be provided between Malaysia and China during the coming Spring Festival travel rush, or "Chunyun" in Chinese, beginning January 16.

Malaysia was one of the top travel destinations, hence additional flights would be provided during the festive season, Civil Aviation Administration of China (CAAC) Information Services Director, Zhong Ning said. Currently, a total of 222 flights were available between both countries, he said.

"Chunyun," which begins from January 16 to February 24, has always been described as the largest human migration on earth. It is the busiest travel period in China, when people across the nation return home for the Chinese New Year celebration.

This year, about 42 million passengers were expected to travel by air during the 40-day Spring Festival peak travel season, up +10% year-on-year, (CAAC) Deputy Administrator, Xia Xinghua told a press conference. "The areas which contribute most to the traffic, include Beijing, Shanghai, Guangzhou, southwestern and northeastern China, and neighboring countries such as Thailand, Korea and Malaysia," he said.

Meanwhile, with the Chinese New Year just two weeks away from now, more than >3.62 billion trips are expected to be made during the festive season. The number of passengers was expected to increase by more than >200 million from a year earlier, said Deputy Head of the National Development & Reform Commission, Lian Weiliang.

The daily transport volume was expected to reach 81.9 million, an increase of +5.8% compared to the previous year, he told a press conference.

About 257.8 million passengers are expected to travel by train during the festive rush season, up +7.9% year-on-year, while 43 million are expected to travel by water transport, up +1.1% from a year earlier.

This year, China's Railway Ministry has opened an official website http://www.12306.cn for the first time to facilitate the purchase of train tickets. It was reported that from January 1 to 7, more than >1 billion railway tickets were sold daily.

Kunming-based Ruili Airlines is scheduled to launch formal operations next month to explore the lucrative tourism market in Southwest China.

Chinese carriers are expected to transport 1.5 billion by 2030 due to the rapid growth of China’s domestic low-cost carrier (LCC) industry, according to the Civil Aviation Administration of China (CAAC).

China Southern (GUN) will take delivery of its first Boeing 777-300ER probably between February 17 and 20. (GUN) placed the order for 10 777-300ERs in February 2012, in a bid to expand its capacity to meet growing demand in the Asia-Pacific. (GUN)'s first 777-300ER, registration (B-2099), has been rolled out from the Boeing Everett plant.

The 777 is the world's most successful twin-engine, long-haul airplane. The 777-300ER extends the 777 family's span of capabilities, bringing twin-engine efficiency and reliability to the long-range market.

(GUN)'s 777-300ER will be configured with a total 309 seats in four classes - 4F in first class, 34C in business class, 44PY in premium economy class and 227Y in economy class. The economy (Y) class will employ a 3-3-3 configuration, with a seat pitch of 32 inches.

(GUN) is already a 777 operator with its fleet currently including 777-200s and 777F freighters. (GUN) is expecting to take delivery of an additional four 777-300ERs by the end of this year, one in July, two in August and one in December.

(GUN) will launch its long-awaited service connecting Guangzhou Baiyuan International Airport (CAN) with John F Kennedy International Airport (JFK) on August 6, using the 777-300ER airplane. There will be four weekly flights on Mondays, Wednesdays, Fridays and Sundays. The flight is scheduled to depart (CAN) at 1:40 am and land at (JFK) at 5:45 am, with the return flight departing (JFK) at 11:15 am and arriving at (CAN) at 3:15 pm (all local time).

Both Air China (BEJ) and China Eastern Airlines (CEA) have ordered 20 777-300ERs. (BEJ) received its first 777-300ER in July 2011 and now operates 16 of them, while the first 777-300ER delivery for (CEA) is expected in the second half of this year.

February 2014: Chinese carriers reported a collective net income of +CNY1 billion/+$163 million, tripled from a net profit of +CNY323 million in year-ago month. Operating revenue climbed +22% to CNY35.4 billion, while operating expenses increased +14% to CNY30.1 billion.
Industry analysts credited the Chinese Spring Festival, which stimulated domestic market demand, for the profit increase.

Passenger boardings grew +19% to 30.58 million with an average load factor of 81.3% LF, up +3.1 points over the year-ago period. Cargo traffic volume dropped -1.8% to 470 million tonnes.

Looking ahead, Haitong Securities aviation analyst, Huang Jinxiang said he is pessimistic about this year’s outlook, saying “Chinese economic transformation would make it difficult to sustain strong growth of market demand.” He also said that “overcapacity would exert pressure on domestic airlines’ financial performance.”

However, the Civil Aviation Administration of China (CAAC) forecasts Chinese carriers will transport 390 million passengers this year, up +10.5% over 2013 and cargo traffic volume will increase +5.3% to 5.87 million tonnes.

An extra 158 flights per week across the Taiwan Strait could start by April, as an aviation agreement between Taiwan and mainland China has taken effect, the Civil Aeronautics Administration (CAA) said yesterday.

Under the pact, Taiwan-based carriers can offer an additional 79 flights to the current network - 72 on existing Taiwan-mainland China routes, with the other seven openings for charter flights already operating for two months or longer to start services on a regular basis.

All six local carriers have submitted plans for offering extra flights to 22 existing Chinese destinations where there are no restrictions on the total number of cross-strait flights.

"Submissions so far show that the most popular destinations are Nanning and Guilin cities in southern China," said Ryan Wang, deputy director of the CAA's Planning Division.

Other destinations open for application include Zhangjiajie, Zhengzhou, and Lijiang cities, also in southern China.

Transportation officials from Taiwan and China agreed last November to increase the number of regularly scheduled nonstop flights across the strait to 828 from 670 per week.

However, no extra flights are allowed to land in first tier mainland cities such as Shanghai, Beijing, Nanjing, Shenzhen and Guangzhou, which are among the most profitable destinations for carriers.

Newly established Qingdao Airlines has filed an application to the Civil Aviation Administration of China (CAAC) (CAC)for an air operation certificate (AOC) for domestic passenger and cargo flights. The (CAAC) completed a preliminary check and released details on the its official website on February 21st.

Officially founded on June 6, 2013, Qingdao Airlines is a joint venture (JV) funded by the Nanshan Group Company, the Qingdao Municipal Transport Development Group Company (QMTD), and Shandong Airlines (SHG). Based at Qingdao Liuting International Airport (TAO), the new entity has a registered capital of 1 billion yuan, of which 55% will be invested by the Nanshan Group with 550 million yuan, 25% by the (QMTD) with 250 million yuan and 20% by (SHG) with airplanes. The company will be a limited company with Liu Jianping, ex-General Manager of Dalian Airlines Company, Ltd. as its legal representative and General Manager.

The Qingdao-based airline has made preparations for the application for operation license from the (CAAC). It was approved by the National Development & Reform Commission to lease three Airbus A320s in 2014 and receive two CRJ700s from (SHG). (SHG) also signed an office rental contract with Qingdao International Expo and an agency agreement on airport ground services with Qingdao International Airport Group Company, Ltd.

Moreover, the aviation authority has given the green light to the painting plan of its airplanes. The (CAAC) Southeast Regional Administration assigned 132.000 MHZ as its management channel frequency and Qingdao air traffic control (ATC) station agreed to provide civil aviation communication, meteorology and flight information for the airlines.

After the airline was registered officially by the International Civil Aviation Organization (ICAO), the Air Traffic Management Bureau of the (CAAC) assigned "RLH" code for the airline; while the International Air Transport Association (IATA) assigned it the "QW" code and "912" code for accounting. What's more, the new airline also made other preparations, including insurance, legal articles, and more.

Currently, the airline company has recruited 19 pilots (FC), 25 maintenance (MT) staff, 4 flight dispatchers, 18 flight attendants (CA), 4 transport staff and 7 safety personnel for the initial operation.

Besides, it is learnt that the airline is scheduled to make its maiden flight in March 2014 and plans to introduce 51 airplanes in six years between 2014 and 2020.

The (CAAC) has begun soliciting submissions on Qingdao airlines and said that the approval would be granted unless it was informed of reasonable grounds to reconsider the plan before March 6, 2014.

The Commercial Aircraft Corporation of China (COMAC) (CCC) is establishing a branch company in Chengdu, capital of southwest China's Sichuan Province, which will become an operational resource center for its large airplane C919, covering Personnel Training, Customer Services, and others. Zhuang Haogang, (CCC)'s General Counsel and Chairman of Chengdu Airlines Company ((IATA) Code: EU) (UEG) will be in charge of preparing for the (COMAC) (CCC) Sichuan Branch.

According to staff from Shanghai-based (COMAC), since the ARJ21 will be delivered to Chengdu Airlines (UEG) before the end of this year, the manufacturer needs to do some airplane maintenance, repair, troubleshooting and other maintenance actions; meanwhile, there are some cooperative projects with (AVIC) Chengdu Aircraft, it is necessary to establish a Chengdu Branch. Chengdu Airlines (UEG) has been joining supervising production of the home-made large airplane C919 and staff training. For example, pilots (FC) and dispatchers of the C919 and ARJ21 will take training in Chengdu Airlines (UEG). The (COMAC) Sichuan Branch will build an overall resource support center including technical talented staff (MT) and spare parts contributing to the large passenger airplane C919 that will soon be soaring through the blue skies.

Establishing a sophisticated aviation industry chain in Sichuan is the main reason for this decision. Sichuan Airlines (SIC) has signed a purchase agreement for 20 C919s and Chengdu Airlines (UEG) will operate the maiden flight of (COMAC)'s regional airplane, the ARJ21. Both of them are customers of domestic large passenger airplanes. On the other hand, in the field of airplane manufacture in its upper levels, (AVIC) Chengdu Aircraft Industrial (Group), is to become an important part supplier of the C919, by taking the responsibility of producing the C919s and ARJ21s. What's more, as China's fourth largest aviation city, Chengdu enjoys a promising future in terms of the civil aviation market. Therefore Chengdu is the best choice by (COMAC) for building a branch company.

As the main vehicle in implementing large passenger airplane programs in China, (COMAC) has been making increasing investment in Sichuan in recent years. As early as 2009, (COMAC) signed an agreement with Sichuan Airlines (SIC) and the Chengdu Communications Investment Group Company to reconstruct the loss-suffering United Eagle Airlines, which was later renamed as Chengdu Airlines (UEG). At that time, (COMAC) became a major shareholder of the Chengdu-based airline (UEG) with a 48% stake. In September 2013, Chengdu Airlines (UEG) signed a cooperation framework agreement on the C919 program with (COMAC), marking a comprehensive cooperation between the two parties. Chengdu Airlines (UEG) became an important part of the domestic large passenger airplane program. During the 2013 Fortune Global Forum in Chengdu, (COMAC) inked an investment framework with the local government on civil aviation customer services and an industrial park project, which laid the foundation for constructing a demonstration base for home-made ARJ21 airplanes.

On February 19, the Commercial Aircraft Corporation of China Ltd (COMAC) (CCC) Chairman, Jin Zhuanglong and General Manager, He Dongfeng met with Wang Jiangping, Deputy Governor of Guizhou Province. The two parties had an in-depth exchange of views on how to further enhance their communication and expand achievement of cooperation memorandum in the field of civil aviation. Additionally, Shi Jianzhong, Deputy General Manager of (COMAC) attended the meeting.

During the meeting, Mr Wang initially introduced the situation of economic and social development in Guizhou Province. "In recent years, more and more enterprises in Guizhou Province have shown great interest and participated in the C919 large airplane project. And in response, the government will make full use of its own existing industrial advantages and further improve the infrastructure facilities concerning the large airplane project, to jointly promote the development of China's large airplanes," he said.

On behalf of (COMAC), Jin Zhuanglong expressed thanks to the government for care and support about the large airplane industry. Meanwhile, he hoped the two parties could deepen exchanges and cooperation to jointly promote the development of China's civil aviation industry.

Kunming, China-based Ruili Airlines has moved one step closer towards launching operations after being granted an operating license by the Civil Aviation Administration of China (CAAC) (CAC).

Ruili is wholly-owned by the Yunnan Jingcheng Group and has a registered capital of CNY600 million/$96.8 million. It is expected to operate three Boeing 737s initially and plans to expand its fleet to 45 airplanes by 2020.

In August, Ruili ordered 18 Boeing 737 series airplanes. The order comprised eight 737-700s and six 737-800 airplanes direct from Boeing, plus two 737-700s and two 737-800s from airberlin (BER).

Yunnan Jingcheng Group Chairman, Dong Lecheng said operations are now expected to start in April.

In May 2013, Ruili Airlines became the first privately-run carrier to receive (CAAC) approval after the regulator opened the door to Chinese start-ups. Loong Airlines, another privately-run airline, started operations in December, but other new carriers, including Qingdao Airlines, are still working towards their launch dates.

China's top oil refiner has been given a license allowing the commercial use of its self-developed aviation biofuel, the Civil Aviation Administration of China (CAAC) (CAC) said. The (CAAC) granted the license, the first of its kind, to Sinopec, allowing the company's Number 1 Aviation Biofuel to be used by airlines.

Xu Chaoqun, Deputy Head of the (CAAC)'s Flight Criteria Department, hailed the development as a significant breakthrough for the country's research, production and application of aviation biofuel.
Sinopec Aviation Biofuel had gone through several rounds of strict tests before it was given the green light, according to Xu.

The (CAAC) received Sinopec's application for commercial use of the biofuel in early 2012, and China Eastern Airlines (CEA) operated a test flight in Shanghai powered by No 1 aviation biofuel and the fuel went through several rounds of additional strict tests before it received approval. In addition, Air China (BEJ) became the nation’s first carrier to test a flight partly powered by biofuel, the result of a collaboration between PetroChina and Honeywell (SGC) (UOP)’s green jet fuel in October 2011.

Xu said Sinopec will work to diversify biofuel sources, lower production costs and push forward commercial application of the fuel.
Biofuel, made from renewable resources, including plant seeds, animal fat and recycled cooking oil, generates less carbon emissions than conventional fuel. With an annual consumption of nearly 20 million tonnes, China has become a large consumer of aviation fuels, and the development of biofuel will help ease resource pressures and cut pollution.

Biofuel is gaining popularity world wide. The International Air Transport Association (IATA) predicted that 30% of aviation fuel will be biofuel by 2020. Industry analysts said the commercial viability of biofuel for use in jets still faces tough challenges because the treatment process of producing biofuel will push the cost up higher than regular fuel refinery.

March 2014: Jiuyuan Airlines (JIU), a low-cost carrier (LCC) based in Guangzhou, is expected to start operations in August, according to an agreement signed between (JIU) and the local government on March 27th.

Jiuyuan Airlines (JIU), the (LCC) subsidiary of Shanghai based Juneyao Airlines (JYA), inked an 8 billion yuan deal with the government of Baiyun District, Guangzhou. (JIU), the start-up (LCC) carrier will be located in the Baiyuan District and make its inaugural flight in August, according to the agreement.

(JIU) plans to introduce 26 Airbus A320s or Boeing 737s in the next five years and it will launch flights to destinations in China and its neighboring countries in South Asia, Southeast Asia, and Northeast Asia.

Ji Guangpin, VP of Juneyao Airlines (JYA), Jiuyuan Airlines (JIU)'s parent company, said Jiuyuan Airlines (JIU) was given the green light by the Civil Aviation Administration of China (CAAC) in early February. "Currently, the route details are yet to be determined, because it will take some time before the application is approved. (JIU) plans to take delivery of three airplanes this year."

Guangzhou has a huge demand for (LCC) travel for its large population, said Ji. "We hope the (LCC) will help ease the traffic pressure in Guangzhou during the peak travel seasons."

Jiuyuan Airlines (JIU) will expand its fleet size in the next five years and extend its business scope to cover international services as soon as possible, Ji said.

Qingdao Airlines (QDO) is scheduled to commerce operation this month after gaining its operating license from the (CAAC). Currently, (QDO) has recruited 19 pilots (FC), 25 maintenance staff (MT), 4 flight dispatchers, 18 flight attendants (CA), 4 transport staff and 7 safety personnel. (QDO) plans to introduce 51 airplanes between 2014 and 2020.

Qingdao Airlines ((IATA) Code: QW, Qingdao) (QDO) is set to take delivery of its first A320-200 from Airbus Industrie (EDS) ahead of its April 27 launch. The start-up's first of the type, (6061, B-9955), was recently spotted at Hamburg Finkenwerder painted in full Qingdao livery.

In addition to its three leased A320-200s, (QDO) will also use two CRJ-700s (10118, B-3079) and (10120, B-3080), sourced from Shandong Airlines ((IATA) Code: SC, based at Jinan) (SHG).

Qingdao Airlines (QDO) is a joint-venture (JV) between Shandong Airlines (SHG), the Nanshan Group, and the Qingdao Municipal Government.

April 2014: Chinese carriers reported a collective net loss of -CNY1.4 billion/-$226 million in March, reversed from a net profit of +CNY107.69 million for the same period last year. Operating revenue dropped -1.4% to CNY31.3 billion, while operating expenses rose +0.5% to CNY28.8 billion. Industry analysts said yuan depreciation contributed to the results. Domestic airlines experienced a -CNY1.3 billion exchange deficit in March, compared to a +CNY400 million exchange gain in the year-ago month.

China Southern (GUN) said in a filing released by the Shanghai Stock Exchange that it would post a net loss of -CNY300 million to -CNY350 million in the first quarter, reversed from a net income of +CNY57 million in the year-ago quarter, also owing to yuan depreciation.

Chinese carriers transported 30.24 million passengers in March, up +5.1% year-over-year. Average passenger load factor was 81% LF, down -2.7 points over the year-ago period. Cargo traffic volume climbed +6.2% to 517,000 tonnes in the same time frame.

Looking ahead, predicted oversupply will continue, which could lead to a sharp reduction in airfare that would affect domestic airlines’ financial performance.

(HNA) Group subsidiary, Fuzhou Airlines (FUZ) is scheduled to launch its inaugural flight on October 1st. The Fuzhou-based carrier, which received approval to launch in January, plans to apply for an operating license at the end of April; it expects to receive it in June.

Fuzhou Airlines (FUZ) has a registered capital of CNY2 billion/$33 million in which Hainan Airlines (HNA) invested CNY1.2 billion for a 60% stake, while Fuzhou State-owned Investment Holding Company and Century Golden Resources Group hold stakes of 20% and 10%, respectively. Ningbo Ruitong Network Technology Company holds the remaining 10% stake. The new airline (which will operate at least three Boeing 737 airplanes on domestic routes) faces stiff competition from Xiamen Airlines (XIA), which has a 50% share of the market.

Chinese domestic carriers are forging agreements with local governments to receive cash support and favorable policies. Hainan Airlines (HNA) launched Capital Airlines (DER) in conjunction with the Beijing government; China West Air (CHO) with the Chongqing government; Lucky Air (LKY) with the Yunnan government; and Tianjin Airlines (GCR) with the Tianjin government.

Additionally, Hainan Airlines (HNA) plans to establish Guangxi Airlines (GUX), Heilongjiang Airlines, and Chang’an Airlines (CGN) with different local governments.

The (HNA) group is planning to launch Guilin Airlines in conjunction with the Guilin municipal government in May. The new venture, which is subject to Civil Aviation Administration of China (CAAC) approval, is expected to launch with three airplanes.

A city in northwest China's Shaanxi Province will allow 72-hour transit visa exemptions for foreign nationals to make it more accessible to the outside world, local authorities said. Foreigners from 51 countries in Europe, America, Oceania and Asia will be able to visit Xi'an, Shaanxi's capital city, and Xianyang City without visas within 72 hours, when they are en route to a third country or region via Xi'an Xianyang International Airport (XXIA), according to a statement issued by the provincial government.

Xi'an is the eighth city in China to embrace the policy, joining Beijing, Shanghai, Guangzhou, Chongqing, Chengdu, Dalian, and Shenyang. The policy, expected to be implemented in the next two or three months, will help ramp up Shaanxi's opening-up levels, as it provides more convenience for visting foreign nationals, according to the government.

Shaanxi boasts abundant tourism resources, making it a popular choice among inbound and outbound visitors. In 2013, the province received 285 million tourists, 797,000 of whom made their trips via (XXIA).

Sichuan capital Chengdu had opened 70 passenger and cargo flights to foreign countries and regions by the end of last month, including 32 scheduled direct routes, the "Chengdu Daily" reported. The inland city used to suffer poor transportation connections with elsewhere but is now expecting far more communication and cooperation with international cities through its advanced aviation network.

By 2015, Chengdu plans to build itself into an international aviation hub with 36 international direct routes carrying 50 million passengers annually. Chengdu opened four international direct services this year, linking to Melbourne, Frankfurt, Doha, and London.
"United Airlines (UAL) will launch a direct flight between Chengdu and San Francisco in June next year." The service will be the first direct flight between the USA and western China. Ticket bookings opened at the beginning of November. "The local government is already planning next year's new routes, linking Chengdu to other international cities including Istanbul, Moscow, Paris and Dubai."
The Chengdu Shuangliu International airport is also considering a direct route to Africa.

The airport handled 31.6 million passengers last year, ranking fourth in China in terms of passenger volume. Chengdu is also the fourth city on the Chinese mainland to adopt a 72-hour visa-free policy. A total of 245 "Fortune Global 500" companies had bases in Chengdu by the end of October.

May 2014: Chinese carriers reported a collective net income of +CNY200 million/+$32.4 million in April, down -84% compared to a net profit of +CNY1.25 billion year-over-year.

Total operating revenue rose +4% to CNY32.7 billion against a +4% increase in operating expenses to CNY29.1 billion.

Industry analysts cited yuan depreciation (which was down -2.64% in the first quarter) as the main reason for the sharp profit decline.

Passenger boardings climbed +10% to 31.42 million with an average load factor of 81.6% LF, up +0.4 point over the year-ago period. Cargo traffic volume rose +7% to 490,000 tonnes.

Looking ahead, Haitong Securities Company noted yuan depreciation will continue even though market demand keeps rising, but airfares will remain at low levels. As a result, domestic carriers’ financial performance is not expected improve for the short term.

South Korea has signed an expanded air services agreement with China, and established a new agreement with Tajikistan. The expanded agreement with China raises the number of frequencies permitted between the countries from 45 to 62 per week, according to South Korea's Ministry of Land, Infrastructure & Transport.

Despite the strong demand between the two countries, many carriers operate irregular passenger services into Chinese cities including Shijiazhuang, Nanning, Yinchuan, and Kunming. With the additional frequencies granted, low-cost carriers (LCC)s can also operate regular services into China, the Ministry added.

Major carriers flying between China and South Korea include Air China (BEJ), Asiana Airlines (AAR), China Eastern Airlines (CEA), China Southern Airlines (GUN), Jeju Air (JJA), Korean Air (KAL), and Sichuan Airlines (SIC).

Meanwhile, South Korea has also signed a separate agreement with Tajikistan that will permit twice weekly services between the two countries, as well as code share arrangements. There are no direct flights between the two countries.

Xiamen Airlines (XIA) is reportedly in negotiations with Hebei Airlines (NTE) stakeholders to take over the loss-making Shijiazhuang-based carrier.

Ruili Airlines launched formal operations May 18 with a flight from Kunming to Mangshi. The Kunming-based carrier is wholly owned by Yunnan Jingcheng Group and has a registered capital of CNY600 million/$96.8 million.

In August 2013, Ruili ordered 18 Boeing 737 series airplanes, comprising eight 737-700s and six 737-800s directly from Boeing (TBC), plus two 737-700s and two 737-800s from airberlin (BER). It has taken delivery of two 737-700s and one 737-800. It plans to expand its fleet to 45 airplanes by 2020.

Ruili has opened several domestic routes from Kunming to Chengdu, Wenzhou, Hefei, Nanchang, Mangshi, and Beihai. It plans to launch more domestic routes from Kunming to Xi’an, Hohhot, Dalian, Hangzhou, Lijiang, and Xishuangbanna in the near term. It is also expected to gradually introduce service from Kunming to Beijing, Shanghai, Guangzhou, Shenzhen, some Southeast Asian countries, and other cities in the Yunnan Province.

Ruili became the first privately run carrier to receive (CAAC) approval after the regulator opened the door to Chinese start-ups.

Comac (CCC) said it is ready to deliver China's first homegrown regional airliner and should complete a bigger plane in 2018. The first two of the ARJ21-700 regional jets have been completed for a Chinese carrier, Chengdu Airlines (UEG), and are coming to the end of the certification process, according to Commercial Aircraft Corporation of China (CCC). The company said it has 252 orders.

China launched the ARJ21 project in 2002 in an attempt to break into the Western-dominated airplane market. The plane was promised for 2007 but delivery was pushed back due to technical problems.

China is expected to become one of the world's biggest airplane markets over the next two decades. The Boeing Company (TBC) forecasts total demand at 5,580 planes worth a total of $780 billion.

The ARJ21-700 can seat 78 to 90 passengers depending on its configuration, with a range of 2,225 to 3,700 km/1,300 miles to 2,300 miles. Comac (CCC)said it successfully completed test flights in North America in March and April and has flown 13,000 km/8,000 miles.

The company is targeting China's domestic market and flights to Southeast Asia. "We first want to develop our business in China and then gradually we will go to the international market," Comac (CCC) executive Tian Min told reporters at Comac's assembly and manufacturing center in Shanghai.

Comac (CCC)'s larger C919 is a single-aisle jet meant to compete with Boeing (TBC) and Airbus Industrie (EDS). It can seat up to 168 passengers and has a planned range of 4,000 to 5,100 km/2,500 to 3,200 miles.

The C919 is an official initiative "for China to re-capture the value in airplane manufacturing that currently goes offshore to Airbus and Boeing," said industry analyst Will Horton of (CAPA) Center for Aviation. "With such a large objective, accomplishments will come gradually."

(CCC) has received 400 orders from 16 customers, including airplane leasing company (GE) Capital Aviation Services (GEF). Low cost carrier Ryanair (RYR) and British airlines have signed memorandums of understanding (MOU)s about their intention to purchase planes, Tian said.

He wouldn't disclose price but said developers were focused on controlling costs. Most orders have come from China's state-owned airline industry under government instructions to support the program.
"Global aviation remains pessimistic on the C919, given the ARJ21 delays," said Horton.

On May 15, the first front fuselage of a C919 was delivered by a supplier to Comac (CCC), Tian said. He said the plane will be assembled in the second half of 2014, its maiden flight is due at the end of 2015 and the first delivery to a customer is slated for 2018.

Longer term, Comac (CCC) is cooperating with Russia to build a next-generation wide-body plane. The two sides signed a memorandum of understanding (MOU) during Russian President Vladimir Putin's visit to China. Tian said Comac (CCC) is working on a feasibility study with Russia.

From its beginning in 2008, Comac (CCC) has focused on developing the two passenger planes. It has grown from 3,800 employees to 8,300.

Earlier news reports said the C919 maiden flight was due in 2014, with delivery in 2016. Tian said those reports were wrong, and Comac (CCC) always planned for its maiden flight to be 90 months from the project launch.

A new Chinese low cost carrier (LCC), Jiuyuan Airlines (JIU) has signed an agreement with Boeing (TBC) to purchase 50 airplanes worth over >$6 billion, the largest ever deal made by a private airline in China.

Jiuyuan Airlines (JIU), based in Guangzhou City, China's southern business hub, got approval from the Civil Aviation Administration (CAAC) in February and is expected to begin flights in the second half of this year.

The deal was signed on May 14th. The airplanes, including Boeing's 737-800 and 737 MAX, are expected to be in operation by 2020, state-run "Xinhua" news agency reported.

The (LCC) budget carrier plans prices as low as 9 yuan/$1.46 to tap a new client source. Guangzhou is the top destination of Chinese migrant workers.

"Boeing (TBC) has sold more than >1,000 airplanes to China in the past 40 years and will sell another 1,000 in the next 6 to 7 years," said Ian Thomas, President of Boeing China. "China will need almost +6,000 more planes in the next 20 years worth more than >$780 billion," Thomas said.

Jiuyuan Airlines (JIU) is jointly owned by Shanghai Juneyao Airlines Company Ltd, Elion Resources Group Limited Company, Xinhualian Holding Company Ltd and Juneyao (JYA)'s Ji Guangping with a registered capital of 600 million yuan.

June 2014: Russia’s United Aircraft Corporation (UAC)/(IKT) and the Commercial Aircraft Corporation of China (COMAC) (CCC) have entered into an agreement to study the feasibility of designing a new wide body jet airplane, according to a statement by Russia’s Ministry of Industry & Trade.

The Ministry said the new jet airplane would have a capacity of 250 - 300 seats and should be competitive with airplanes of the same type from other manufacturers. Currently, only Airbus (EDS) and Boeing (TBC) manufacture jet airplanes of that size.

“We expect both sides to take part in the project on a par that means Russia and China will invest in the project in equal proportion and provide intellectual sources by the same rules,” Russia’s Minister Industry & Trade, Denis Manturov said.

Chinese airlines have had to get tough with pilots (FC) during the World Cup Football (soccer) finals in Brazil. Pilots (FC) of Chinese airlines have been warned not to stay up late to watch football games during the World Cup, the "Oriental Morning Post" reported.

Budget carrier, Spring Airlines (CQH) said it had introduced special measures to avoid safety risks. Staff will be monitored for fatigue by having their blood pressure checked, an employee said, and pilots (FC) will keep tabs on one another.

China Southern Airlines (GUN) has taken a harder line, forbidding employees to even discuss football matches during work. Several pilots (FC) said that the majority of Chinese airlines had released similar warnings. With matches scheduled from midnight to 6:00 am, Chinese football fans face a tough work schedule in the days ahead.

Brazilian aviation authorities threatened international and domestic carriers last month with fines of up to $40,000 for late flights.

July 2014: The Civil Aviation Administration of China (CAAC) has approved the August 1 launch of Urumqi Airlines (URQ), a subsidiary of Hainan Airlines parent, the HNA Group to further explore market potential in West China.

Hainan Airlines (HNA) is finalizing terms with Boeing (TBC) on a purchase agreement for 50 737 MAX 8s valued at $5.1 billion at list prices. The pending order, subject to approval by the Chinese government, was announced at the Farnborough Airshow. “A long time, we’ve tried to get this deal done,” Hainan Group VP, Chairman & President, Adam Tan said. “I’m so happy today we can get it done.”

China's 9 Air (9AL), a start-up, low cost carrier (LCC) subsidiary of Juneyao Airlines (JYA), has ordered (CFM) International's (LEAP-1B) engine to power 30 Boeing 737 MAX airplanes, in addition to (CFM56-7B) engines to power 20 Next-Generation 737s. (CFM) values the order at US$3.7 billion at list prices, including spare engines and a long-term service agreement. The airplane orders were previously announced.

Under the terms of the Rate per Flight Hour (RPFH) agreement, (CFM) will guarantee maintenance costs for all 105 (LEAP-1B) and (CFM56-7B) engines on a dollar per engine flight hour basis. "We have had a great experience operating (CFM) engines in Juneyao Airlines (JYA) and we look forward to strengthening this great relationship as we launch 9 Air (9AL)," said Wang Junjing, Chairman of Juneyao Airlines (JYA). "We are confident in the reliability and operating economics of the (CFM) engines and look forward to introducing the (LEAP) engine into the mix. The exceptional fuel efficiency and low maintenance costs these engines bring, will be critical to our new low-cost operations."

"We are very pleased to welcome 9 Air (9AL) to the family of (CFM) operators," said Allen Paxson, Executive VP of CFM International. "We have had a great relationship with its parent company, (JYA) from the very beginning and we look forward to building the same kind of great relationship with 9 Air (9AL) as it launches operations."

The (LEAP-1B), which is the sole powerplant for the Boeing 737 MAX, began ground testing in June 2014 three days ahead of schedule. The engine is part of the most extensive ground and flight test certification program in the company's history and will encompass 60 engine builds over the next three years and will accumulate approximately 40,000 cycles before entry into service (EIS).

All of 9 Air (9AL)'s Next-Generation 737s will be powered by the (CFM56-7BE) engine, the new production configuration introduced in mid-2011. (CFM) used advanced computer codes and three-dimensional design techniques to improve airfoils in the high- and low-pressure turbines for better engine performance. In addition, the company improved engine durability and reduced parts count to achieve lower maintenance costs. When combined with airplane improvements, the engine provides +2% better fuel efficiency and up to 4% lower maintenance costs.

The foundation of the (LEAP) engine is heavily rooted in advanced aerodynamics, environmental, and materials technology development programs. It will provide +15% better fuel consumption and an equivalent reduction in CO2 emissions compared to today's best (CFM) engine, along with dramatic reductions in engine noise and emissions. All this technology brings with it (CFM)'s legendary reliability and low maintenance costs.

About 9 Air (9AL):

Based in Guangzhou, 9 Air (9AL) is China's newest low-cost carrier (LCC) airline and is also a subsidiary of Juneyao Airlines (JYA). The new (LCC) plans to launch domestic services to meet growing air traffic demand in China.

The Hong Kong unit of China’s Shenzhen-listed, Bohai Leasing has signed a deal worth about $7.76 billion to buy 70 A320neo airplanes from the Airbus (EDS) Group. Subsidiary, Hong Kong Aviation Capital signed the agreement on July 17 and it was approved by a special meeting of its board of directors on the following day, Bohai Leasing said.

Shares in the Tianjin-based, airplane leasing firm were suspended pending the announcement, and will resume trading on July 22nd.

This month, (BOC) Aviation, the airplane leasing arm of the Bank of China (BOC), ordered 43 planes from Airbus (EDS), including 36 A320ceo and seven A320neo models.

August 2014: For about a decade after the low-cost carrier (LCC) revolution began to sweep across Southeast Asia, the Civil Aviation Administration of China (CAAC) (CAC) was not interested. Then, a year ago, the industry's overseer quite suddenly began to push the idea.

But not everything in China is as choreographed as is often imagined-certainly not commercial aviation, even though the state has controlling holdings across the great bulk of the industry. Some airlines are responding faster to the (CAAC)'s call for no-frills flying than others. And those others may have good reasons for holding back.

Of the four major airline groups, Hainan Airlines (HNA) was already converting subsidiary West Air (CHO) to budget operations, when the (CAAC) began its push, while China Eastern (CEA) was planning to learn the ropes by setting up a Jetstar-branded airline in Hong Kong with Qantas (QAN). As (HNA) and China Eastern (CEA) progress with their plans, China Southern (GUN) is making only a small move, while Air China (BEJ) remains aloof, with notions that are not close to execution.

The small private carrier Juneyao (JYA) is paying heed to officialdom. The government does not own it, but (JYA), small and lacking the influence and network strength of the big groups, has good reason to exploit policy changes that offer opportunities for growth. The Shanghai airline is not following the (CAAC)'s recommendation that all private carriers convert themselves to low-cost carrier (LCC) mode, but it is setting up a budget subsidiary in Guangzhou.

The lack of enthusiasm China Southern (GUN) and especially Air China (BEJ) are showing for budget operations, does not necessarily mean that those two carriers (China's largest and second-largest) suffer from hidebound and unadventurous management. All over the world, big airlines with budget affiliates remain a minority. Running one airline is hard enough; running a second adds headaches.

Further, budget aviation in China faces many of the same problems as regional aviation. The scarcity of runway slots at major airports, airspace along important routes, and skilled personnel all over the country, are all strong reasons for maximizing revenue in each airplane. These problems can be solved with time, but for the moment they are so serious that they not only undermine sales of regional jets and turboprops; they are supporting demand for Airbus A330-300s at the expense of standard narrow bodies. In that environment, it cannot be appealing to allocate precious resources to services that are specifically designed to generate lower fares.

And that makes one of the forthcoming Chinese budget airlines all the more surprising. Hainan Airlines (HNA) affiliate, Capital Airlines (DER) plans to convert to (LCC) mode, exploiting its runway slots at congested Beijing Capital International Airport to position itself as the strongest budget carrier there. A critic might argue that the best way to exploit runway slots at Beijing Capital would be to allocate them to Hainan Airlines (HNA)'s A330s, which would have more seats and more revenue per seat.

So the reluctance of Beijing-based Air China (BEJ) to set up a budget subsidiary is not so hard to understand. (BEJ) has announced no plans, but industry officials say it has two, apparently not firm. One is to convert a subsidiary to budget operations, as other big carriers are doing. The other is to set up a low-cost carrier (LCC) when Beijing opens a new airport, which is not likely before 2019. The new airport may create enough extra capacity to justify taking slots away from the full-service network.

The converted offshoot could conceivably be Dalian Airlines (DLN), set up in partnership with the northeastern city of the same name. It is quite small, with only six Boeing 737-800s, but it could be built up. The local government shareholder may not be keen on losing the business-class (C) cabin, however.

Another possibility is Air China (BEJ)'s business jet operator, Beijing Airlines, which could seek permission to run scheduled services, quite possibly from the new airport. There is a precedent for such a conversion: Capital Airlines (DER) is the scheduled-service branch of business-aviation company Deer Jet (DER).

Shanghai-based China Eastern (CEA) is eyeing the Beijing budget market, but its local subsidiary, China United (CUL), is based at Beijing Nanyuan airport, a relatively quiet field south of the city. China Southern (GUN) is avoiding that problem altogether: Its first baby step toward a (LCC) model is to take out the business-class cabin in some airplanes of subsidiary, Chongqing Airlines (CGQ), based at the big southwestern city of that name.

On August 13, Xiamen Airlines (XIA) and the Jiangxi Province signed a memorandum of understanding (MOU) in Nanchang, capital of the Jiangxi province, jointly investing and establishing the first local carrier in Jiangxi together with the Jiangxi Airlines Investment Company, Ltd.

According to the agreement, the start-up carrier, Jiangxi Airlines Company, Ltd was set up with a registered capital of 2 billion yuan, of which 60% was invested by Xiamen Airlines (XIA) in airplanes and fixed assets, while the rest (40%) was contributed by Jiangxi Airlines Investment in cash. The new airline is expected to commence official operations in next June, with a fleet of 5 airplanes . Its fleet size will be expanded to 8 airplanes in 2016 and 30 by 2020. Based at Nanchang Changbei International Airport (KHN), the new airline will fly Boeing 737 airplanes to most major cities across the country, initially opening domestic flights between Nanchang and Beijing, Shanghai, Guangzhou, Shenzhen, and Chengdu.

Jiangxi Provincial Party Secretary Qiang Wei, Governor Lu Xinshe and Xiamen Airlines (XIA) General Manager, Che Shanglun attended the signing ceremony.

September 2014: China will open the skies fully in the near future, with no limitation regarding the number of carriers and amounts of capacity, according to a source from the Civil Aviation Administration of China (CAAC).

Han Jun, Director General of International Affairs of the (CAAC) said, "China's civil aviation industry will continue to adhere to the "positive, progressive, orderly and guaranteed" policy in promoting international air transport. What's more, according to the needs of market development and the range of guaranteeing capability, our country is going to open up international traffic rights, so as to meet the market needs and ensure the healthy growth of the industry." He also stated that, on the premise of fair competition and of protecting consumers' rights and interests, the (CAAC) encouraged Chinese and foreign airlines to carry out a variety of cooperative ways, such as code sharing and joint operation.

Currently, China has signed air transport agreements with 115 countries and regions, and owned 55 open ports, of which 25 can handle Boeing 747 airplanes.

According to statistics, in the summer/autumn of 2014, there are 111 foreign airlines flying from 104 cities in 55 countries and regions to 46 domestic cities, with 2,705 regular passenger and cargo flights a week. Meanwhile, 19 Chinese airlines operated 2,854 international flights each week from 47 domestic cities to 120 cites among 49 foreign countries and regions.

The Chinese mainland will push for further liberalisation of its air cargo market because it is vital to facilitating trade flows and expanding its economy, the aviation authority (CAAC) said.

"China, as the biggest exporting country in international trade relies heavily on air cargo business. We are actually taking a pro-active attitude towards air cargo liberalization," said Han Jun, Director General International Affairs department of the (CAAC).

"We will follow the international trend of liberalization, particularly for cargo development," Han told an audience of industry leaders from around the world at the first Air Cargo Development Forum organized by the International Civil Aviation Organization (ICAO).

International cargo traffic turnover accounted for nearly one third (21.07 billion ton kilometres) of China's total traffic turnover of 67.17 billion ton kilometres last year.

China's international cargo business soared between 1980 and 2008, before being hit by the financial crisis. It showed signs of recovery from stagnation since last year, when international traffic turnover recorded growth of +8.3%. Wang Zhiqing, a Deputy Administrator of the (CAAC), said China would seek to liberalize its cargo market in a "positive, gradual, moderate and secure manner".

"We will lower access requirements as appropriate and also encourage Chinese airlines to expand their international routes to more domestic service points, and work with foreign operators to create new international routes," Wang said.

According to Han, China has signed air service agreements with 115 countries and regions, of which 21 have introduced unlimited capacity entitlements for all cargo services.

"What is worth mentioning is the China - USA air traffic agreement. After its amendment in 2004, it has for the first time introduced the concept of air cargo hub operators," Han said.

"Cargo hub operators in China are entitled to the seventh freedom traffic right," he said, pointing to the right to operate between two points with neither being the airline's home country. "This is the only such arrangement we have reached with another authority."

Glyn Hughes, Global Head of Cargo at (IATA), said "air cargo is an enabler and facilitator of international trade" and that liberalization would lead to lower costs and higher efficiency.

Flights between the UK and China are set to increase following an agreement allowing more passenger flights between the two countries.

Talks were initiated by Transport Secretary, Patrick McLoughlin, who launched negotiations on improved air links during a visit to China in October last year.

The previous agreement, last updated in 2011, limited the passenger airlines of both countries to a maximum of 31 return services per week in each direction, serving up to six destinations in each country.

The new deal will increase the weekly maximum available to both countries to 40 direct flights in each direction, and allow UK airlines to serve up to three more Chinese cities than previously.

McLoughlin said: “Providing airlines from both countries the room they need to grow in this rapidly expanding market, will ensure the UK can truly compete on the global economic stage. Chinese visitors to the UK contributed hundreds of millions to the British economy in 2012 and business ties are blossoming. Improved air services will provide a real boost to trade and tourism, both major drivers of economic growth.”

The new deal also allows UK airlines greater freedom to code share with Chinese carriers on routes within mainland China.

China Southern Airlines Henan Company, Ltd, a joint venture (JV) between China Southern Airlines (GUN) and the Henan Civil Development and Investment Company, Ltd, was officially launched at Zhengzhou Xinzheng International Airport (CGO). The subsidiary will start scheduled services independently from now on.

The new airline was established based on the assets of China Southern (GUN)'s Henan Branch that dominates the Henan market with more than a >50% market share.

China Southern Henan owns a fleet of 25 Boeing 737s and operates 96 domestic and international services to 32 destinations with more than >600 flights per week.

The Civil Aviation Administration of China (CAAC) gave the green light for the launch of China Southern Henan in July 2013. The airline has a registered capital of 6 billion yuan, with 3.6 billion yuan from China Southern (GUN) for a 60% stake and 2.4 billion yuan from the Henan Civil Aviation Development and Investment Company for the remaining 40% stake.

China Southern Henan will commence operations using China Southern (GUN)'s visual identity system, with a goal to create a strong local airline in Henan by taking advantage of China Southern (GUN)'s domestic and international route network.

China Southern (GUN)’s Henan Airlines subsidiary has begun formal operations. The new venture operates a fleet of 25 airplanes on 51 domestic and international routes, including Seoul and Bangkok. In addition, the carrier opened a cargo route to Chicago to take advantage of the robust growth of Zhengzhou cargo market.

(GUN) Chairman Si Xianmin said China Southern (GUN) would make Zhengzhou its core air transport market in central China by increasing capacity and opening more routes.

Another Zhengzhou-based carrier named Henan Airlines suspended operations after a fatal crash in August 2010. Its controlling stakeholder, Air China (BEJ)’s subsidiary, Shenzhen Airlines (SHZ), has reduced its ownership to 30% from 51%; Henan Civil Aviation Development & Investment Company is now the controlling stakeholder with a 70% share. Henan Airlines began bankruptcy reorganization in November 2011 and owed debts of CNY423.4 million as of December 31, 2012. It remains unknown when it will resume operations.

Chinese carriers reported a net income of +CNY5.9 billion/+$960 million in August, down -7% compared to net income of +CNY6.34 billion in the year-ago period.

Operating revenue for the month climbed +7% to CNY42.5 billion, while operating expenses increased +8% to CNY32.6 billion year-over-year. Industry analysts cited the slowdown of market demand growth (especially premium market) and the decrease in airfares as main reasons for the profit decline.

In August, domestic airlines reported collective exchange gains of +CNY130 million due to yuan appreciation. In the first half, China’s airlines posted profit declines and net losses mainly due to yuan depreciation.

Passenger boardings rose +7% to 37 million with an average load factor of 83.1% LF, down -1.6 points. Cargo traffic volume grew +7% to 500,000 tonnes.

Looking forward, Haitong Securities predicted Chinese carriers would see a big improvement in their financial performance in the third quarter due to yuan appreciation, lower fuel prices and the traditional peak season factor.

October 2014: News Item A-1: China Southern Airlines (GUN) has approved the takeover of Hebei Airlines (NTE) by its subsidiary, Xiamen Airlines (XIA). (XIA) will purchase 99.2% stakes in the loss-making carrier for CNY749 million/$122 million, according to a statement released through the Hong Kong Stock Exchange.

Hebei Airlines (NTE) parent, the Hebei Aviation Group, which is controlled by the Hebei Jizhong Energy Group, holds a 62% stake. Sichuan Airlines (SIC) and the Shenyang Zhongrui Company hold a 35% and 3% stake, respectively.

China Southern (GUN) also approved the (XIA)’s purchase of the remaining 0.77% stake held by the Shenyang Zhongrui Company.

In 2010, Hebei Airlines (NTE) had planned to attain an operating revenue of more than >CNY10 billion and expand its fleet to more than >20 airplanes by 2015. However, (NTE) has posted consecutive losses since it was launched three years ago. It reported a net loss of -CNY200 million and nearly -CNY500 million in 2011 and 2012, respectively. It posted a net loss of more than >-CNY300 million in 2013.

In order to save Hebei Airlines (NTE), (GUN) also approved a CNY1 billion short-term loan by (XIA) to Hebei. It also approved a capital injection of CNY800 million to the Shijiazhuang-based carrier over the next three years.

(XIA) has maintained a consecutive profit for 27 years. It operates 106 Boeing airplanes on 244 domestic and international routes.

News Item A-2: East China's Hangzhou City began to offer 72-hour visa-free entry for international transit passengers on Monday, October 20th, a move to boost tourism and business.

The policy covers travelers from 51 countries, including the USA, Russia, Britain, France, and Japan. They can enjoy a 72-hour stay in Zhejiang Province after entering the country via Hangzhou Xiaoshan International Airport, providing they have third country visas and onward tickets to leave for a third country or region within 72 hours.

The move will boost international tourism, commercial and trade cooperation as well as cultural exchanges, said Chen Zongyao, a senior provincial government official.

Hangzhou, capital of Zhejiang, is one of the favorite destinations for domestic tourists. But its inbound tourism is weak.

In the first half of this year, Hangzhou received 48 million domestic tourist arrivals and only 1.5 million from overseas, according to the Municipal Tourism Commission.

The same visa-free policy is already in place in Beijing, Shanghai, Guangzhou, Kunming, Chengdu, Chongqing, Shenyang, Dalian, and Guilin.

The State Council, China's cabinet, issued a guideline in August to further expand the policy.

News Item A-3: China has the world's largest population and is the world's second-largest economy. China's Gross Domestic Product (GDP) rose +7.7% in 2013, a slower growth than 2012, but it still led the world in growth rate. The nation's transportation also kept a steady growth. According to primary statistics released by the (CAAC), the civil aviation industry accomplished a total turnover of 67.3 billion ton-kilometers in 2013, up +10% on a yearly basis. Passenger throughput rose +11% to 354 million and cargo traffic increased +2% to 5.57 million tons. The whole-year investments amounted to 148 billion yuan, including 72 billion yuan investment in fixed assets. The number of registered airports was 193, +10 more than the year earlier. There were 3,810 registered airplanes, 2,179 of which were commercial airplanes, +174 more than the end of 2012. China has become the second largest aviation power, being second only to the USA and is expected to surpass the USA to become the largest aviation power in 20 years.

China's four major carriers (Air China (BEJ), China Eastern Airlines (CEA), China Southern Airlines (GUN) and Hainan Airlines (HNA)) have over >90% of the total market share in the Chinese civil aviation industry.

November 2014: News Item A-1: China's largest health rescue overseas has completed, with nine passenger planes and freighters uniting efforts in Ebola-hit countries, according to the Civil Aviation Administration of China (CAAC).

Between August 10 to November 16, the (CAAC) dispatched nine airplanes from domestic airlines including China Eastern Airlines (CEA) and China Cargo Airlines (CCA) to transport 282 medical staff and 767 tonnes of medical materials to Guinea, Liberia and Sierra Leone, (CAAC) Deputy Director, Wang Zhiqing said.

The Chinese government stressed the importance of the rescue task. The nine airplanes flew across 21 nations with a total mileage of 40,000 km, said Wang.

A total of 14,413 Ebola cases had been reported by November 11 in Guinea, Liberia, Mali, Sierra Leone, Spain and the USA and in two previously affected countries of Nigeria and Senegal, with 5,177 reported deaths.

News Item A-2: Chinese airlines/carriers reported a collective net profit of +CNY1.9 billion/+$309 million) in October, up +32% compared with the collective net income of +CNY1.43 billion in the same period last year.

Operating revenue increased +8% to CNY37.1 billion, while expenses rose +7% to CNY31.4 billion.

Industry analysts credited lower fuel prices as the main reason for the profit increase. Passenger boardings rose +10% to 34.88 million with an average load factor of 81.5% LF, up +0.7 points over the year-ago period. Cargo traffic volume grew +8% to 530,000 tonnes.

Looking forward, Haitong Securities predicted Chinese carriers would see a big improvement in their financial performance in the third quarter due to yuan appreciation, lower fuel prices and the traditional peak season factor.

China’s major carriers all posted sharp profit declines for the first nine months of the year due to exchange losses resulting from yuan depreciation.

China Southern Airlines (GUN) reported a net profit of +CNY1.26 billion/+$205 million from January to October, down -48.9% compared to net income of +CNY2.46 billion in the year-ago period. China Eastern Airline (CEA)’s net income dropped -40.4% to +CNY2.14 billion, Hainan Airlines (HNA)’s net profit decreased -19.9% to +CNY1.88 billion and Air China (BEJ)’s net profit fell -22.3% to +CNY3.16 billion in the same timeframe. The four carriers did not release traffic figures.

Chinese carriers purchase airplanes in US dollars, which is why the fluctuation of exchange rates has a major impact on domestic airlines’ financial performance. Currently, Air China (BEJ)’s debts owed in US dollars take up 70% of its total debt; China Eastern (CEA) and China Southern (GUN)’s debts owed in US dollars take up more than >80% of their total debt.

Looking ahead, industry analysts point out yuan appreciation and lower fuel prices would help improve domestic carriers’ financial performance even though overcapacity still remains a concern. Currently, fuel costs accounts for more than >40% of Chinese airlines’ total operating expenses.

China's air passenger traffic increased +8.7% year on year in September, with cargo volume rising +2.9% from a year earlier, according to statistics released by the Civil Aviation Administration of China (CAAC).

In September, China's civil aviation industry recorded an increase of +9.7% in overall turnover volume over a year earlier, reaching 6.46 billion ton kms.

Passenger volume increased +8.7% year on year to 33.15 million. Passengers traveling on domestic flights grew +8.2% to 30.38 million, while those traveling on Hong Kong, Macau, and Taiwan routes rose +5.9% to 792,000 and international passengers surged +14.5% to 2.76 million.

Cargo & mail turnover volume amounted to 1.67 billion ton-kms, climbing +9.1% from a year earlier. Cargo & mail traffic reached 539,900 tons, with a year-on-year increase of +2.9%.

The passenger load factor declined -0.4% points to 81.1%, and the cargo load factor dropped -0.2% points to 73.5%. The daily airplane utilization rate for September averaged 9.6 hours.

In the first nine months of 2014, the Chinese Civil Aviation Industry has achieved a total turnover volume of 55.24 billion ton-kms, up +10.6% compared with the same period last year, with passenger throughput and cargo & mail traffic climbing +10.0% and 5.8% year on year to 292.35 million and 4.29 million tons, respectively.

News Item A-3: New visa reciprocal visa regulations between the USA and China that went into force November 12 could dramatically affect transpacific demand by markedly increasing the number of visitors from China to the USA.

News Item A-4: Juneyao Airlines (JYA) has filed an application for launching a round-trip daily flight between Shanghai Pudong and Saipan in March, 2015, according to an announcement on the website of the (CAAC) (CAC). Pending government approval, (JYA) will operate the daily Shanghai - Saipan service using Airbus A320/A321 airplanes.

News Item A-5: The (HNA) Group, parent of Hainan Airlines (HNA), reported that its passenger traffic increased +10.8% in October compared with the same period last year.

Five affiliated carriers (Hainan Airlines (HNA), China Xinhua Airlines (XIH), Chang'an Airlines (CGN), Shanxi Airlines (CHG) and Lucky Air (LKY)) carried 3.1 million passengers in the last month, up +10.8% year on year, according to their reports.

Specifically, domestic passenger volume registered a +10.6% growth to 3 million, with the number of international and regional passengers climbing +12.4% and 21.3% to 83,339 and 20,609, respectively.

Cargo volume totaled 32,065 tonnes, up +4.1% from a year earlier.

The passenger load factor rose +3.3% points to 88.9% LF, with the freight load factor rising +4.8% points to 86.99%.

News Item A-6: AirAsia, the Malaysia-based low-cost carrier (LCC), is looking for a joint venture (JV) partner to tap into growth opportunities in China, a top company official said. "It will be great if we can find a suitable joint venture (JV) partner," said Tony Fernandes, (CEO) and Founder of AirAsia (ASW), adding that it would be one of the three priorities for (ASW) in China in the next three years.

Fernandes said while the (LCC) is open to joining hands with those who want to work with it, they must also understand its culture. As the first budget carrier in Asia, (ASW) with its eight subsidiaries is well-known for its low fares, which could be sometimes -80% lower than traditional carriers. (ASW) also has a convenient network that links it to major tourism destinations in Southeast Asia.

It is also the first foreign low-cost carrier (LCC) flying to China and operates about 350 flights every week to 17 Chinese destinations on 35 routes.

Low-cost carriers (LCC)s have become a hot topic in the last two years, after Chinese aviation authorities announced policies to support the industry amid promising market prospects.

In the next 10 years, 25 to 30% of the routes in China will be taken by (LCC)s. The (LCC)s account for just 5% of the entire market in China now, said Darren Hulst, Marketing Director for Northeast Asia of Boeing Commercial Airplanes (BCA).

Fernandes is equally optimistic about the China market and said (ASW) would continue to explore market opportunities in the country. "The market in the second- and third-tier cities has the potential to grow, especially in the western part of China," Fernandes said.

AirAsia (ASW) will add direct flights between the small cities in China and its Southeast Asian destinations, including Kuala Lumpur, Bangkok, and Bali, Indonesia, he said, and some of these will be totally new routes.

Developing new markets is what (ASW) is good at, Fernandes said, as about half of its current routes in China had no service before it started operations.

Nonetheless, AirAsia (ASW) will still work hard in big cities, Fernandes said, and he hopes to find some way to provide more services in markets like Beijing and Shanghai.

The busy airports in big cities are often challenging for (LCC)s, especially to add services. This is why most of the (LCC)s seek low-cost airports to expand, he said.

However, before expansion in China, Fernandes and his company have to resolve some complaints in China, said industry experts. According to the Civil Aviation Administration of China (CAAC), AirAsia (ASW) was on the top of the authority's complaints list among foreign airlines in August and September.

The (CAAC) received seven complaints about (ASW)'s services in September and the complaints covered ticket booking, refunds and luggage.

Fernandes said most of the complaints can be attributed to lack of communication and understanding of the (LCC)'s conditions, but admitted that (ASW) has taken several steps to improve customer services in China.

The slow refund process was mainly due to (ASW)'s bank partner, Fernandes said. "I am working with the bank to resolve the refund problem and promise that our consumers will get the refund in seven days," he said.

The call-center is another gray area for the company that has triggered several complaints. Fernandes said (ASW) will add instant messengers and social media platforms to improve the efficiency of communication with its passengers.

"Low cost does not mean low quality," he said.

News Item A-7: A Boeing 747-8F freighter from Luxembourg Findel Airport (LUX) landed smoothly at Zhengzhou Xinzheng International Airport (CGO) in Henan. It's the sixty-first time that the super-jumbo freighter named "City of Zhengzhou" arrived in Zhengzhou since Cargolux Airlines International (CLX) inaugurated its flight to Zhengzhou on June 15.

The freight carried on the route between Luxembourg and Zhengzhou has exceeded >10 thousand tonnes within just five months, accounting for +23.4% of the cargo growth volume at (CGO) during the same period.

It's learned that Cargolux (CLX) will launch a Milan - Zhengzhou flight at the end of this year, when there will be six non-stop cargo flights between Zhengzhou and Europe. The full-year freight carried between Zhengzhou and Europe is expected to reach 14 thousand tonnes.

Henan will further expand the "New Silk Road in the Air" next year based on the current freight growth volume, offering strong support for Cargolux (CLX) to launch charter cargo flights to Chicago and Los Angles, and increasing its weekly flights to 25 by 2016.

Besides, Henan plans to set up a joint venture (JV) cargo airline with Cargolux (CLX) next year (a local international cargo airline based in Henan, aiming at constructing a Pacific Rim freight network). It will introduce another scheduled intercontinental cargo flight apart from the Zhengzhou - Luxembourg route, which will be seamlessly connected with Cargolux (CLX)'s existing network. By then, a global cargo flight network covering Asia-Pacific, connecting Asia and America, and radiating Africa and Oceania will be formed.

News Item A-8: China will require more than >5,300 new passenger airplanes and freighters worth some $820 billion from 2014 to 2033, Airbus (EDS) predicted in its latest Global Market Forecast. The Asian nation will account for 17% of global demand for new airplanes over the next two decades.

(EDS) believes deliveries to China will amount to 5,363 airplanes over the period, comprising 3,567 single-aisle airplanes, 1,477 twin-aisles and 319 in the very large airplane category.

Additionally, China will become the leading country for passenger air traffic, for both domestic and international markets, (EDS) said.

Domestic services within China will become the world’s busiest within 10 years, outstripping the USA in 2023, in terms of the number of passengers and in 2027, in terms of (RPK)s. In the next 20 years, the forecast average annual growth rate for the domestic Chinese market is +7.1%, but it will grow even faster over the next 10 years at an average +8.3% annually. By 2033, the domestic Chinese market will represent 11.9% of world traffic in (RPK) terms.

Between 2013 and 2023, average annual growth for international traffic from and to mainland China will be +8%. Four out of the 20 largest flows in (RPK) terms will be to and from China.

“Domestic passenger traffic in mainland China has more than quadrupled over the last 10 years, and it will become the world’s number one aviation market within the next 10 years,” (EDS) (COO) Customers, John Leahy said.

Drivers of China’s dynamic air transport growth include the country’s long-term economic development. Average annual economic growth in China is forecast at +7.4% between 2013 and 2023. China will become the world’s biggest economy in 2023, with its Gross Domestic Product (GDP) accounting for 19% of the world’s total.

Average wages in China have increased fivefold in the past decade and will continue to rise in the years ahead, creating higher levels of disposable income and private consumption, which in turn will fuel demand for travel.

News Item A-9: Over the next two decades, China will become the world's largest air passenger market, according to the International Air Transport Association (IATA) (ITA), who projects the country will surpass the United States by adding +16.9 billion new passengers. To accommodate for that massive growth in the number of airplanes flying into and out of China, the Civil Aviation Authority of China (CAAC) (CAC) has implemented avionics equipage requirements for its domestic airlines, presenting big opportunities for well-established American and European avionics manufacturers. Airshow China in Zhuhai this month presented the opportunity for one of the industry's most active players in the region, Thales (THL), to discuss equipage requirements with airlines and also enter into new business opportunities with operators in the region.

In 2012, the (CAAC) published its "Head up Display Application Roadmap," requiring airlines to equip 10% of their fleet with Head up Displays (HUDs) by 2015, then increasing that to 50% by 2020 and finally equipping 100% of the fleet with the technology by 2025. Thales (THL) is the sole supplier of (HUD)s for the entire Airbus (EDS) airplane family, from the A318 to the company's latest model, the A350 XWB. The (CAAC) is making (HUD) technology a priority for its airlines, in order to improve safety and efficiency, Daniel Malka VP Avionics Services at Thales (THL) told Avionics Magazine.

"In China, you have more and more airplanes flying. They have a lot of difficulties managing the increasing number of flights into China. The airlines that have the (HUD)s installed, they will benefit from improved situational awareness and safety," Malka said. "Beijing for example has one of the world's most congested airports, causing very significant delays. I can remember one time having to wait four hours on the airplane for our flight to leave, and these delays are caused by the significant growth in the number of flights they've experienced recently. The (CAAC) is very concerned with improving that, so they started to ask for this (HUD), because one of the ways that you can safely get more airplanes into the airspace is by improving pilot (FC) perception and situational awareness with that technology."

According to an emailed statement from Thales, the company believes the HUD system allows smoother transitions for pilots (FC) between "eyes in" and "eyes out" flight operations. The technology also has the possibility of allowing for reduced landing minima on suitably equipped runways in China. Over the next five years, the (CAAC) has authorized the construction of 70 new airports in China to help accommodate for projected air traffic growth.

(Thales) (THL) will not be the only avionics company benefiting from (CAAC)'s (HUD) requirement either. Rockwell Collins is the supplier of (HUD)s for the Boeing 737, 777 and 787, thus, the Chinese carriers adding Boeing air transport airplanes to their fleets over the next decade will receive one of their displays. Through 2025, (IATA) expects one third of all new production aircraft from the major Original Equipment Manufacturers (OEM)s to be delivered to Chinese operators. Malka also said that the (CAAC) will be requiring airlines to equip their airplanes with satellite communication systems to assist with communication between pilots (FC) and flight dispatchers.

"There is a request from the (CAAC) to install satcom on their airplanes and as more airplanes continue to be added by the airlines there, more will have to be equipped with both forward fit and retrofit installations in the future," said Malka. "There are also three stages in this recommendation from the (CAAC), which is in fact, in 2013, 20% of the fleet equipped with satcom. We will see between now and next year that they have to reach 70%, and the third stage, which is 2016, they have to reach 100% equipped with satcom."

One of Thales (THL)'s major competitors, Honeywell (SGC), is also seeing opportunities for growth in China as the country's civil aviation industry continues to develop and become managed, as it is in Europe and North America. Currently Honeywell (SGC) employs about 400 aerospace engineers in its research and product centers in China, with that number expected to increase to over >700 by 2017. In the past, Honeywell (SGC) engineers served mostly in a support role to Chinese carriers, but that focus has been shifting to a leadership role in domestic production and engineering development, said Thea Feyereisen, an engineering fellow in the Flight Safety Systems group of Honeywell (SGC)'s Aerospace Advanced Technology organization.

"Before, most of our in country engineers were more of a product support, and now they're becoming more involved in actual development of technology, and so they'll support our traditional product lines, though they also are creating new market space and new products specifically developed for the region," said Feyereisen.

One of the current projects Feyereisen is working on involves helicopter pilots (FC). Honeywell (SGC) engineers in China are currently working on a system that produces voice activated safety alerts in Mandarin for Chinese helicopter operators.

Thales (THL) is also showing interest in the Chinese helicopter industry, especially with the (CAAC)'s decision to relax its rules around low-level flying, leading to increased rotorcraft flight operations. During "Airshow China," (THL) announced a new partnership with Shanghai Avionics Corporation (SAVIC), to begin jointly developing avionics solutions for the country's growing helicopter market.

"Two-thirds of all new airports currently under construction in the world are in China. With the tremendous market needs and burgeoning demand, the rising presence and emphasis of China in aerospace appears as a forgone conclusion," Feyereisen said in a recent blog post. "China has the second largest economy in the world and the Chinese aerospace industry is just beginning to takeoff."

December 2014: News Item A-1: Chinese carriers reported a collective November net profit of +CNY2 billion/+$326 million, more than doubling net income of +CNY995 million in November 2013.

News Item A-2: China’s big three (Air China (BEJ), China Eastern Airlines (CEA), and China Southern Airlines (GUN)) are all expected to operate out of the new Beijing airport, which will be located in Daxing. The airport is expected to open in 2018.

The new airport (which is expected to serve Beijing, Tianjin, and Hebei) will be able to handle an annual passenger volume of 45 million in 2020, 72 million in 2025l, and 100 million in the longer term.

China Southern Airlines (GUN) has reportedly signed a cooperation agreement with the Beijing government, paving the way for (the Guangzhou-based carrier to enhance its position at the new airport. (GUN) noted that over the next 10 years, it will allocate about 200 airplanes (Airbus A330s and A380s) from (PEK) to the new airport in Daxing.

As one of the most lucrative air transport markets, Beijing is the main operating base of Air China (BEJ), but other domestic carriers (including China Eastern (CEA), China Southern (GUN), and Xiamen Airlines (XIA)) are all eager to explore the Beijing market.

However, due to the severe slot shortage of Beijing Capital Airport (PEK), many airlines are restricted from realizing their expansion plans. Industry analysts say the new airport will help to ease pressure on Beijing Capital.

China Southern (GUN) had hoped to operate its A380 on the international routes starting from Beijing, but was unable to do so. Shanghai-based, low-cost carrier (LCC) Spring Airlines (CQH) was forced to cancel its routes to Beijing due to the slot shortage.

News Item A-3: (AVIC) and its subsidiaries form an important part of a growing joint effort to bring expanded air service. The footprint in Africa of the Aviation Industry Corporation (AVIC) of China has grown as its presence has expanded in 10 national markets, with its products used by flag carriers, government operators and others.

The latest big push was during the 10th China International Aviation and Aerospace Exhibition, held in November in the southern port city of Zhuhai, Guangdong province. There, a deal for delivery of three Chinese-built ARJ21 planes was sealed by the Republic of Congo, also known as Congo-Brazzaville, the first African country to order the new plane.

ARJ21 is short for "Advanced Regional Jet for the 21st Century," a new, twin-engine turbofan for a short to medium range jet. The plane is built by the Commercial Aircraft Corporation of China Ltd (CCC), in which (AVIC) is a major shareholder.

Congo's Ministry of Transport signed a purchase agreement for three ARJ21-700 airplanes, including two regional jet models and one business airplane. "The ARJ21-700 is made in accordance with the international airworthiness standards, which is an airplane with wide market adaptability and excellent range coverage capability, and is very suitable for operations in Africa," according to a Congo government official quoted by the World Civil Aviation Resource Net, wcarn.com.

The ARJ21, a 90-seater, can cover the distance from Dar es Salaam to Johannesburg and Addis Ababa. Some 250 orders have been placed for the airplane around the world. The ARJ21 is expected to be delivered to its first internal customer in China by the end of this year, and will begin to be delivered to foreign customers by the end of 2015.

"The total number of (AVIC) airplanes operating in the African continent is more than >400," said Xue Hang, Director of the Civil Aircraft Division of the (AVIC) International Aero-Development Corporation, a sales and service provider wholly owned by (AVIC).

Xue said (AVIC)'s customers can be found in Tanzania, Kenya, Zambia, Egypt, Cameroon, the Republic of Congo, Zimbabwe, Burundi, Sudan, and Senegal. Xue said the event was successful not only for (AVIC), but "the name of African airlines was displayed in this air show as well." The show included 700 exhibitors from 41 countries. Air Tanzania (TNZ) also has shown interest in the ARJ21.

In Addis Ababa, Ethiopia, in May, Premier Li Keqiang proposed the implementation of a China - Africa regional aviation cooperation program, including support for Chinese enterprises to establish joint venture (JV) airlines in African nations and use Chinese-made airplanes to improve regional connections.

Li reiterated those points as important goals on December 4 during the visit to China of South African President Jacob Zuma. Aviation giant (AVIC) is expected to play an important role in realizing Li's vision.

More than 30 airplanes made by (AVIC) were presented at the Zhuhai air show, while 17 airplane purchase agreements were signed and several airplane delivery ceremonies were held.

Purchase agreements involved civil airplanes such as the Y12, the LE500 light training airplanes, 56-seater MA60, the ARJ21 and the C919, a family of 158 - 174 seat narrow-body airliners under development.

(AVIC) International Holding Corporation, the largest Chinese state-owned aerospace company, has a global network of 80 branches throughout China, the Asia Pacific, Europe, America, and Africa.

(AVIC) was started in 1951 as the Aviation Industry Administration Commission and has assets of about US$110 billion. It is not only an airplane and helicopter manufacturer, but also a major supplier to other leading airplane manufacturers such as Boeing (TBC) and Airbus (EDS).

News Item A-4: At 2:50 pm on December 22, Hangzhou Xiaoshan International Airport (HGH) welcomed its 3 millionth inbound & outbound passenger this year, marking a new milestone for the airport in traffic performance.

The outstanding milestone was reached when passenger Mr Deng Zhijie arrived at (HGH) by Dragonair (DRG) flight KA620 from Hong Kong. To mark the occasion, Hangzhou International Airport Company, Ltd held a grand ceremony in Terminal A. As the lucky passenger, Mr Deng Zhijie was presented with a memorial certificate.

The company President, Shen Jian said it means that (HGH) has become the fourth domestic airport with 3 million of annual international & regional passenger throughput following Shanghai Pudong International Airport (PVG), Beijing Capital International Airport (PEK) and Guangzhou Baiyun International Airport (CAN). And he added, "It is a significant milestone not only for (HGH) but also for Hangzhou civil aviation history."

The airport is expected to handle around 25.55 million passengers by the end of the year, up +15.3% year on year, listing on the second place among domestic airports in terms of passenger traffic growth. The full-year cargo volume is estimated to reach 398,000 tonnes, up +8.2% over a year earlier, with annual airplane movements climbing +12.2% to 214,000. By the end of 2014, the international & regional passenger throughput will amount to 3.08 million, with an increase of +13.7% year on year.

Currently, the airport is connected with 34 international and regional destinations by 33 domestic and foreign airlines, covering 16 countries and regions of the world, and forming an international (regional) route network which radiates East Asia, Southeast Asia, Northeast Asia, as well as connecting Europe and Africa. Every week, about 420 international & regional flights depart and land at (HGH).

What's more, (HGH) will open a new non-stop route to Los Angeles or Vancouver in North American next year, with more flights to East Asia and Southeast Asia, the airport said.

News Item A-5: On December 23, the arrival of a Boeing 787 airplane operated by China United Airlines (CUL) at Hengyang Nanyue Airport welcomed its first flight and declared the official opening for business, becoming the fifth regional airport in Central China's Hunan Province, following Zhangjiajie airport, Changde airport, Yongzhou airport and Huaihua airport.

The China United Airlines (CUL) flight from Beijing Nanyuan Airport (NAY) to Hengyang was the maiden flight of the airport. There will be seven flights a week between Hengyang and Beijing. The outbound flight is scheduled to leave (NAY) at 9:10 am and land in Hengyang at 11:25 am; while the return flight will depart from Hengyang at 12:05 pm and arrive in Beijing at 2:20 pm. The single journey takes only 2 hours.

Another service from Hengyang to Shanghai Pudong will be operated with four flights a week on Mondays, Wednesdays, Fridays and Sundays. In addition, the airport expects to launch tourism and business flights to Zhangjiajie, Haikou or Sanya, Kunming, Chongqing or Chengdu, Xiamen, etc.

Starting construction on January 2012 with a total investment of 656 million yuan, Nanyue Airport has a 2,600 m long and 45 m wide runway and a 6,000 sq m terminal building. Built in line with 4C class, the new airport is designed to handle 450,000 passengers and 1,600 tonnes of cargo and mail a year, with a flight zone of Class-4C.

What's more, according to the national economic development strategy, Hunan Province will build another five regional airports in Yueyang, Chenzhou, Shaoyang, Loudi and Xiangxi in the future.

News Item A-6: Yunnan-based, Ying’an Airlines has signed a strategic cooperation with Xi’an-based Joy Air to further explore the domestic regional air transport market, especially the regional air transport market in underdeveloped Southwest China.

Ying’an plans to increase its registered capital to CNY1 billion/$163 million) and expand its fleet to 30 airplanes for the short-term.

Ying’an is formerly a general aviation company that was relaunched as a commercial airline in April. Currently Ying’an has a registered capital of CNY80.66 million, of which Ying’an Transport Service Company Ltd holds a 56.5% stake with an investment of CNY45.6 million, while Li Guiying holds the rest with a CNY35.06 million investment.

Ying’an operates a fleet of MA60 airplanes serving domestic regional routes. It is considering introducing Boeing 737s and Airbus A320s for the longer term to operate on domestic trunk routes.

News Item A-7: Newly established Guangxi Beibu Gulf Airlines Company, Ltd, a regional carrier proposed by Tianjin Airlines (GCR), has filed an application to the Central & South Regional Administration (CAAC) for an air operator's certificate (AOC) for domestic passenger and cargo flights. The aviation watchdog completed preliminary check and released details on its official website on December 29.

According to the notice, the new airline will be set up with a registered capital of 3 billion yuan, in which Tianjin Airlines (GCR) contributes 2.1 billion yuan, accounting for 70% of total registered capital and the rest 30% (900 million yuan) is invested by Beibu Gulf Investment Group in cash and assets.

Based at Nanning Wuxu International Airport (NNG), Beibu Gulf Airlines is to be licensed for domestic cargo & passenger air transportation business, including Hong Kong, Macao, and Taiwan services departure from Nanning, as well as international passenger & cargo flights from Nanning to the neighboring countries, using EMB-190 airplanes. The company will be a limited company with Wu Chongyang, Deputy President of Lucky Air (LKY), as its legal representative and President.

Currently, the Nanning-based start-up airline has made some preparations for getting the (AOC) from the (CAAC). It was approved by the (CAAC) to introduce 5 EMB-190 airplanes from its parent company, Tianjin Airlines (GCR), among which three EMB-190s will be injected as assets into the new entity, with the rest two introduced by leasing. Furthermore, the aviation authority has given green lights to the painting plan of its airplanes.

The airline company also signed an agency agreement on ground services with the Guangxi Airport Group, and the Central & South Air Traffic Management Bureau, the (CAAC) agreed to provide civil aviation communication, meteorology and flight information for the airlines.

Moreover, the (CAAC) Central & South Regional Administration assigned 131.3 MHZ as its management channel frequency. After the airline was registered officially by International Civil Aviation Organization (ICAO), the Air Traffic Management Bureau of the (CAAC) assigned the "CBG" code and "SPRAY" as the English radio call sign for the airline; while it will employ "GX" code and "872" code for accounting. What's more, the new airline also made other preparations, including insurance, legal articles, and more.

In the initial stage, essential staff will be enrolled by recruitment except that the pilots (FC), mechanics (MT), flight dispatchers and cabin crew (CA) shall be introduced from Tianjin Airlines (GCR). At present, the Beibu Gulf Airlines has been approved to introduce 50 pilots (FC), 72 maintenance (MT) staff, 12 flight dispatchers, 60 flight attendants (CA), 20 welders and 20 safety personnel from Tianjin Airlines (GCR) for the initial operation.

Besides, the airline was planned to make its maiden flight by year end with all EMB-190 regional planes, disclosed by Liu Lu, President of Tianjin Airlines (GCR) at an interview.

As Tianjin Airlines (GCR) is a regional subsidiary of the (HNA) Group, the newly established Beibu Gulf Airlines further expands (HNA)'s presence in domestic aviation market following Fuzhou Airlines (FZH) and Urumqi Airlines (URQ). So far, the (HNA) Group has 10 passenger airlines including 8 in operations (Hainan Airlines (HNA), Yunnan Lucky Air (LKY), Beijing Capital Airlines (DER), Tianjin Airlines (GCR), West Air (CHO), Grand China Airlines (GCH), Fuzhou Airlines (FZH), and Urumqi Airlines (URQ), and two ones yet to start operations (Beibu Gulf Air and Guilin Airlines (GUI). Thus, (HNA) has set up operation bases in 11 provinces and cities including Beijing, Tianjin, Shanghai, Chongqing, Guangdong, Guangxi, Liaoning, Shaanxi, Shanxi, Yunnan, and Xinjiang.

News Item A-8: Tianjin Binhai International Airport (Tianjin Airport) continued to record high annual passenger throughput, exceeding >12 million on December 29 and increasing +20.4% year on year.

Compared with last year, the passenger throughput of the No 2 Terminal exceeded >10 million two months earlier, which proves Tianjin Airport's leading role in the implementation of the integrated development of civil aviation in the Beijing - Tianjin - Hebei area.

The passenger throughput of Tianjin Airport reached eight million on December 24, 2012. The number exceeded >10 million on December 30, 2013, which made the airport recognized as a large size airport in China. And this year, the number jumped to 12 million.

The average annual increment of passenger throughput of Tianjin Airport reached 2 million in recent three years. The year on year increasing rate has continuously maintained a two digit strong development momentum, which has greatly exceeded the national average and has been a leader in all mainstream airports nation wide.

All the statistics reflect a rapid and steady trend, as well as a huge potential, in the development of Tianjin's civil aviation industry.

Tianjin has spared no effort in fighting for the government's policy support and has created the essential conditions for development.

This year, Tianjin Airport competed for the Tianjin Municipal Government's support from aspects such as organization and institution structuring and setting, ground transportation system construction, policy and capital support, and acceleration of the development and construction of the aviation logistics park.

Based on its support policies in 2013, the Tianjin government has continuously issued preferential policies to airline companies and travel agencies. In addition, the government provides a full price subsidy concerning high speed train fees and subway fees to passengers who take the Beijing - Tianjin inter-city trains to board a flight in Tianjin. The subsidies for European and American passenger and freight transportation have been increased from 30% to 100%. Moreover, Tianjin Airport has visited the Civil Aviation Administration (CAAC) and its North China branch to follow up their assessment on the capacity of the airport. The (CAAC) has finally approved the improvement of a peak hour capacity of Tianjin Airport from 24 planes to 28 planes.

Tianjin Airport has also continuously updated its air route network. So far, there have been 45 global airline companies operating in Tianjin, among which 30 airlines own 139 air routes connecting to 97 cities, with up to 2,500 flights per week. And a total of 15 airline companies operate all-cargo flights which own 15 freight air routes connecting to 22 cities.

This year, a total of 76 new air routes have been added to Tianjin Airport. The development of international passenger and freight transportation has also witnessed a great breakthrough.

The flight connecting Tianjin with Irkutsk became Tianjin's first international passenger air route to Russia, while the flight from Tianjin to Moscow became Tianjin's first long distance international passenger air route to Europe. The freight air route from Los Angeles to Tianjin fills the blank in freight transportation to the USA.

The straight line distance between Tianjin Airport and Tiananmen Square is only 120 kms. Approximately 90 pairs of inter-city high speed trains travel between the cities. Furthermore, a total of three high speed roads connect the two cities.

Passengers leaving from, or arriving at Beijing Capital International Airport can take Beijing - Tianjin inter-city high speed trains and Tianjin Subway Line 2 to travel between Tianjin Airport and Beijing Capital International Airport. It takes only an hour to travel between Tianjin Airport and Beijing South Railway Station. Passengers can get their train ticket fees refunded at the airport.

As a first cooperation between Tianjin Airport and Ctrip Travel Website, a product concerning the flight and train integrated transportation between Beijing and Tianjin was launched successfully on November 19. More and more domestic and international tourists were attracted by its convenience.

Until December 21, 2014, the total number of people who have been given ticket fee returns at the Beijing - Tianjin flight and train integrated transportation counter in Tianjin Airport has reached 14,811. The counter became extremely hot during the (APEC) Summit in Beijing. As many as 1,000 people visited the counter within a single day.

The remote terminals in 12 cities cover a great many cities in the Beijing - Tianjin - Hebei area. The seamless connection and multidimensional transfer among different kinds of transportation, such as the high speed trains to subways, and the high speed trains to airport shuttles, have gradually become main travel measures for tourists from nearby cities traveling to Tianjin.

Supported by the convenient and developed ground transportation system, the "same city effect" of "arriving in Tianjin as arriving in Beijing" has been established. The Tianjin Airport is becoming the second typical measure of traveling to Beijing by air.

The integrated development of Beijing - Tianjin - Hebei, the inter-city integration between Beijing and Tianjin, the development and launch of the Binhai New Area, and the establishment of the Tianjin Free Trade Park, provide great opportunities for Tianjin Airport.

Providing strong policy and capital sponsorship, the Tianjin Municipal Party Committee and the Tianjin Government came up with the idea of establishing Tianjin Airport as a large size and mainstream air transportation hub as well as an international aviation distribution center in North China.

The (CAAC), Beijing Military Region Air Force, and the (CAAC)'s North China branch has provided great support to Tianjin Airport on airport traffic rights, time arrangements, and peak hour capacity.

The parent company of Tianjin Airport, the Beijing Capital International Airport Group has also put emphasis on the construction and development of Tianjin Airport.

The airports in Beijing - Tianjin - Hebei area signed an agreement on the integrated development strategy among airports and confirmed the functional position of the airports on December 22.

The development of Tianjin Airport has verified the integrated development of Beijing - Tianjin - Hebei. It is also a sample for promoting the nation through economic and social development and civil aviation construction.

In the coming years, Tianjin Airport will serve to alleviate the pressure of Beijing Capital International Airport and assist the integrated development of Beijing - Tianjin - Hebei.

It is expected that the passenger throughput and cargo handling capacity of Tianjin Airport will reach 30 million and one million tons respectively in 2020.

News Item A-9: The number of airports in the Xinjiang Uygur autonomous region will rise to 25 from the current 16 by 2020, as China attempts to transform the area into a major transportation hub on the "Silk Road Economic Belt." "We believe the new international airport in the regional capital of Urumqi will be operational by 2020, and will become one of the most influential aviation hubs in Central Asia," Duan Zixin, General Manager of the Xinjiang Airport Group, said.

The new airport is expected have two runways long enough to accommodate the Airbus A380, the present world's largest passenger jet airplane.

The Civil Aviation Administration of China (CAAC) recently announced that it will speed up a preliminary study of the new airport, and also backed Urumqi's application to allow 72-hour visa-free entry for international transit passengers. The (CAAC) also encouraged airlines to operate more routes to connect cities in Xinjiang, China's largest and most westerly region, with the east of the country and destinations overseas. Xinjiang currently has 46 domestic and foreign airlines operating 184 routes to 25 cities or regions in 15 countries. "Our focus is to launch new routes connecting Xinjiang with key trade centers in Central Asia, East Asia, and Europe. It will be a "Silk Road" in the air," Duan said.

In a 2103 speech in Kazakhstan, President Xi Jinping proposed that China and the Central Asian countries build an "economic belt along the "Silk Road." The trans-Eurasian project would target more than >3 billion people, representing the single biggest market in the world with unparalleled potential. The number of air passengers to and from Xinjiang is expected to reach 34 million annually by 2020, an increase of +70% from 2013.

Xinjiang now has the largest number of airports and the longest flight routes of any part of China. The longest route is from southern Xinjiang's Kashgar city to Shenzhen, a coastal city in the southern province of Guangdong, a journey time of about 7.5 hours.

Kashgar is Xinjiang's second-busiest airport, after Urumqi International, and the central government has established a special economic zone in the city that is expected to transform China's most westerly city into an international trading hub.

News Item A-10: The Civil Aviation Administration of China (CAAC) has given a type certificate to the Commercial Aircraft Corporation of China (COMAC) (CCC) ARJ21 regional jet, likely clearing the way for the long-delayed airplane to enter service in 2015.

(GE) Aviation (GEC), whose (CF34-10A) engines will power the ARJ21-700 model that has been certified, has issued a statement from Beijing confirming the type certification. The ARJ21 can seat 78 - 90 passengers depending on seating configuration.

Launch customer Chengdu Airlines (UEG), a (COMAC) subsidiary, is expected to put the airplane into service in April or May 2015, which would be eight years later than the originally scheduled service entry (EIS) and 13 years after the program was launched.

(COMAC) has received a total of 278 orders for the ARJ21-700, mostly from Chinese airlines. (COMAC) launched the ARJ21 program in 2002 and the ARJ21 flew its first flight in 2008. “This certification is a monumental achievement for (COMAC),” (GE) Aviation President & (CEO), David Joyce said.

(GEC) said the “(CF34-10A) is ideally suited to the design requirement of the ARJ21 airplane, and meets the demanding conditions of China’s diverse environment, specifically the hot temperature and high altitude conditions experienced on many routes in Western China.”

January 2015: News Item A-1: Chinese carriers reported a collective net loss of -CNY800 million/-$130.3 million in December, improved from a net loss of -CNY2.1 billion in the year-ago month. Industry analysts attributed the loss to seasonal factors.

Operating revenue climbed +11% to CNY33.8 billion, while operating expenses remained flat at CNY32.1 billion.

Passenger boardings increased +14% to 31.93 million, with an average load factor of 79% LF, up +1.2 points over December 2013. Cargo traffic volume rose +6% to 550,000 tonnes.

Looking forward, Chinese carriers are expected to transport 430 million passengers in 2015, up +10% from 390 million in 2014 due to China’s continuous economic growth, according to the Civil Aviation Administration of China (CAAC).

News Item A-2: Chinese carriers are expected to transport 430 million passengers in 2015, up +10% from 390 million in 2014 due to the continuous growth of China’ economic development, according to the Civil Aviation Administration of China (CAAC).

Premium passenger boardings have been decreasing due to Beijing’s policy of restricting government officials from flying premium classes, a trend that will continue in 2015, according to (CAAC) Vice Minister, Zhou Laizhen. “So we will support domestic carriers to implement differentiated strategy and encourage more regional carriers and low-cost carriers (LCCs) to further grow,” he said.

“Currently, more and more companies have become enthusiastic about setting up new carriers. Four domestic airlines are preparing to be launched and six more are applying to be established,” (CAAC) Minister, Li Jiaxiang said. There are currently 51 Chinese carriers, up nine from 42 carriers in 2007.

News Item A-3: Juneyao Airlines (JYA) will launch an initial public offering (IPO) in February to fund its rapid fleet expansion, according to Juneyao Group President, Wang Junhao.

(JYA) plans to purchase seven Airbus A320s and two backup engines by launching an (IPO) on the Shanghai Stock Exchange. (JYA) aims to expand its fleet to 50 airplanes this year, and double its fleet to 100 by 2020. It currently operates 38 airplanes with an average age of more than >3 years.

“The pilot (FC) shortage is quite severe in China’s airline industry and thus we have introduced more than >100 foreign pilots (FC) to maintain sustainable growth [to match fleet expansion],” Wang noted.

Separately, Spring Airlines (CQH) is also expected to launch an (IPO) January 21 to raise around CNY2.5 billion/$413 million to purchase nine A320s and three A320 simulators.

According to (CQH) Chairman, Wang Zhenghua, (CQH) operates 46 A320s and plans to introduce more than >10 airplanes. It is expected to expand its fleet to 100 airplanes by 2018.

February 2015: News Item A-1: Chinese carriers reported a cumulative net loss of -CNY1.5 billion/-$244 million in January due to seasonal factors and overcapacity, a sharp reversal from a net profit of +CNY1 billion in the year-ago month.

Total operating revenue fell -10% to CNY 31billion, while operating expenses decreased -6% to CNY27.8 billion. Industry analysts cited January’s traditional low season and low airfares resulting from overcapacities as the main reasons for the loss.

Passenger boardings rose +4% to 32.46 million, with an average load factor of 77.5% LF, down -3.6 points over the same period last year. Cargo traffic volume jumped +9% to 520,000 tonnes.

Looking ahead, industry analysts are optimistic about the outlook for domestic airlines’ financial performance in the first quarter.

According to Industrial Securities, Chinese carriers would most probably improve their financial performance in the first quarter owing to the rapid growth of passenger market demand led by China’s Spring Festival and low fuel prices.

News Item A-2: China Eastern Airlines (CEA) expects its 2014 net profit to rise +40% to +60% compared to 2013, due to lower fuel prices, according to a carrier statement released by the Shanghai Stock Exchange.

(CEA) reported a net income of +CNY2.38 billion/+$386 million in 2013. (CEA) credited management improvements, lower fuel prices and adjustment to its welfare policy as main reasons for the improved financial performance.

Looking ahead, industry analysts predict fuel prices will continue to drop this year, which will improve the financial performance of China’s domestic carriers in 2015. As a result, most Chinese carriers are now adjusting their respective profit goals upward for 2015.

News Item A-3: Hainan Airlines (HNA) parent (HNA) Group’s subsidiary, Beibu Gulf Airlines (GXA) performed its inaugural flight February 13 from Nanning to Haikou as it deepens its cooperation with local governments to further explore the market potential of China’s secondary and tertiary cities.

The new venture has been launched by (HNA) Group subsidiary, Tianjin Airlines and Guangxi Beibu Gulf Investment Group, which is wholly owned by the government of Guangxi Zhuang Autonomous Region. It has a registered capital of CNY3 billion/$488 million in which Tianjin Airlines holds a 70% stake, while the Guangxi Beibu Gulf Investment Group holds the remaining 30%.

The new Nanning-based carrier operates five Embraer EMB-190s purchased from Tianjin Airlines on domestic routes to Changsha, Linyi, Jinjiang, Yiwu, Xi’an, Tianjin, and Dalian. It plans to expand its fleet to 10 EMB-190s at the end of this year and open more than two new international routes to neighboring (ASEAN) countries.

Beibu Gulf Airlines (GXA) is also expected to introduce 10 to 20 Airbus A320 airplanes to cover more big cities such as Beijing, Shanghai, Guangzhou, Shenzhen and other major cities in China, Singapore, Bangkok and more (ASEAN) cities.

It is a growing trend for Chinese domestic carriers to forge agreements with local governments to receive cash support and favorable policies.

The (HNA) Group has also launched subsidiaries Urumqi Airlines and Fuzhou Airlines with different local governments in recent months. In addition, it is also in discussions with the Heilongjiang provincial government and the Guangxi government to launch Heilongjiang Airlines and Guilin Airlines.

News Item A-4: Chinese carriers are expanding operations to Chengdu, hoping to gain a larger market share to take advantage of its greater market potential.

News Item A-5: The aft section of the first C919 airairplane's rear fuselage, manufactured by Aerospace Haiying Zhenjiang Special Materials Limited Company, was officially delivered to the Commercial Aircraft Corporation of China (COMAC) (CCC) on February 11, which lays a solid foundation for mating the airliner's fuselage sections.

The horizontal stabilizer and auxiliary power unit (APU) will be installed in this section.

The section employs the largest proportion of composite materials, with 37 composite material components, which help reduce the structure weight of the airplane and improve its economic efficiency.

Based on related airworthiness regulations and quality requirements, Shanghai Aircraft Airworthiness Certification Center of the (CAAC) conducted a comprehensive review of the aft section of the first C919's rear fuselage and issued an airworthiness approval tag for it.

Later, (AVIC) Shenyang Commercial Aircraft Corporation Limited (SACC) officially delivered the vertical tail section of the first C919 airplane to the Commercial Aircraft Corporation of China (COMAC) on Febriary 13.

The vertical fin comprises a vertical stabilizer and a rudder. Most of the components are made of composite materials that make the airplane lighter and more fuel efficient, improving the performance and safety of the airplane and reducing maintenance costs.

The vertical tail has been transported to the Pudong base of the (COMAC) Manufacturing and Final Assembly Center.

March 2015: News Item A-1: Li Jiaxiang, Chief of the Civil Aviation Administration of China (CAAC) met with visiting Dennis Muilenburg, Vice Chairman, President & Chief Operating Officer of the Boeing Company (TBC), and Marc Allen, President of Boeing International, in Beijing on March 23. See photo - - "CAC-1-LI JIAXIANG - 2015-03."

During the meeting, the two parties conducted in-depth exchanges of views on enhancing their cooperation in the civil aviation sector.

News Item A-2: Chinese airports and airlines were the worst in the world for being on time last year, according to a USA-based company that tracks air travel around the globe.

Among the world's 61 largest airports, the seven worst performers for on-time departures were all mainland airports, with Hangzhou's Xiaoshan, Shanghai's Hongqiao and Shanghai's Pudong facilities taking the bottom three spots, according to FlightStats, a USA-based data provider on air travel.

Just 37.74% of flights left on time from Xiaoshan, 37.17% from Hongqiao and 37.26% from Pudong. Those three were closely followed in the survey by Shenzhen Baoan, Guangzhou Baiyun, Chongqing Airport, and Beijing Capital International Airport.

Out of the world's largest 61 airports, Japan's Haneda Airport was the best with an on-time rate of 89.76%. The best performer among the 374 world airports of all sizes looked at by FlightStats was another Japanese airport, Itami, with an on-time rate of 94.56%.

Zou Jianjun, from the Civil Aviation Management Institute of China, said management of China's facilities had not kept up with demand and the network was concentrated in a few areas. "Flight lines are too centralized in Beijing, Shanghai, and Guangzhou, and it's a big challenge for their managers," he said. "Even if a small mistake happens at any of these major airports, it's quite possible that flights in other cities will be affected."

The results were no better within the region, with Chinese airports languishing in the bottom half of the 121 Asia -Pacific facilities of all sizes examined last year. Hong Kong International Airport also slipped, down from No 22 in the region in January 2013 to 80th last year.

There were no mainland or Hong Kong airlines in the world's top 10 for on-time arrivals last year, FlightStats said. The world leader was (KLM) Royal Dutch Airlines, which had 88.66% of its flights arrive on time.

The results reflect the all-too-common experience of cancelled or delayed flights at mainland airports, experts said.

Zhang Wuan, spokesman for Shanghai-based budget carrier, Spring Airlines (CQH), said the poor showing by mainland airlines and airports was the result of the rapid growth in civil aviation.

About 390 million passengers took flights on the mainland in 2014, double the total for 2009, according to the Civil Aviation Administration of China.

The Civil Aviation Data Analysis website said that about 65 percent of mainland flights left on time last year.

The website said that if all the extra time that passengers and crew spent waiting on the tarmac for flights to take off on the mainland in 2014 was added up, it would amount to about 232 years.

Even notified flight delays added up to about 183 years, it said.

Poor management at airports and carriers was compounded by bad weather last month during the peak Lunar New Year travel season, a traditional time for family reunions.

FlightStats said there were 92,839 delays by mainland airlines compared with 32,428 delays by carriers in the rest of the Asia-Pacific region.

Most mainland airlines' on-time arrival rates were about 50% last month, with Shenzhen Airlines (SHZ) recording a rate of as low as 37.4% and an average delay of 64 minutes. Xiamen Airlines (XIA) was even worse with 33.82% on-time arrival rate and an average delay of 70 minutes.

News Item A-3: The International Civil Aviation Organization (ICAO), the United Nations (UN) aviation body's governing council, elected Fang Liu, a veteran of China's aviation authority, as its new Secretary General on Wednesday March 11th, the first woman to hold the position in (ICAO)'s 70-year history.

Ms Liu, who has worked at the International Civil Aviation Organization (ICAO) since 2007, is Director of its Bureau of Administration & Services. She ran against candidates from Australia, India and the United Arab Emirates (UAE).

Ms Liu will start her three-year term on August 1, replacing Raymond Benjamin of France.

(ICAO)'s Secretary General oversees the Montreal-based (ICAO)'s secretariat, acting as its Chief Executive Officer (CEO), and reports to its 36-member, governing council, which is currently led by Nigeria's Olumuyiwa Bernard Aliu.

From 1987 to 2007, Ms Liu held a series of positions at the Civil Aviation Administration of China (CAAC)'s international affairs department, which works with (ICAO).

Educated in China and the Netherlands, Ms Liu worked for China's Civil Aviation Authority (CAAC) before joining (ICAO) in late 2007. In addition to Chinese, she speaks English and French.

(ICAO) is under pressure to improve safety in the airline industry after the disappearance of Malaysia Airlines (MAS) flight MH370 and the downing of another (MAS) airliner in Ukraine last year.

At a major safety conference last month, (ICAO) member states endorsed a plan to track airplanes flying outside radar, and a proposal to build a website, where states can share information about risks to planes in conflict zones.

The (ICAO) agency is not a regulator, but its standards typically become regulatory requirements in its 191 member states.

News Item A-4: The Civil Aviation Administration of China (CAAC) has approved the launch of Jiangxi Airlines, a new venture of Xiamen Airlines in conjunction with the Jiangxi provincial government.

Jiangxi Airlines has a registered capital of CNY2 billion/$325 million. Xiamen (XIA) holds a 60% stake (including airplanes and the assets of Xiamen’s Nanchang Branch Company) and Jiangxi Aviation Investment Company, representing the Jiangxi provincial government) holds a 40% stake with a CNY800 million investment.

The new carrier will initially operate five Boeing 737 airplanes on domestic routes from Nanchang to Beijing, Shanghai, Guangzhou, Shenzhen, and Chengdu. It plans to expand its fleet to eight airplanes in 2016, and to more than >30 airplanes by 2020. It is expected to open more international routes to Singapore, Thailand, Malaysia, Japan, and Korea, and long-haul routes to Europe, the USA, and Australia.

Xiamen Airlines (XIA) is expected to provide aviation professionals including pilots (FC), Maintenance Repair & Overhaul (MRO) staff, cabin crews (CA), and etc to Jiangxi Airlines initially.

As Chinese domestic carriers partner with local governments, they seek cash support and favorable policies in terms of tax, landing fees, ground handling fees and land resources. Local governments hope to stimulate economic growth by launching the airlines.

News Item A-5: Thales (THL) announced they will supply the new Air Traffic Control (ATC) system for the Zhengzhou Xinzheng International Airport; Thales systems now monitors 60% of China's airspace.

Thales (THL), through its BEST Joint Venture (JV), has been awarded a contract by the Civil Aviation Authority of China (CAAC) to supply the main (ATC) system for the Zhengzhou Xinzheng International Airport in China, using Thales TopSky (ATC).

Thales (THL) has a long history of partnerships with Chinese aerospace industries. The company has been working with the (CAAC) for over 30 years in which it has deployed 9 air traffic control (ATC) centers, over >300 Navaids and over 220 radars and (ADS-B) stations. Thales (THL) systems now monitors 60% of China's airspace. In further support of China's developing (ATM) infrastructure, in January 2015, Thales (THL) (CEO), Patrice Caine traveled to China to sign a letter of intent (LOI) with the (CAAC), in the presence of French Prime Minister, Manuel Valls and Chinese Prime Minister, Li Keqiang, for continued cooperation toward strengthening the safety of China's airspace through technology sharing and training in air traffic control (ATC) and avionics.

News Item A-6: Ten new female pilots (FC) are about to start their flying career with Xiamen Airlines (XIA) after half a year's pre-job training. The pilots (FC) were initially selected from hundreds applicants in 2010 after eight extensive tests and since embarked on a four-year professional training course at the Civil Aviation Flight University of China.

China's aviation industry is male dominated but an increasing number of females have become pilots (FC) in recent years. "You see fireworks from the ground up, but we see them from sky down," said Luo Danyi, one of the pilots (FC). She said the attractiveness of the job was that they could see many beautiful scenes from the air.

If the ten girls passed an additional 20 tests starting on March 14, they would officially pilot Xiamen Airlines (XIA)'s airplanes. Xiamen Airlines (XIA) has employed three "aviatresses" in the past, two of which are now retired.

China has 449 registered female pilots (FC), accounting for just 1.12% of the total number of pilots (FC) in the country, according to data compiled in 2014.

April 2015: News Item A-1: Earnings at major Chinese airlines are recovering thanks to the drop in international oil prices and a pickup in passenger traffic.

Air China (BEJ) and China Eastern Airlines (CEA) both enjoyed sharp net profit growth in the fiscal year ended December 31, while China Southern Airlines (GUN) saw a decline in net profit due to the yuan's weakness against the dollar.

Revenue increased at all three airlines amid a steady rise in domestic and overseas passengers. For (BEJ), where travelers on international routes account for more than >30% of sales, North American traffic was particularly brisk. (BEJ) added service to seven cities, including Washington, D C, contributing to sales growth.

"Crude oil was at around US$90 [a barrel] on average in 2014, which brought great benefits for us," Xiao Feng, Air China (BEJ)'s Chief Financial Officer (CFO) said. Combined with passenger growth, this helped (BEJ)'s profitability recover, he said.

But the depreciation of the yuan weighed on earnings. Chinese airlines pay their fuel costs and airplane leasing fees in dollars. Dollar-denominated debt accounts for 70% of all interest-bearing liabilities at Air China (BEJ) and 93% at China Southern (GUN). The latter's decrease in net profit owed in large part to -US$200 million in foreign exchange losses stemming from its large proportion of dollar-denominated debt.

All three airlines are expected to see revenue grow again in fiscal 2015 as they beef up overseas service.

China’s big three carriers have all reported a turnaround in the first quarter due to market demand growth and lower fuel prices.

According to financial pre-announcements, Air China (BEJ)’s first-quarter net income increased +CNY1.6 billion/+$262 million to +CNY1.8 billion, up from a net profit of +CNY93 million in the year-ago quarter. China Southern Airlines (GUN) reported a first-quarter net income of +CNY1.8 billion to +CNY2 billion, reversed from a net loss of -CNY306 million year-over-year. China Eastern Airlines (CEA) posted a net income of +CNY1.5 billion to 1.6 billion, reversed from a net deficit of -CNY205 million in the same quarter of 2014.

Air China (BEJ)’s passenger boardings grew +7.6% to 21.71 million with an average load factor of 80.2% LF, down -1.5 points over the year-ago period. Passenger revenue rose +8.1% to 40.6 billion (RPK)s against a +10% increase in passenger capacity to 50.6 billion (ASK)s.

China Southern (GUN)’s passenger traffic climbed +12% to 26.8 million with an average load factor of 81.37% LF, up +1.16 points over the same quarter last year. Passenger revenue grew +15.5% to 46.4 billion (RPK)s, while capacity rose +13.8% to 57 billion (ASK)s.

China Eastern (CEA)’s passenger boardings grew +9.43% to 22 million with an average load factor of 80% LF, down -3 points year-over-year. Revenue jumped +10.6% to 34.43 billion (RPK)s against a +11% capacity increase to 42.95 billion (ASK)s.

Looking ahead, industry analysts predict China’s big three will see a better 2015 owing to robust growth of market demand, capacity slowdown, lower fuel prices and stable exchange rates.

News Item A-2: Chinese civil airports had maintained a steady growth in 2014. A total of 831.5 million passengers, 13.6 million tonnes of cargo & mail and 7.93 million airplane movements were handled, up +10.2%, +7.8% and +8.48% year on year, respectively, according to 2014 Civil Airport Performance Statistics Bulletin released by Civil Aviation Administration of China (CAAC).

The total passenger traffic volume increased +10.2% year on year to 831.5 million in 2014. The domestic routes contributed 760.6 million passengers, with a yearly growth of +10.1%. Passengers traveling by Hong Kong, Macau and Taiwan routes increased +12.1% to 27.4 million, while international passengers climbed +11.7% to 70.9 million.

Meanwhile, the total cargo & mail traffic volume at Chinese airports grew +7.8% to 13.6 million tonnes. With a year-on-year growth of +6.7%, the domestic cargo & mail traffic volume was 8.86 million tonnes. The Hong Kong, Macau, Taiwan routes accounted for 905,000 tonnes, an increase of +16% from a year earlier, while international cargo increased +9.8% year on year to 4.71 million.

Airplane movements registered a +8.4% yearly growth to 7.9 million in 2014, among which 6.8 million takeoffs and landings were cargo flights, up +8.7% year on year. Airplane movements on domestic flights increased +8.3% year on year to 7.4 million, while that on international flights and Hong Kong, Macau and Taiwan routes registered at 583,000 and 206,000, up +10.4% and +9%, respectively, over a year earlier.

In 2014, there were altogether 202 civil airports in China, including 24 airports with over >10 million of annual passenger volume, which contributed for 76.2% of the total turnover volume, the (CAAC) said.

According to the the (CAAC), 64 airports recorded a total passenger turnover volume of more than >1 million, +3 more than in 2013, and accounted for 95.3% of total airport turnover. 24 airports with over >10 million of annual passenger volume accounted for 76.2% of total airport traffic. Besides, 28.3% of the overall passenger turnover volume was recorded at major airports in Beijing, Shanghai and Guangzhou. By region, China's eastern airports accounted for 28.9% of traffic, followed by the central southern region (24%), the northeast region (16.2%), the southwest region (16.2%), the northeast region (6.1%), the northwest (5.7%), and Xinjiang (2.6%).

In terms of cargo, there were 50 airports handling more than >10,000 tons of cargo in 2013, accounting for 98.5% of total cargo traffic. Airports in Beijing, Shanghai and Guangzhou accounted for 51.3% of the total. Geographically, China's eastern airports accounted for 41.1% of cargo traffic, followed by central southern region (25.4%), northern region (16.9%), southwest region (9.7%), northeast region (3.4%), northwest (2.1%) and Xinjiang (1.3%).

The total number of certified airports in China accounted for 202, +9 more compared to a year ago, including 200 with scheduled services. +9 new airports has opened during the period, including Lvliang Airport (LLV), Tonghua Sanpuyuan Airport (TNH), Shenlongjia Hongping Airport (HPG), Liupanshui Yuezhao Airport (LPF), Fuyuan Dongji Airport (FYJ), Hadeling Airport, Hechi Airport (HCJ), Hengyang Nanyue Airport (HNY) and Hongyuan Airport (AHJ). And Xinjiang Qiemo Airport (IQM) was closed.

In addition, China's top 10 busiest airports by passenger traffic have handled a total of 420 million passengers in 2014, an increase of +8.5% from a year earlier's 390 million. Beijing Capital International Airport (PEK) served up to 86.13 million passengers in 2014, which remains the busiest airport in China and the second busiest airport in the world in terms of passenger throughput ((PEK) remains the second busiest airport in the world in terms of passenger throughput behind Hartsfield-Jackson Atlanta International Airport (ATL) for the fifth consecutive year).

In addition, Kunming Changshui International Airport (KMG) handled up to 32.23 million passengers last year, becoming the 7th airport in China serving more than >30 million passengers annually. In 2015, the number is expected to increase to 9.

News Item A-3: "Honeywell Technology is Key to China’s First Precision Landing System Demonstration" reported by Civil Air Navigation Services Organization (CANSO), April 29, 2015.

Using Honeywell Aerospace (SGC)'s SmartPath precision landing system at Shanghai Pudong International Airport, the Civil Aviation Administration of China (CAAC) and Air Traffic Management Bureau completed its first flight demonstration of next generation (GPS)-based precision landing capabilities. This demonstration highlighted how (GPS)-based precision landing systems, called Ground-Based Augmentation Systems (GBAS), can improve the safety and efficiency of airplane operations, especially throughout poor-weather conditions. Precision landings utilize both lateral and vertical information of an airplane's position to provide the most accurate approach and landing.

SmartPath is the world's only (FAA)-certified precision landing system. This cost effective system will increase airport capacity, decrease air traffic noise, reduce weather-related delays, and reduce operating costs for both airplane operators and air navigation service providers for one of the busiest airports in the world.

"China's air traffic has grown exponentially over the years, driven by domestic and international travel," said Brian Davis, VP Airlines, Asia Pacific at Honeywell Aerospace (SGC). "The adoption of (SGC)'s SmartPath at Shanghai Pudong International Airport marks a milestone for the modernization of air traffic management (ATM) in China, where this new technology can ease airplane delays, reduces emissions and improves airport efficiencies in one of the fastest growing economies in the world."

According to the International Air Transport Association (IATA), China will have 415 million fliers annually by 2016, second only to the USA in domestic passenger volume. The upsurge in passengers makes modernization of air traffic management (ATM) a critical issue for China's major hubs.

As a response to growing passenger demand, SmartPath is an important investment to meet demand, drive productivity and ensure airports are better equipped to service airlines and passengers. Combined with performance-based navigation procedures, a twin-engine, single-aisle jet airplane can save per flight approximately 82 kg of fuel and 104 kg of carbon emissions with a reduction of -4 minutes of flying time. This potential for efficiency improvement addresses China's "battle of conserving energy, reducing emissions and improving the environment," which was raised as a national concern by Premier Li Keqiang.

(SGC)'s SmartPath is the only (GBAS) to have achieved operational certifications from regulatory authorities in the USA, Australia, Germany, Spain, and Switzerland. SmartPath overcomes many of the technological limitations of Instrument Landing Systems (ILS), which are the legacy systems used to support precision landings. By utilizing Global Navigation Satellite Systems (GNSS), SmartPath provides a highly accurate position based on digital data, which enables airplanes to fly flexible approach paths that support more efficient terminal operations, while also avoiding common interference issues that are inherent with the analog (ILS) technology. This is imperative especially for airports where terrain, obstacles or restricted airspace limit the optimum use or installation of (ILS).

Honeywell (SGC) partnered closely with Hughes Aerospace Corporation to develop procedures for the trial at Pudong International Airport. "As (SGC)'s partner in performance-based navigation, Hughes worked closely with (SGC), the (CAAC) and the airlines to develop the first (GNSS) Landing System instrument approaches in China," said Chris Baur, President & (CEO), Hughes Aerospace Corporation. "These approaches use the most advanced technology, featuring both curved paths and variable geometric glide paths, delivering advanced precision navigation."

News Item A-4: Serving as a driving force for the integrated development of Beijing, Tianjin, and Hebei province, the optimization of the airline network among the three regions was launched at the end of March, when the summer and autumn flight season arrived.

From March 29, the Civil Aviation Administration of China (CAAC) further optimized the airlines and flights of Beijing Capital International Airport (BCIA), according to the office of the integrated development of civil aviation in Beijing - Tianjin - Hebei.

The number of international flights is going to be increased in order to promote the development of international air routes and enhance competency as a transportation junction. The lagging situation of waypoints in Southeast Asia is going to be improved. The advantages of European waypoints will also be further enhanced.

The lack of waypoints in the international airline network will be fixed, which will expand the covering area of the airline network. In addition, the market share of the transferring flights is going to be improved to optimize the international airlines and increase the weight of connecting transferring flights.

For now, a total of 10 airline companies plan to add international flights at Beijing Capital International Airport, with newly-launched international flights reaching 64 per week.

In addition, Tianjin Airport is going to launch 17 new air routes, including the Tianjin - Chongqing airline. Shijiazhuang Airport located in Shijiazhuang, the capital city of Hebei province, is going to launch five new air routes, including the Shijiazhuang - Dalian route.

During the summer and autumn season, the total number of newly-operated international routes is going to reach 80 per week in Tianjin Airport and 28 per week in Shijiazhuang Airport.

Wang Ruiping, Director of the Office of the Integrated Development of Civil Aviation in Beijing - Tianjin - Hebei, said that from 2016 to 2019, the government is going to continuously disperse the increasing domestic routes and flights to Tianjin Airport and Shijiazhuang Airport, through policy leading and market operation, according to each airport's diversified functional position and airline network optimization blueprint.

A part of the domestic flights operated by the Beijing Capital International Airport, they are going to be divided between Tianjin Airport and Shijiazhuang Airport.

Furthermore, Tianjin Airport will positively communicate with both domestic and international airline companies and take over the surplus airlines and flights of Beijing Capital International Airport, which helps to enhance the regional hub function and further improve the aviation logistics.

Moreover, aiming at becoming a regional hub, Shijiazhuang Airport is going to involve more international and domestic flights operated by low cost carrier (LCC) companies, regional flights, airmail flights and international freights.

In addition, taking over a part of regional flights, Nanyuan Airport, located in the southern part of Beijing, will actively enhance its potential and take more responsibilities before the completion of the new airport in Beijing.

The four airports located in Beijing, Tianjin and Hebei province are going to realize integrated development and achieve optimized benefits.

News Item A-5: A new air corridor, from Guangzhou, capital of Guangdong province, north to Lanzhou, the capital of Gansu province, opened since April 2, is expected to have a tremendous effect on the development of Guiyang, the capital of Guizhou province, near Guangdong.

Guzihou's Civil Aviation Bureau played an important role in opening the air corridor, which is China's third, after the Beijing - Kunming route and Beijing - Guangzhou route, and covers a 1,600 km distance.

The airway development plan calls for nine international airlines and five domestic, as well as 10 airports, including Longdongbao, which will be improved, and more than >300 air routes, connecting the cities of Bijie, Anshun, and Tongren.

There are one-way air routes to improve air safety and the Civil Aviation Authorities expect to see rapid development thanks to the new grand airway and southern transportation juncture.

May 2015: News Item A-1: Air China (BEJ) and Hainan Airlines (HNA) have reported significant improvements in their first-quarter earnings due to robust market demand growth and lower fuel prices, according to industry analysts.

Air China (BEJ) posted a net income of +CNY1.68 billion/+$274 million, up from +CNY93 million in 2013. Hainan Airlines (HNA) reported a first-quarter net income of +CNY921.1 million, up fourfold from +CNY174.6 million year-over-year.

(BEJ)’s operating revenue increased +3.4% to CNY25.26 billion, while operating expenses decreased -5.6% to CNY23.17 billion. (HMA)’s operating revenue grew +6.4% to CNY9.12 billion against a decrease of -5.3% in operating expenses to CNY8.013 billion.

China Eastern (CEA) and China Southern Airlines (GUN) also reported significant first-quarter turnarounds. (CEA) posted a first-quarter net profit of +CNY1.57 billion, reversed from a net deficit of -CNY205 million in the year-ago period. (GUN) reported a first-quarter net income of +CNY1.9 billion/+$178 million, reversed from a net loss of -CNY306 billion in the same period last year.

Industry analysts predict China’s big three carriers will see a better 2015 due to the robust growth of market demand, capacity slowdown, lower fuel prices and stable exchange rates.

Chinese carriers have reported a collective net income of +CNY4.8 billion/+$785 million in April, up sevenfold year-over-year. Total operating revenue was up +9% to CNY35.2 billion, while operating expenses decreased -4% to CNY27.9 billion. Industry analysts credited lower fuel prices and exchange gains resulting from yuan appreciation for the improved performance.

Since fuel costs make up nearly 40% of domestic carriers’ total operating expenses, the sharp decline is sure to improve Chinese airlines’ financial performance. The exchange rate between the USA dollar and yuan grew +0.48% in April, which generated exchange gains of +CNY430 million for Chinese carriers as they purchase airplanes in USA dollars.

Passenger boardings jumped +14% to 35.79 million, with an average load factor of 83.1% LF, up +1.7 points over the year-ago period. Cargo traffic volume rose +6% to 520,000 tonnes.

Looking ahead, industry analysts expect demand on international routes to become a new growth point as they predict international passenger boardings will grow +16% to +18%; demand on domestic routes is predicted to increase +9% to +10%. For this reason, domestic carriers are all boosting their international capacities accordingly.

News Item A-2: China's Civil Aviation Administration (CAAC) has unlocked a new capability for reducing delays and increasing efficiency at the country's most congested airports that could be ready for live operational use by the end of this year. A recent flight demonstration by Honeywell (SGC) and Hughes Aerospace showed the benefits of the SmartPath Ground Based Augmentation System (GBAS) for next generation, Ground Proximity System (GPS)-based precision landings.

Using a China Eastern Airlines (CEA) Airbus A321 and a Shangdong Airlines (SHG) Boeing 737-800, flight crews (FC) demonstrated the first ever Global Navigation Satellite System (GNSS) instrument approaches in China at the end of April. To enable these precision landings, SmartPath's four ground-based antennas take an airplane's (GPS) signals and sends them to a single box located on the airport, which then correlates the signals for a high degree of integrity before beaming it back up to the airplane for precision landing guidance.

"The (CAAC), knowing that they needed to have some very flexible alternatives to the legacy Instrument Landing System (ILS), they asked us to do some very innovative approaches with the system," said Brian Davis, VP Airlines, Asia Pacific at Honeywell Aerospace (SGC). “Honeywell (SGC) and our partner Hughes Aerospace, actually designed and created the flight paths into Pudong airport, not only for the standard approaches but we did four very flexible innovative approaches that have never been done by a commercial airline before. The first one was what we called a displaced threshold, the second was a variable glide-path."

Hughes Aerospace (CEO), Chris Baur also noted that the demonstrations were done in Instrument Meteorological Conditions (IMC), providing a real world flight environment for the airline pilots (FC).

"We built (GLS) approaches to all of the runways at Pudong," said Baur. "We built (GLS) approaches to 35L and 35R, plus 17L and 17R. Then we did something that hasn’t been done anywhere before, where we built multiple (GLS) approaches to one runway. For Runway 35L, we built a straight-in (GLS) approach and variable geometric path approaches, one with a 2.8 degree flight path angle and one with a 3.2 degree flight path angle.

Baur said the team also built two non-linear curved path, or (XLS), approaches for Runway 35L, and the approach was flown to an automatic landing in (IMC) conditions. The trial flights provided a demonstration that exploited all of the benefits of the SmartPath technology, such as the ability to merge (GLS) with Required Navigation Performance (RNP) procedures to create a custom path to the runway based on the type of airplane being flown.

Davis said the implementation of the new procedures at Pudong can provide a model for dealing with wake turbulence issues from different airplanes as well. With heavier airplanes such as Boeing 747s, 777s or Airbus A380s dispersing an enormous amount of wake turbulence from the wings, airplanes in trail behind them are often forced to maintain very lengthy, separation distances. An airport as busy as Pudong can face huge efficiency challenges when this happens.

"The variable glide-path allows the SmartPath station to send a signal to the airplane that will allow it to fly a 2.8 or 2.9 or basically any glide-path one would like. It allows pilots (FC) to fly a much shallower glide-path than they would with an (ILS)," said Davis. "SmartPath allows for up to 26 different approach combinations. That means for the same runway, one can have an approach at a 2.8 degree glide-path. That’s where one brings the A380s and the Boeing 777s in. To the exact same runway, one can actually have the SmartPath station send a signal on a different channel to the smaller airplane that will allow it to come in at a 3.1 degree glide-path, for example, so wake turbulence always disperses downward. If those larger airplanes are brought in at a shallow glide-path and the smaller aircraft in at a steeper glide-path, that means the 737 and A320 are always above the wake turbulence footprint of the larger airplane."

SmartPath has already been deployed in Australia, Brazil, Germany, Spain, and Switzerland, and the (CAAC) sees it as one of the key tools for managing future increases in air traffic. The International Air Transportation Association (IATA) expects China to have 415 million air travel passengers annually by 2016, which would be second only to the USA in domestic passenger volume.

According to Davis, the majority of airplanes coming off of production lines today are equipped with Multi-Mode Receivers (MMR) capable of performing (GBAS) landings, and the localizer guidance and glide slope guidance for a SmartPath approach, looks the same to a flight crew (FC) as if they were flying an (ILS) approach.

Going forward, the new procedures must now be certified by the (CAAC) and Air Traffic Management Bureau. "We should have this station up and certified by the end of 2015, or the early part of 2016, with many airlines ready to fly the new (GBAS) procedures shortly thereafter," said Davis.

News Item A-3: The Civil Aviation Administration of China (CAAC) will inspect the Maintenance Repair & Overhaul (MRO) records and procedures of Thai airlines after an (ICAO) report revealed lapses in compliance standards.

The Thai carriers subject to inspection include NokScoot (NSC), Orient Thai Airlines (OTH), City Airways and R Airlines.

Following the report, which categorized Thai-administered aviation procedures as “of significant concern,” both South Korea and Japan issued bans on new charter and scheduled flight services out of Thailand.

“Civil aviation authorities of China [have said they will] focus on suspected or new airlines,” said Piya Yodmani, (CEO) at startup low-cost carrier (LCC) NokScoot (NSC). “We are ready for the authorities’ examination.”

Yodmani added that NokScoot (NSC), a joint venture (JV) between Thai regional, Nok Air (NKA) and Singapore-based Scoot (SCT) (LCC)s, was hoping for permission to open Don Mueang - Nanjing scheduled services in the coming weeks.” We aren’t worried about any issues as we are certain NokScoot (NSC) will pass the checks,” Yodmani added.

However, it is possible that the majority of Thai charter operations will face a blanket China ban. The (CAAC) is said to be already looking at prioritizing scheduled carriers before charter flights “due to airspace congestion.”

The Thai government has responded to the (ICAO) report with the introduction of two new safety oversight bodies (National Civil Aviation Institute (NCAI) and Air Transport Department (ATD)).

Thai Secretary of the Transport Ministry, Pongchai Kahemthavihak said (ICAO)’s concerns with respect to hazardous cargo and air operator’s certificates (AOCs) have already been addressed, adding that a deadline has been set for the remaining aspects to be addressed.

News Item A-4: Approved on May 8, 2015, Ningxia Cargo Airlines (NGX), the first cargo carrier based in West China, has filed an application to the (CAAC) Southwest Regional Administration for a public air operator's certificate (AOC). The (CAAC) completed its preliminary check and released details on its official website.

The new cargo entity, based in the Ningxia Autonomous Region, has a registered capital of 120 million yuan. Shan'xi Tongyang Investment Management, which has a 53% holding, is the major stakeholder. Xi'an Huijie Logistics Company has a 44% stake and Shannxi Xiangyu Logistics Company, Shanghai Chongda International Freight Company, Shan'xi International Air Freight hold the rest.

Ningxia Cargo Airlines (NGX) is a limited company with Mr Shen Huawei, ex-General Manager of Shannxi International Freight, as its legal representative and President.

Based at Yinchuan Hedong Airport in the Ningxia Autonomous Region, (NGX), the new cargo airline will be licensed for domestic cargo & mail transportation business (including Hong Kong, Taiwan, and Macau), using Boeing 737-300F freighters.

Currently, the new joint venture (JV) has made some preparations for getting the operating license from the (CAAC). It was approved to acquire three Boeing 737-300Fs from Zhejiang Loong Airlines (ZLA), Registration (B-2954, B-2949 and B-2584). Furthermore, the (CAAC) has given the green light to the painting plan of its airplanes.

(NGX) also signed a (CAAC) agreement on ground services with the China West Airport Group and the Ningxia air traffic control (ATC) station of the Air Traffic Management Bureau. The (CAAC) agreed to provide civil aviation communication, meteorology and flight information for (NGX).

Moreover, the (CAAC) assigned 128.875MHZ as its management channel frequency. After (NGX) was registered officially by the International Civil Aviation Organization (ICAO), the Air Traffic Management Bureau of (CAAC) assigned "HTK" code and "Lingbird" as its English radio call sign for the airline; while it will employ "HT" as its (IATA) code. What's more, the new airline also made other preparations, including insurance, legal articles, and more.

Currently, Ningxia Cargo Airlines (NGX) has enrolled 10 pilots (FC), 17 maintenance staff (MT), 6 flight dispatchers and 7 welders for the initial operation.

June 2015: News Item A-1: China’s Airlines Reroute Flights, Refund Tickets to South Korea after Middle East Respiratory Syndrome (MERS), Alert" by (ATW) Jeremy Torr, June 10, 2015.

Following a Middle East Respiratory Syndrome (MERS) Red Alert warning by the Hong Kong government, warning travelers against flying to Korea, Cathay Pacific Airways (CAT) and its subsidiary, Dragonair (DRG) have committed to refunds or re-routing for all existing tickets to Seoul, Busan and Jeju up to the end of August.

In addition, Taiwan-based China Airlines (CHI), (EVA) Air, TransAsia Airways (FSH), and Mandarin Airways (MDN) are also offering full-refund cancellations in the immediate term for Korean flights.

Korea has reported 95 cases of (MERS), with seven deaths in the country. As a result, the Hong Kong Security Bureau issued an Outbound Travel Alert (OTA), advising passengers to avoid “all non-essential travel” to the country.

In addition, Taiwan and Macau have both advised against unnecessary travel to any destination in South Korea, and are mandating that passengers wear facemasks disembarking from Korea-originating flights.

Since the virus was discovered in 2012 in Saudi Arabia, the (MERS) outbreak has killed more than >300 people in more than >20 countries. First identified in Saudi Arabia where it claimed the lives of more than >100, (MERS) is suspected of being spread by respiratory and direct contact vectors.

Cathay Pacific (CAT) and (DRG) say they are “monitoring the situation closely” and have provided extra facemasks, hand sanitizers and gloves for use on any airplanes traveling to Korea. Both carriers are looking at extra sanitation procedures in addition to routine cleaning on airplanes flying to potential infection areas.

News Item A-2: Beijing may merge the cargo subsidiaries of China’s big three carriers (Air China (BEJ), China Southern Airlines (GUN) and China Eastern Airlines (CEA)) in an effort to improve the competitiveness of domestic cargo companies.

News Item A-3: Ruili Airlines (RUI) has committed to purchase 30 737 MAXs with the financial support of (AVIC) International Leasing, amid a surge in China’s passenger traffic. The deal was announced at the Paris Air Show.

The commitment, valued at $3.2 billion at current list prices, will be subject to approval by the Chinese government.

The 737 MAX's will be powered by (LEAP-1B) engines, in an engine order valued at $810 million, according to (CFM) International.

“Today’s agreement demonstrates our ambition to grow from a startup airline to a driving force in China’s growing aviation industry,” Ruili Airlines (RUI) President, Ma Zhanwei said.

(RUI) currently operates 34 daily flights on 11 scheduled routes with a fleet of five Boeing 737s. According to its development plan, the startup carrier will expand its fleet to seven airplanes by the end of this year and 26 by 2020.

Ruili Airlines (RUI) obtained its public air transport enterprise business license from the Civil Aviation Administration of China (CAAC) in February 2014, formally establishing (RUI). The startup airline is the first private carrier approved by the (CAAC) after the regulator relaxed restrictions on new carriers in 2013.

Today's agreement from Ruili Airlines (RUI) continues the momentum of the 737 MAX in the marketplace. The 737 MAX incorporates the latest technology (CFM) International (LEAP-1B) engines, Advanced Technology winglets and other improvements to deliver the highest efficiency, reliability and passenger comfort in the single-aisle market.

News Item A-4: China’s Minsheng Financial Leasing signed an (MOU) at the Paris Air Show to purchase 30 737 airplanes (a mix of Next-Generation 737 and 737 MAX airplanes).

Boeing did not give a numbers breakdown, but (CFM) International issued a statement announcing a (CFM56-7B) engine order to power 10 737s and a (LEAP-1B) order to power 20 737 MAX airplanes. (CFM) valued the engine order at $775 million at USA list prices.

Minsheng VP Aviation Unit, Wang Fuhou said, “Thanks to the continued emergence of low-cost carriers (LCC)s and regional airlines, the single-aisle market is projected to be the fastest growing and most dynamic segment. The Next-Generation 737 of today and the 737 MAX of the future combine market-leading economics, reliability and comfort to meet requirements from airline customers like Ruili Airlines (RUI).”

As one of the first five leasing companies approved by the China Bank Regulatory Committee, Minsheng was founded in April 2008 by China Minsheng Banking Corporation, the largest private commercial bank in China.

Boeing Commercial Airplanes Senior VP Northeast Asia Sales, Ihssane Mounir said the agreement “will allow Minsheng to capture the strong demand in both the domestic and global single-aisle market.”

News Item A-5: The Civil Aviation Administration of China (CAAC) has approved an air operator’s certificate (AOC) for Ningxia Cargo Airlines (NGX), which is to become the first local carrier in the Ningxia Autonomous Region.

The new venture, which is scheduled to launch its inaugural flight in September, will take delivery of three Boeing 737s acquired from Zhejiang Loong Airlines (ZLA) in August.

(NGX) plans to expand its fleet to 50 airplanes by 2020 and open some domestic routes and international routes to the Middle East, Southeast Asian, and Northeast Asia countries.

July 2015: News Item A-1: Profits for China's civil aviation industry reached a historical high in the first half of 2015, said Li Jiaxiang, Chief of the Civil Aviation Administration of China (CAAC) at his mid-year teleconference on July 7 in Beijing.

The conference announced the civil aviation sector is set for what could be the most profitable year in the history despite the slowing economy, with its first-half profit already surpassing that for the whole of last year. Currently, there are 54 airlines and 263 general aviation enterprises operating in mainland China.

According to the statistics released by the (CAAC), the Chinese civil aviation industry accomplished a total turnover volume of 40.51 billion ton kms in H1 2015, up +14.5% year on year, while passenger and cargo traffic climbed +12.5% and +6.6% year on year to 210 million and 2.99 million tonnes, respectively.

"International traffic grew faster than domestic, central and western China grew faster than east, and regional markets grew faster than the main routes. The imbalance of the market structure has been further eased," the aviation authorities announced at the conference.

It is learned that the industry accomplished 4.08 million flying hours and handled 1.74 million airplane movements in the first six months of 2015, up +12.2 percent and +8.7 percent against last year, respectively. No flight accidents or air defense accidents were reported in this period.

News Item A-2: China Eastern Airlines (CEA) is expected to report a first-half net income of +CNY3.5 billion to +CNY3.7 billion/+$571 million to +$604 million, up significantly over the net profit of +CNY14 million in the year-ago period, according to a carrier forecast statement released by the Shanghai Stock Exchange.

(CEA) credited lower fuel prices and robust market demand growth as main reasons for the much-improved performance.

Other Chinese carriers are also predicting huge first-half profits.

China Southern Airlines (GUN) forecasted a huge first-half turnaround in net income of CNY3.4 billion to CNY3.6 billion, reversed from a net loss of -CNY1.018 billion in the year-ago period. Juneyao Airlines (JYA) also said its first-half net income would climb +130% to +170% over a net profit of +CNY191.4 million for the same period last year.

Looking forward, Chinese carriers are expected to continue profit increases in the third quarter. China Southern (GUN)’s net income could increase +124% to 5.102 billion in the third quarter, while China Eastern (CEA) and Air China (BEJ) could post a net profit of +CNY4.743 billion and +CNY4.888 billion, respectively, up +132% and +82% over the year-ago period.

News Item A-3: "Chinese Airlines Accelerate International Expansion"
By Bella Wang, WCARN.com, July 13, 2015.

With the rapid growth in international passenger transport market, not only China's four major airlines - Air China (BEJ), China Southern Airlines (GUN), China Eastern Airlines (CEA) and Hainan Airlines (HNA), but also the medium-sized airlines boost international capacity, the "China Business Journal" reported.

Xiamen Airlines (XIA) will launch 7 new international routes in the summer/autumn flight season of this year, including 4 routes to Southeast Asia, 2 routes to Northeast Asia and 1 route to Amsterdam (Netherlands). Similarly, according to the data, Shandong Airlines (SHG) doubled its international service in 2014, compared to 2013. Meanwhile, Sichuan Airlines (SIC) also launched international routes to Kathmandu, Moscow, Tokyo, and Osaka this year.

Profits for China's civil aviation industry reached a historical high in the first half of 2015, said Li Jiaxiang, Chief of the Civil Aviation Administration of China (CAAC) at his mid-year teleconference on July 7. International traffic grew faster than domestic, central and western China grew faster than east.

The four major airlines accelerate their international expansion pace. In the first quarter of 2015, the growth rate of Air China (BEJ)'s international capacity input was x2.1 times of that of domestic routes, China Eastern (CEA)'s international capacity growth is 2.5 times of its domestic, and China Southern (GUN) and Hainan Airlines (HNA) saw x2.2 times.

According to the civil aviation insiders, the international aviation market is still the world of the top three airlines, which take account for more than >80% of the total market share. According to the statistics, Air China (BEJ) occupies 34% share of the capacity in the international aviation market, ranking the first position. China Southern (GUN) ranked second with 27%, with China Eastern (CEA) grasping another 22% market share.

At present, Hainan Airlines (HNA) has 18 international destinations. (HNA) plans to launch 10 intercontinental routes in 2015, after its Beijing - Chicago, Beijing - Boston, Hangzhou - Xi'an - Paris routes. Different from the top three airlines, the Hainan-based carrier focused on the second-tier cities. It's learned that (HNA) has filed application for launching Changsha - Los Angeles.

"Although the international business only accounts for 13% of Hainan Airlines (HNA)'s total revenue in 2014, (HNA) expects to increase the percentage to 16% in 2015 and 20 to 30% in 2020," said a person in charge of international marketing of Hainan Airlines (HNA).

By contrast, the medium-sized airlines are still in their infancy in the international aviation market. Shanghai Airlines (SHA), Xiamen Airlines (XIA), Sichuan Airlines (SIC), Shenzhen Airlines (SHZ), and Shandong Airlines (SHG) occupy 7.8% of the total international capacity. But the growth rate of the medium-sized airlines is obvious.

News Item A-4: China Southern Airlines (GUN) is expected to make a big turnaround in the first half, according to a statement released by the Shanghai Stock Exchange.

(GUN) predicted it would report a net income between +CNY3.4 billion and +CNY3.6 billion/+$554 million and +$587 million, reversed from a net loss of -CNY1.018 billion in the year-ago period.

(GUN) cited a robust growth of domestic market demand and lower fuel prices as main reasons for the much-improved performance.

Other Chinese carriers are also expected to report huge profits in the first half. According to the Civil Aviation Administration of China (CAAC), China’s airline industry will report a much higher cumulative net income for the first six months of this year than the net profits reported in the whole year of 2014.

Passengers carried by Chinese airlines climbed +12.5% to 210 million, while cargo traffic volume jumped +6.6% to 2.991 million tonnes in the first half, the (CAAC) noted.

China Southern Airlines (GUN) has agreed to purchase 4% equity interests in Xiamen Airlines (XIA) from Xiamen C&D Inc at a consideration of 586 million yuan on July 14, 2015.

The board approved the Jizhong Engergy Group to transfer its all 15% stake in Xiamen Airlines (XIA). The state-owned coal enterprise sold its stake to Xiamen C&D at a total price of 2.2 billion yuan; then transferred the 15% stake in (XIA) to China Southern (GUN) (4%) and Fujian Investment (11%).

Upon completion of the acquisition, (GUN) increased its stake in Xiamen airlines (XIA) from its current 51% to 55%. The shareholding in (XIA) will be 55% held by China Southern (GUN), 34% by Xiamen C&D, and 11% by the Fujian (I&D) Group.

In the first quarter of 2015, Xiamen Airlines (XIA) achieved a net profit of +308 million yuan.

News Item A-5: Aircraft procurement firm, China Aviation Supplies Holding Company (CSC) has signed a “general terms agreement” (GTA) for 45 Airbus A330 family aircraft and a Memo of Understanding (MOU) covering 30 A330 options.

The two agreements were signed by the heads of (CSC) and Airbus (EDS), in the presence of Chinese Premier, Li Keqiang and French Prime Minister, Manuel Valls. “The package order is a new vote of confidence in our A330 family aircraft,” Airbus President & (CEO), Fabrice Brégier said.

Chinese Premier, Li Keqiang arrived in Toulouse from Marseilles on Air China (BEJ) 747-4J6 (1054-25883, /95 B-2447).

Airbus (EDS) already has over >1,150 aircraft in service with Chinese operators, comprising more than >980 A320 family aircraft, more than 150 A330 family aircraft, and five A380s.

(CSC), established in October 2002, specializes in aircraft procurement, support services and supplies. Excluding these most recent agreements, (CSC) has signed 21 package-purchase contracts totaling more than >1,500 aircraft since 2002.

News Item A-6: "Yangtze River Express (YTH) Applied for Chinese Domestic Passenger Traffic Rights" by WCARN.com Lena Ge, July 2, 2015.

Yangtze River Express Airlines (YTH) has applied to the Civil Aviation Administration of China (CAAC) for permission to expand its operation into the passenger service market, according to a notice released on the (CAAC)'s website.

Until now, (YTH) has only been granted rights to operate both domestic (Hong Kong, Macau, and Taiwan inclusive) and international cargo flights.

It is now applying to expand its business scope to cover domestic passenger services as well as domestic (including Hong Kong, Macau, and Taiwan) and international cargo business.

(YTH), based at Shanghai Pudong International Airport (PVG) is a wholly owned subsidiary of the (HNA) Group. Founded in July 2002, (yth) owns a fleet of 23 cargo airplanes, including 20 737Fs and three 747Fs. Until now (YTH) has operated purely as a cargo carrier, offering scheduled and on-demand cargo charter services.

The Department of Air Transportation (CAAC) has begun soliciting public comments on the application until July 15, 2015.

News Item A-7: The aviation authorities of Taiwan and mainland China have decided to boost the number of regularly scheduled nonstop flights across the Taiwan Strait to 890 per week from the current 840, the Civil Aviation Administration of China (CAAC) said July 3rd.

The two sides have agreed to add Huaian, Yangzhou, Nantong, and Yiwu along China's eastern coast, Yanji in northeastern China, and Kashgar in western China, as new destinations to be served by cross-strait routes, according to the (CAAC).

Each side will be allowed to operate three flights per week between Taiwan and those six destinations, which will bring the total number of Chinese destinations covered in the cross-strait flight network to 61, the (CAAC) said.

The other new regularly scheduled flights will be 14 flights a week previously operated as charters, it said.

The decision is a result of a meeting held recently between officials from Taiwan and mainland China. It is unclear when the additional flights will take effect, (CAAC) officials said.

Taiwan and mainland China also decided during the meeting that additional flights will be provided over the Chinese Lunar New Year holiday to meet the peak travel demand traditionally seen at that time, the (CAAC) said.

News Item A-8: China’s new start-up Yunnan Hongtu Airlines (YHA) plans to launch its inaugural flight in October to explore the lucrative Yunnan tourism market.

According to Chairman, Tang Longcheng, the new carrier will initially operate three Airbus A320s, the first of which is scheduled to be delivered in October. The new Kunming-based venture is expected to face fierce competition as there are five domestic carriers (predominantly China Eastern Airlines (CEA)) that operate out of Kunming.

The new entity has a registered capital of CNY600 million/$98 million, in which the Kunming Changqing Financing Guarantee Company holds a 30% stake; Tang Longcheng holds a 20% stake, and Yunnan Huhutong Network Technology Company, Yunnan Defeng Logistics Company, Yunnan Mingtong Logistics Company, Kunming Dongyun Ticket Agency, Kunming Deben Trade Company each hold a 10% stake, respectively.

News Item A-9: "China's New Budget Carrier, Jiangxi Air (JXI) Expected to Take Off in October" By Michelangelo Ji, WCARN.com July 21, 2015.

Jiangxi Airlines (JXI), a start-up carrier proposed by Xiamen Airlines (XIA), is poised to take off this year as the latest addition to China's burgeoning low-cost carrier (LCC) network, according to Zhang Qunzhi, Party Secretary & Deputy General Manager of (XIA).

"We hope to start operations this year, and strive to commence official operations in October," he said.

Jiangxi Airlines (JXI), to launch as a no-frills carrier, would become the second new low-cost carrier (LCC) after Juneyao Airlines (JYA) launched 9 Air (9AL), which offers fares as low as nine yuan.

The new entity has been given the green light by the Civil Aviation Administration of China (CAAC) to launch on June 18, 2015, from its home base at Changbei International Airport in Nanchang, the capital of Jiangxi province.

The start-up carrier is a joint venture (JV) between Xiamen Airlines, which will hold a 60% stake in the venture, and the local state-owned company Jiangxi Aviation Investment Company, Ltd., which will hold the remaining 40%.

Xiamen Airlines (XIA) will initially supply Jiangxi Airlines (JXI) with airplanes, pilots (FC) and cabin crew (CA). Jiangxi Airlines (JXI) will launch with a fleet of five Boeing 737s to major Chinese cities including Beijing, Shanghai, Guangzhou, Shenzhen, and Chengdu, before expanding its fleet to 30 jets by 2020.

With the (LCC) Jiangxi Air (JXI), China Southern Airlines (GUN), which owns 55% of Xiamen Airlines (XIA), would join China Eastern Airlines (CEA) in having a (LCC) subsidiary to cater to the mass market of new flyers.

News Item A-10: "42 Airports in East China Serve 128 Million People in First Half Year" By Bella Wang, WCARN.com July 20, 2015.

In the first half year of 2015, a total of 128.4 million passengers traveled through 42 airports in East China, up +11.1% year on year, according to statistics released by the East China Regional Administration of the (CAAC).

Specifically, domestic passenger traffic registered a +9.3% year-on-year growth to 111.5 million (including 7.77 million passengers contributed by regional routes, with a yearly growth of +2.9%) in the first six months, while that on international rose +25.1% from a year earlier to 16.9 million.

Meanwhile, the total cargo & mail traffic grew +4.8% to 2.75 million tones, among which 1.49 million tonnes were transported on domestic and regional routes, 1.26 million tonnes on international routes.

The 42 airports handled a total of 1.1 million aircraft movements in the first half year, up +8% year on year. Cargo aircraft movements grew +8.4% from a year earlier to 1.03 million.

In addition, Shanghai Pudong International Airport (PVG) topped the list in terms of passenger throughput, cargo and mail volume and aircraft movements. (PVG) served up to 28.99 million passengers, up +15.8% year on year (YOY), and handled 1.57 million tonnes of cargo and mail and 271,044 flights, with year-on-year growth of +2.4% and +10.7%, respectively.

News Item A-11: Chinese carriers are continuing their push towards international expansions, with three carriers applying to the Civil Aviation Administration of China (CAAC) for rights to launch services to Australia, the Middle East, and the Maldives.

Xiamen Airlines (XIA) is seeking rights for daily services on the Fuzhou - Sydney route from October 15, using Boeing 787s.

Capital Airlines (DER) meanwhile, wants to launch a 3x-weekly Beijing - Male service from October 27. It will use Airbus A330s on the route.

On China Southern Airlines (GUN)’s part, it is seeking to launch a daily service on the Guangzhou - Dubai - Cairo - Dubai - Guangzhou route. The services, to commence from June 2016, will be operated using Boeing 787s, 777s and Airbus A330s.

Capital Airlines (DER) will compete with Mega Maldives Airlines (MEG) and sister carrier Hainan Airlines (HNA) on the Beijing - Male service, while China Southern (GUN) will be up against Emirates (EAD) on the Guangzhou - Dubai and Dubai - Cairo legs.

News Item A-12: Northeastern Chinese city, Harbin will offer a 72-hour visa-free entry for international transit passengers from August 1, a move to boost tourism and business.

The policy covers travelers from 51 countries and regions, including the USA, Russia, Britain, France, and Japan. They can enjoy a 72-hour stay in the city upon entry via the Harbin Taiping International Airport, providing they have third country visas and onward tickets to leave for a third country or region within 72 hours.

The move will boost international tourism, commercial and trade cooperation as well as cultural exchanges, said Liu Yang, head of the the exit-entry administration department of the provincial public security bureau.

Harbin airport has already launched direct flights to Russia, Japan, the Republic of Korea and several countries in southeast Asia.

The same visa-free policy is already in place in Beijing, Shanghai, Guangzhou, Kunming, Chengdu, Chongqing, Shenyang, Dalian, Guilin and Hangzhou cities.

News Item A-13: "Chinese Airlines Plan 25 Billion Yuan on New Aircraft for Long-Haul Expansion" By Michelangelo Ji, WCARN.com | July 22, 2015.

Chinese airlines are reporting strong results in the first half of this year. China Southern Airlines (GUN) predicted a huge profit turnaround of a net income between +3.4 billion yuan and +3.6 billion yuan, while China Eastern Airlines (CEA) projected +24,900% to +26,329% growth in first-half profit. Meanwhile, two other privately-owned carriers, Juneyao Airlines (JYA) and Spring Airlines (CQH) expect to achieve huge growth in profits during the same period.

The turnaround came from strong travel demands and the lower fuel prices. The explosive growth from the outbound tourism market and the "One belt and one road" initiative have also bolstered China's demand for global transportation connections, according to Daren Hulst, Marketing Director for China & Northeast Asia, Boeing Commercial Airplanes.

In 2009, long-haul flights only made up 36% of China's aviation sectors, but it has risen to 45% this year, indicating the overall long-haul market has roughly doubled in size. This means the long-haul routes of Chinese carriers have been growing at an annual rate of +20% over the last six years, Mr Hulst said. Especially in the past two years, Chinese carriers increased a 50% market share on long-haul routes. In 2014, more than >30 long-haul routes (over >5,000 miles) were launched.

"It's worth noting that the USA, Europe and Australia are easing visa restrictions for Chinese nationals, so we can expect rapid growth in international air routes operated by Chinese carriers. Boeing (TBC) expects to see a sharp increase in demand for high-capacity, long-haul wide-body airplanes from Chinese carriers," he said.

Although Chinese carriers reported a faster growth rate on international flights than domestic operations in 2014, the scale of the international business remains significantly smaller than domestic, according to statistics released by the Civil Aviation Administration of China (CAAC).

Domestic flights carried 360.4 million passengers last year with an annual growth of +10.1%, whereas international flights had just 31.55 million passengers during the same period at a growth rate of +18.8%.

Of the 3,142 scheduled routes in the Chinese aviation industry, 2,652 routes were domestic and 490 routes were international as of 2014.

With the increasing earings, Chinese carriers are announcing plans to raise funds to restructure their fleets and boost transportation capacity. According to the published financial plans, it is estimated that the Chinese airlines will spend more than >25 billion yuan on purchasing new airplanes.

China Eastern (CEA) announced in April that it would allocate 12.1 billion yuan of the 15 billion yuan it was raising through a private placement to purchase 28 airplanes, including Boeing 777-300ER and 737-800 and Airbus A330-200 and A321.

Hainan Airlines (HNA) also said in April that it would use 11 billion yuan of the 24 billion yuan it was raising to purchase 37 airplanes, including Boeing 737, 787 and Airbus A330 series airplanes.

Juneyao Airlines (JYA) also recently announced a private share placement plan to raise 3.6 billion yuan, partly to buy four A320s. The other Shanghai-based private carrier, Spring Airlines (CQH) said this Monday to buy 21 A320 planes for 12.45 billion yuan, to support for its further international and domestic expansion.

Boeing (TBC) predicts that China will need about 1,500 wide-body airplanes over the next 20 years, equivalent to around 20% of global demand. Boeing 777-300ER and 787 airplanes are deployed on about 75% of Chinese carriers' long-haul routes, including the newly-launched Beijing - Boston, Beijing - San Jose, Nanjing - Los Angeles, and Wuhan - San Francisco services last year.

August 2015: News Item A-1: The Civil Aviation Administration of China (CAAC) will impose restrictions on China United Airlines (CUL) following a series of incidents and mass disturbances.

In a notice, the (CAAC) North China Regional Administration said, starting September 1, it will cut flying hours of (CUL) by -10% and withhold approvals of new air routes, chartered services and additional flights.

In June and July, three serious flight irregularities happened, including physical fights between airline staff and incensed passengers, plus rule-breaking operations by pilots (FC). Besides, the (CAAC) found as many as 50 safety issues and incidents in various aspects of China United Airlines (CUL).

As for the airline staff violating related regulations, they will be grounded for three to six months.

The (CAAC) urged airlines and airport staff to fulfill their responsibilities and attach greater importance to ensuring safe and normal services.

The (CAAC) has ordered 204 airports to tighten security checks and 56 airlines to improve management of dangerous substances, to ensure flight safety during the booming tourism season.

News Item A-2: Listed Chinese airlines have begun reporting eye-watering rise in half-year profits, largely due to cheaper fuel.

In a filing to the Shanghai Stock Exchange August 21, Shandong Airlines (SHG) said it revenue rose +2.69% year on year in the January - June period, but its net profit was up by +364%.

In mid-month, China Eastern Airlines (CEA) reported annual revenue growth of +3.9%, but its net profit soared to +3.56 billion yuan/+US$557 million from +14 million yuan a year ago. Hainan Airlines (HNA) recorded a +0.77% increase of revenue, while net profit grew +231.92%. Listed airlines that have yet to file mid-year reports have said in earnings forecast that their profits are expected to soar.

China Southern Airlines (GUN) was expected to make a U-turn: it lost a billion yuan for the first half of 2014, but will move up to +3.6 billion yuan this half.

Air China (BEJ), the national flag carrier, expects its profit to increase by over >+700%.

Cheap fuel was cited by the airlines as a major reason for the improvement. "Fuel prices fell -37.6% on average. Fuel consumption rose +13.2%, but costs dropped -29.4%," said China Eastern Airlines (CEA).

Stronger air travel demand also played a role. Passenger and cargo transport rose +12.5% and +6.6% year-on-year, respectively.

News Item A-3: 20 Chinese carriers including Air China (BEJ)) and China Eastern Airlines (CEA) have taken delivery of 37 new airplanes totally in July 2015, including 18 Boeing 737-800s, three 777s, 13 Airbus A320s and three A330s.

Among the 37 new airplanes delivered in July, five were delivered to China Eastern (CEA), four to China Southern Airlines (GUN), three to Air China (BEJ), three to Xiamen Airlines (XIA), two to Hainan Airlines (HNA), Sichuan Airlines (SIC), Shenzhen Airlines (SHZ), Chengdu Airlines (UEG), 9 Air (9AL) and Shandong Airlines (SHG), respectively, with one for Lucky Air (LKY), Shanghai Airlines (SHA), Juneyao Airlines (JYA), Tianjin Airlines (GCR), Urumqi Airlines (URQ), Zhejiang Loong Air (ZLA), Capital Airlines (DER), Dalian Airlines (DLN) and Uni-Top (UNT).

Specifically, China Eastern (CEA) received its seventh Boeing 777-300ER airplane on July 30.

A total of 158 new airplanes were delivered to China in the first half of this year, including 24 wide body airplanes and 134 narrow bodies and regional jets. In July, the 37 new airplanes delivered to Chinese airlines include 31 narrow body airplanes and six wide bodies.

News Items A-4: Chinese carriers are accelerating their expansion into the Japanese market following an increased traffic rights agreement between the two countries.

Industry analysts predict the number of Chinese travelers who visit Japan will reach more than 4 million in 2015, which would make China the No 1 tourist source nation for Japan.

China Southern Airlines (GUN) and its subsidiaries Xiamen Airlines (XIA) and Sichuan Airlines (SIC) are expected to open 30 new routes to Japan this year. It is opening new direct flights to Tokyo Haneda Airport in August, which increases China Southern (GUN)’s Japanese destinations to 12.

News Item A-5: "Sanya Airport Expects to Handle 16 Million Passengers in 2015" By Joy Wong, WCARN.com, August 12, 2015.

Passenger numbers exceeded >10 million at Sanya Phoenix International Airport (SYX) on August 10, which is the airport's fifth consecutive year of handling more than >10 million passengers.

The airport expects to handle 16 million passengers by the year end.

Since the summer flight schedule 2015, the airport has received +14.6% more passengers than the same period a year earlier. Four airlines have launched and added +10 more flights from the airport to destinations such as Osaka, Seoul, Singapore, Yiwu, Guangzhou, Beijing, etc.

Sanya Airport will accomplish its phase three expansion project by the end of 2017, expanding its total terminal area to 100,000 sq m and increasing the number of its parking bays to 70. By then, the airport will be capable of handling 20 to 25 million passengers annually.

News Item A-6: Two Chinese airlines are planning to launch new direct flights to Australia in the coming month, allowing passengers from more Chinese cities to head "Down Under."

The Civil Aviation Administration of China (CAAC) revealed that both Hainan Airlines (HNA) and China Eastern Airlines (CEA) have applied for new routes, all of which will be new city pairs.

(HNA) is seeking permission to launch to Sydney from both Xi'an and Changsha, the respective capitals of China's Shaanxi and Hunan provinces. Commencing in November 2015, these services will operate 2x-week.

(CEA) meanwhile, has submitted an application to launch three weekly flights from Shanghai to Brisbane on January 16, 2016. The request follows the Australian Competition & Consumer Commission's (ACCC) recent approval of the proposed joint venture (JV) between Qantas (QAN) and (CEA), and (QAN) would act as a code share partner on the new route.

Both (HNA) and (CEA) plan to deploy their twin-aisle Airbus A330 aircraft on the new routes.

The move follows other recent announcements of Chinese airlines commencing flights to Australia. Xiamen Airlines (XIA) has already confirmed plans to launch flights to Sydney from both Fuzhou and Xiamen (two cities in southeast China's Fujian province) in November and December this year, respectively. The new flights will be serviced using a Boeing 787 Dreamliner airplane.

And China Southern Airlines (GUN) will add extra flights from Guangzhou to Sydney and Brisbane, as well as launching three weekly 787 Dreamliner flights to the New Zealand city of Christchurch in December 2015.

All of which means that by the end of 2015, six Chinese airlines will be operating direct flights to Australia: Air China (BEJ), China Southern (GUN), China Eastern (CEA), Hainan Airlines (HNA), Sichuan Airlines (SIC), and Xiamen Airlines (XIA).

September 2015: News Item A-1: On September 22, 23 and 24, China's President Xi Jinping made a state visit to USA's Pacific Northwest's Seattle, Everett, Redmond and Tacoma.

During the three day USA state visit by Chinese President Xi Jinping, he stayed at a hotel in Seattle. He then visited the Boeing plant at Everett and toured the Boeing 787, 777 and 747-8 final assembly lines in Everett, Washington.

See photo - - "CAC-2015-09 - Chinese President Boeing Visit.jpg."

During the visit to Boeing (TBC), President Xi Jinping confirmed 300 airplanes orders/commitments from Chinese companies and said a joint venture (JV) 737 “completion” facility will be opened in China.

The 300 orders/commitments are divided among Chinese leasing companies and Chinese airlines. Wide bodies comprise 50 of the orders/commitments while 250 are for 737s. The 300 airplanes are valued at $38 billion at list prices.

Boeing (TBC) said that it has entered into an agreement with the Commercial Aircraft Corporation of China (COMAC) (CCC) to open a joint venture (JV) facility in China for “interiors completion, paint and delivery of Boeing 737 airplanes to Chinese customers.” The airframes will still be built in Washington state, before being flown to China for the completion work.

Boeing Commercial Airplanes (BCA) President & (CEO), Ray Conner said, “Boeing (TBC) is expanding our longstanding relationship with Chinese industry to meet vital goals for our company: We are bringing the Boeing 737 closer to our Chinese customers, supporting rising 737 production rates and enhancing our access to China’s dynamic and fast-growing aviation market. The 737 will be a cornerstone of the Chinese fleet for years to come, and we look forward to delivering 737s to Chinese customers in China.” Ray Conner noted that “China is our largest international market, accounting for about 1 in 4 of our deliveries so far this year. Going forward, China will be the largest commercial aviation market in the world.”

News Item A-2: Air China (BEJ), China's flag carrier, recently reported its net profit attributable to shareholders surged +730% to 3.938 billion yuan in the first half of 2015, owing to lower fuel prices and strong travel market demand.

(BEJ), the Beijing-based flag carrier registered 12.4 billion yuan revenue on international routes, up +11.16% year on year. It accounted for 27.26% of passenger transport revenue this year, jumping +1.88% from the same period of last year.

Meantime, China's four largest airlines all reported strong growth in (H1) profit this year. China Eastern Airlines (CEA) recorded a 237-fold increase to 3.564 billion yuan for the first six months ended June. China Southern Airlines (GUN) posted a +3.483 billion yuan profit for the first half of 2015, up +440% from the same period of 2014. Hainan Airlines (HNA) earned a net profit of +1.6 billion yuan, 2.3 times as the 2014 (H1) net profit. These four airlines' net profit came in to 12.584 billion yuan, up around +630% year on year.

Chinese airlines are speeding up their efforts to expand international routes. Air China (BEJ) has a obvious advantage in the market competition on international routes. It is the largest carrier on Sino-America and Sino-Europe routes, occupying nearly 50% market share in North America and 60% market share in Europe.

Air China (BEJ) put its main international transport capacity on Europe, Japan, and South Korea for the first half of this year, and started the Beijing - Los Angeles, Beijing - Paris and other services. (BEJ), the flag carrier has kept a +40% growth market share in North America for three consecutive years, and will increase by +26% on this basis this year.

Airline insiders expressed that in the next half year, they will continue their endeavors in launching long-haul routes, especially transcontinental routes, such as Beijing - Montreal, Beijing - Cuba, etc. With the launch of the Beijing - Johannesburg service at the end of 2015, Air China (BEJ) will lead other Asian airlines to fly nonstop to five continents.

Airline insiders also revealed that Beijing's second airport will break the capacity bottleneck of Beijing Capital International Airport (PEK), creating more slot resources for Air China (BEJ), which will further promote the flag carrier's profit growth despite severer competition in international market share among the new Beijing airport-based airlines including (CEA), (GUN), (HNA), etc.

News Item A-3: The Civil Aviation Administration of China (CAAC) has approved the (HNA) Group’s subsidiary Guilin Airlines, which is expected to formally launch by January 2016. Initially, it will operate Airbus A319 aircraft and hire staff from the (HNA) Group subsidiary, Capital Airlines (DER).

The new venture has a registered capital of CNY600 million/$94 million, comprising 60% ownership by Guilin Tourism Development (with a CNY360 million investment) and 40% holding by Guilin Air Travel Group (with a CNY240 million investment). Guilin Air Travel Group is a joint venture (JV) launched by the (HNA) Group and the Guilin municipal government.

China’s local governments are competing to develop airlines’ business by increasing capacities or setting up new airlines to stimulate local economic growth. As Chinese domestic carriers partner with local governments, they seek cash support and favorable policies in terms of tax, landing and ground-handling fees, and land resources.

(HNA) has launched Fuzhou Airlines (FZH), Urumqi Airlines (URQ), Beibu Gulf Airlines (GXA) with different local governments, and plans to launch Ningbo Airlines with the Ningbo municipal government.

News Item A-4: Chongqing Airlines (OQ) is planning to launch its first international service to Bangkok, Thailand at the end of this year, local newspaper reported.

The regional carrier will operate Airbus A320 aircraft on the new international service. According to a source familiar with the matter, flight OQ2349 is scheduled to take off from Chongqing Jiangbei International Airport (CKG) at 11:00 p.m. and arrive in Bangkok at 1:00 a.m., the next day; while the return flight OQ2350 will leave Bangkok at 2:10 a.m. and reach Chongqing at 6:35 a.m. (all local time).

Specifically, Chongqing Airlines took delivery of an Airbus A320 aircraft on September 2, which further expands the carrier's fleet and provides more capacity for the peak season.

The newly-introduced Airbus A320 jetliner, Registration B-1827, is equipped with 152 seats in three-cabin layout, including eight first class seats and 24 premium economy class seats and 120 economy class seats.

Currently, the Chongqing-based carrier operates 66 flights daily on 30 domestic routes. The planned Chongqing-Bangkok service will be the airline's first international flight, marking a new chapter in the history of its development.

News Item A-5: The Civil Aviation Administration of China (CAAC) has penalized both China United Airlines (CUL) and two pilots (FC) who reportedly started a fight in the cockpit.

The (CAAC) has imposed a 10% reduction on (CUL)’s existing route time, and in addition has restricted it from opening up any new flight routings, either scheduled or charter. The (CAAC) also banned the two pilots (FC) from flying for six months, and said the incident was “one of a series of contraventions” that China United (CUL) had seen, that resulted in flight bans on both the pilots (FC) and (CUL).

Beijing-based China United Airlines (CUL) is a low-cost carrier (LCC), which is an offshoot of full-service China Eastern Airlines (CEA), and operates a fleet of 30 Boeing 737 airplanes to mainly tier-two cities out of Beijing’s regional airport, Nanyuan.

The (CAAC) said (CUL) had recorded “seriously violated regulations” over the last two months, with one of its airplanes recently certified as not suitable to fly by pre-flight inspectors.

In another recent incident, one of China United (CUL)'s flights was recorded as flying “below a minimum safe altitude,” according to another report.

News Item A-6: Wang Zhiqing, Deputy Chief of the Civil Aviation Administration of China (CAAC) (CAC) met with Ms Fang Liu, Secretary General of the International Civil Aviation Organization (ICAO) on September 29 in Beijing - see photo "CAC-2015-09 - CAAC meets ICAO.jpg."

During the meeting, the two parties exchanged in-depth views, strengthening cooperation between the (CAAC) and (ICAO).

News Item A-7: Tibet marked the 50th anniversary of regular flights this year. During the celebration of 50 years of flight to Tibet, the Civil Aviation Administration of China (CAAC) and the government of Tibet Autonomous Region have reached agreement to boost its civil aviation development, encouraging airlines to launch more international services linking Lhasa to Southeast Asia and South Asia.

According to the agreement, Tibet's air route network will be expanded. The new route connecting Chengdu to Lhasa will be launched with (CAAC)'s support and the frequency of Chengdu - Linzhi will also be enhanced. Flight schedules will show favor to Tibet-bound flights.

Airline companies are encouraged to launch direct flights from Tibet to Beijing, Tianjin, and Hebei, the cities that provide direct assistance to Tibet, as well as the cities in the Yangtze River Delta and Pearl River Delta.

In the meantime, airport layout will be improved in the region. The Tibet government and the (CAAC) will make joint efforts to develop Lhasa Gongga Airport (LXA) into an air hub, and build Nyingchi Airport (LZY) as Tibet's second air corridor. Meanwhile, Qamdo Bamda Airport (BPX), Ngari Gunsa Airport (NGQ), and Shigatse Peace Airport (RKZ) will improve their service functions. A series of preliminary project of new airports in Tibet will be sped up, along with the key project and support facility construction at Nyingchi Airport.

News Item A-8: Air China (BEJ)’s subsidiary, Shandong Airlines (SHG) will sell its 20% stake in Qingdao Airlines (QDO) for CNY200.8 million/32.8 million.

In July, Shandong Airlines (SHG) transferred its 20% stake to a subsidiary of the Nanshan Group, but Shandong Airlines (SHG) so far hasn’t identified which company would purchase the stake.

Qingdao Airlines (QDO), the Qingdao-based carrier has a registered capital of CNY1 billion, in which the Nanshan Group holds 55% ownership, while Shandong Airlines (SHG) holds 20% and Qingdao Transport Development Group (QTDG) holds the remaining 25%. In August, (QTDG) sold its 25% stake in Qingdao Airlines (QDO) to the Nanshan Group for CNY251 million.

After the deal is complete, (QDO) is expected to be renamed as “Xinlong Airlines.” (QDO) has posted consecutive net losses since its launch in June 2013. It posted a net loss of -CNY29.16 million in 2013 and -CNY172 million in 2014. It also reported a net deficit of -CNY105 million for the first seven months of this year.

(QDO) operates six Airbus A320-200s on more than >18 domestic routes. It plans to expand its fleet to 50 aircraft in 2020 and to 100 in 2025.

News Item A-9: China Southern Airlines (GUN) has selected Thales (THL) Dual Head Up Displays (HUD) configuration across 30 of their new Airbus A320s, alongside the company’s Flight Management System (FMS) and Low Range Radio Altimeter (LRRA). The order represents Thales (THL)'s largest contract for (HUD)s and the first for a dual configuration system since the Civil Aviation Authority of China (CAAC) made it mandatory for all Chinese registered aircraft to be equipped with (HUD)s.

The dual configuration developed by (THL) was certified by Airbus (EDS) in early 2015. (THL) will equip its (HUD)s across China Eastern (CEA), Sichuan Airlines (SIC), and China Loong Air (CDC), as well as Spring Airways (CQH.

October 2015: News Item A-1: "China-Made ARJ21-700 Regional Jet Set for Delivery, But No USA Certification" by Siva Govindasamy, & Matthew Miller, "Reuters" October 21, 2015.

The (COMAC) (CCC) ARJ21 regional jet, which can seat up to 90 passengers, received the Civil Aviation Administration of China (CAAC) type certification last December and will be delivered to launch customer Chengdu Airlines (UEG) shortly, two people familiar with the plane's program told "Reuters."

The plane will fly without USA Federal Aviation Administration (FAA) certification, despite a five-year effort to have the (FAA) endorse (CAAC)'s certification procedures, the people said.

An (FAA) type certificate would have boosted the reputation of the airplane's developer, the Commercial Aircraft Corporation of China (COMAC) and cleared the way for the plane to be sold and operated globally (though expectations for foreign sales had been low). Without it, the aircraft can operate only in China and some Asian, African, and South American countries that recognize the (CAAC)'s certificate.

Chengdu Airlines (UEG), a low-cost carrier (lcc), is expected to fly the plane on commercial domestic operations in the first quarter of 2016. (COMAC) has received nearly 350 orders for the ARJ21, mainly from Chinese airlines and leasing firms.

* Shadowing:

Since 2010, the (FAA) has undertaken a shadow certification process to assess the (CAAC)'s ability to conduct a technical assessment of aircraft. But tensions arose between the two regulators last year over various technical and bureaucratic issues, before the process ended in early 2015, those familiar with the program said.

People close to (COMAC) believe the (FAA) also was dragging its feet in part because of bilateral political and economic considerations. "While the (CAAC) wanted to learn from the (FAA), they felt the Americans were too rigid and unnecessarily delaying things. And the longer the delay, the greater the embarrassment to the Chinese," said one of those individuals.

However, a (CAAC) official responsible for certification and people close to the (FAA) stressed that the two regulators were still working to resolve outstanding issues as a "top priority."

In an emailed response to "Reuters" for this article, the (FAA) said the ARJ21 was never intended to be certificated by the (FAA) under the "shadow" evaluation process, and (COMAC) planned a derivative model of the plane to comply with (FAA) standards.

"The (FAA) enjoys a good working relationship with the (CAAC) and we continue to work together to develop a path to work towards certification of the derivative model of the ARJ21 and, possibly, the C919," the (FAA) said, referring to the C919 narrow-body jet, China is developing to compete with the Airbus A320 and Boeing 737 models.

Also, the (FAA) said it could certify an airplane, after it enters service, if it can be shown to comply with all relevant airworthiness and manufacturing standards.

* Aviation Cooperation:

Putting the ARJ21 into service without (FAA) certification would be a setback to USA and China aviation cooperation, arguably one of the outstanding achievements, since the two governments re-established diplomatic relations in 1979.

Chinese airlines have bought hundreds of Boeing (TBC) jets as the country's aviation sector opened up and boomed, and Boeing (TBC) plans to open a completions and delivery center in China for its 737 airplane, its first plant outside the USA.

USA aerospace firms have also invested heavily in China, and companies such as General Electric (GE), Rockwell Collins, Honeywell (SGC), and United Technologies (PRW) are suppliers for the ARJ21 and C919 jet.

"It could be seen as a loss of face for the Chinese, given they deem (FAA) certification, a key rite of passage for what will be the first domestically built jet to enter commercial service," said Greg Waldron, Asia Managing Editor at Flightglobal, an industry news and data service.

(COMAC) could eventually ask the European Aviation Safety Agency (EASA) to certify the ARJ21, once it has been delivered, and ask it to help with the C919 as well, people familiar with the program said.
"Given the effort and prestige, China is pouring into the C919, obtaining (FAA) or (EASA) certification is a definite requirement both for the image of the program, and the ambition to garner foreign sales," said Waldron.

"We don't know if and when the Chinese authority will apply to us for a certification," an (EASA) spokesman said.

* "Learning Experience:"

China has been working for 40 years to produce and deliver a homegrown commercial airliner.

It first developed the Y-10, a four-engined jet, in the 1970s, but never delivered it to customers. It has exported some MA-60 turboprop planes, a civil version of the license-produced Soviet-designed Antonov AN-24 military transport.

(COMAC) plans to eventually upgrade the ARJ21, so it's closer in performance to regional jets made by Embraer (EMB), Mitsubishi Aircraft (MRJ), and Bombardier (BMB).

The current version of the ARJ21 and the program itself, is a "learning experience," said Richard Aboulafia, aerospace analyst at the Teal Group. "Any airline forced to operate this jet, will be at a severe competitive disadvantage against any airline with a modern aircraft."

That means China's hopes may rest on the C919.

(COMAC) aims to complete its flight test and certification program in less than half the time it took with the ARJ21, say those familiar with the company's plans. "It has engaged foreign suppliers experienced in global aircraft programs with Airbus (EDS) and Boeing (TBC) much earlier, and they're far more involved in the C919," said one of those familiar with the program.

"(FAA) or (EASA) certification would legitimize the program and create interesting new opportunities for China's aerospace sector. Such certification would be a watershed development," added Waldron at Flightglobal.

News Item A-2: China’s big three carriers have all reported a 9-month profit increase net profit due to robust market demand growth and low fuel prices.

Air China (BEJ) predicts it will post a net income of +CNY6.1 billion/+$1 billion - CNY6.3 billion from January to September, up +92% TO +100% over a net income of +CNY3.16 billion in the year-ago period.

China Eastern Airlines (CEA) expects to earn a net income of +CNY5.2 billion TO +CNY5.4 billion for the first nine months of this year, up +153% to +162% over the net income of +CNY2.058 billion in the year-ago period.

China Southern Airlines (GUN) forecasts a nine-month net profit of +CNY4.6 billion to +CNY4.8), up +266% to +282% over a net profit of +CNY1.257 billion in the same period last year.

However, it is noteworthy the big three carriers experienced a profit decline in the third quarter. China Southern (GUN) expects to report a third-quarter net income of +CNY1.118 billion to +CNY1.318 billion, down -42% to -50.8%, while Air China (BEJ) predicts it will post a third-quarter net profit of +CNY2.16 billion to +CNY2.36 billion, down -11.9% to +19.4%. China Eastern (CEA) predicts it will report a third-quarter net income of +CNY1.64 billion to +CNY1.84 billion, down -9.8% to +19.6% over the year-ago period.

Industry analysts are citing yuan depreciation as the main reason for the third-quarter profit decline, but they remain optimistic about the overall yearly outlook.

News Item A-3: On the opening day of the Air Traffic Control (ATC) Global Show in Dubai, Thales (THL) announced its continued growth in China, with the signing of a contract to implement its latest Air Traffic Management (ATM) automation systems for the Shanghai Metroplex air space.

(THL) and Beijing Easy Sky Technology (BEST), a Thales – (TEDC) joint venture (JV), have jointly signed a contract with the Civil Aviation Authority of China (CAAC), East Air Traffic Management Bureau (ATMB), in order to implement a new (ATM) automation system in Shanghai.

Through this contract, (THL), together with (BEST), will upgrade the Shanghai airspace and airport management systems. This will include the Shanghai terminal manoeuvering area and surface operations at Shanghai Pudong and Shanghai Hongqiao airports.

The contract includes implementation of Thales "TopSky-(ATC)." Thales will also deploy "TopSky-Tower," its advanced, integrated tower automation suite, at both Shanghai airports. Airport and airspace traffic flows will be sequenced and balanced using (MAESTRO), Thales's fully integrated arrival and departure management system.

This is a crucial contract for the region, as collectively, the Shanghai Metroplex (incorporating both Shanghai airports) ranks just behind Beijing in China, and is in the top 10 in the world, in terms of air traffic movements. With air traffic in the region set to grow at a steady +20% over the next 10 years, the modernization program will be instrumental in maintaining the projected growth rate, while supporting excellence in air safety for the Shanghai Metroplex.

News Item A-4: The visa relaxation rules for Chinese tourists will bring in more tourists to Malaysia, said Chinese Ambassador to Malaysia, Dr Huang Huikang.

Commenting on the relationship between Malaysia and China, Dr Huang said both countries had historical, cultural, traditional, and blood ties which have surpassed many centuries. "I am promoting Penang aggressively to Chinese businessmen and Chinese manufacturing companies to be major investors in the state in the near future," he said after making a visit to the Penang Chinese Chambers of Commerce.

Dr Huang also said the Chinese Consul General office would be operational by the end of the year to facilitate visa requirements for Perak, Penang, Kedah, and Perlis.

He said Air China (BEJ) would resume its Beijing - Kuala Lumpur direct flight from now onwards while Malindo Air (MXD) would also start its Kuala Lumpur - Penang - Hainan route next month. He added that another airline in China was also planning to launch a direct flight from Hainan to a destination in Malaysia.

Dr Huang also tried out the famous cendol stall in Lebuh Keng Kwee after attending the opening of a solar factory on the mainland. He walked to the stall with his wife Zhao Shumei from his hotel to savor the signature delicacy. "The cendol tastes the same as the one from my hometown of Zhe Jiang. Although I've been to Penang several times, this was my first visit to the cendol stall," he said.

News Item A-5: "Maintenance Outlook Improves in China with Lower Pay Increases" by Bradley Perrett, "AVIATION WEEK," October 25, 2015.

A few years ago, anyone with a sharp pencil had to wonder how long China could remain a big player in heavy airframe maintenance. For years, wages had been rising +10% annually. As that rate continued, labor costs doubled every seven years. Even the greatest Maintenance Repair & Overhaul (MRO) managers in the world could not deliver equivalent efficiency gains year after year. Inevitably, competitiveness would decline.

The day of reckoning now looks a lot farther off. The economy is slower, competition from other industries is lower, the training system (finally) is more or less meeting the demand for airframe maintenance technicians (MT), and wage increases are now probably much less than <10% a year.

Some managers say finding and keeping people with the right skills is now easier. That is consistent with the airlines' view of the situation. For as long as anyone could remember, airlines had been hard pressed to find maintenance technicians (MT), but availability seems notably easier, if not exactly abundant.

On the other hand, China's increasingly liberal attitude to licensing airlines is creating a new problem for (MRO) operators. Every new carrier needs a team of people with key skills (and will pay as much as necessary to get those employees, including those in maintenance).

Exact figures for the current pace of wage hikes are unavailable, but Norbert Marx, General Manager of Guangzhou-based, (MRO) shop GAMECO at China Southern (GUN), estimates it is now only +5% and that it has dropped from 10% about three years ago. Other senior managers in the industry think +5% is plausible, while others place the rate a little higher.

That +5% is an interesting number for a special reason. It corresponds to a common estimate of the rate at which efficiency can be raised (not for decades, but for at least a few years). Output per worker hour in China has never ceased to rise, but there is still considerable room for improvement. Plenty can be learned from high-wage Western Europe, where best practices are essential for survival. If Chinese efficiency gains match wage increases for the rest of this decade, industry profitability will be quite stable.

Two factors may be most responsible for the unaccustomed restraint in Chinese wages. One is that Gross Domestic Product (GDP) growth (and therefore, roughly parallel, the rate of income rising across the economy) has dropped to, at best, 7%. Historically, it was about 10% a year (in real, inflation-adjusted terms; the amount of yuan deposited in the bank each month for the average Chinese was actually increasing a little faster than that, and thus faster than what the (MRO) sector was struggling with).

The silver lining from slower (GDP) growth is less disruption for businesses reliant on moderate labor rates. Chinese (MRO) employees' expectations are no longer advancing as fast. Moreover, other industries, such as manufacturing, are not well placed to throw around cash to lure airframe repairers into, for example, automotive assembly.

A second factor is that the (MRO) industry is training more personnel. Demand begets supply, which for skilled labor means schools, especially company training systems. The larger (MRO) shops in China are each turning out hundreds of graduates a year, fed by universities and technical schools that supply young people who already know a thing or two about, for instance, working with sheet metal.

Aviation remains an appealing industry in China, said Marx. And, although living in Singapore as a mechanic is hard, it can be done in China. "In Guangzhou we can find enough people [who] are interested in the job," he says. (GAMECO)'s staff turnover is 4%; a few years ago it was 6 to 7%.

Location affects staff turnover, however. A senior manager with an (MRO) operation in well-developed eastern China, complains that the appearance of each new airline, results in demand for skilled maintenance people. (MRO) operators can hardly lift workforce-wide wages in response, so every so often a group of important people quits. The problem is not critical, says the manager, but it is more than a mere annoyance.

After several years of restraint, the Civil Aviation Administration of China (CAAC) resumed licensing airlines without government connections in 2013. The policy appears aligned with the liberalizing attitude of the administration of President Xi Jinping.

The senior manager estimates industry-wide wage growth at +5 to +10%, perhaps about the middle of that range. Less positive about the labor market than others, he does not see a trend improvement in the supply of skills.

Labor rates are far less of an issue in the capital-intensive engine maintenance business. In recent years, (MTU) Maintenance Zhuhai has been able to hire enough employees, says (CEO), Frank Bodenhage. The company has not needed to hire many people, he adds. "There are, of course, differences from skill to skill, and position to position, with highly skilled and experienced people being the most difficult ones to find."

News Item A-6: ("CAAC): Ranking of Airline On-time Performance in September 2015" by Joy Wong, WCARN.com, October 27, 2015.

The on-time performance of Chinese passenger airlines averaged 73.87% in September 2015, up +11.33% points year on year and +16.76% points month on month, according to the data released by the Civil Aviation Administration of China (CAAC) on October 21.

Data shows that 34 passenger airlines operated 285,203 flights in September and delivered 73.87% of their flights on time. Flights were delayed or cancelled due to air traffic control (ATC) (29.08%), weather (27.25%), military activities (18.99%), and airlines' own problems (17.32%).

Joy Air earned the top spot out of the nation's 34 passenger airlines, with 88.87 % of its flights arriving as scheduled in August, followed by Qingdao Airlines (QDO) and Shandong Airlines (SHG) with 87.69 % and 81.82 %, respectively.

Yunnan Ying'an Airlines was ranked at the bottom of the list with only 48.21 % of its flights operated on time.

Thirteen airlines' on-time performance was higher than the average rate, including Joy Air, Qingdao Airlines (QDO), Shandong Airlines (SHG), Juneyao Airlines (JYA), Air China (BEJ), Loong Air, Hainan Airlines (HNA), Kunming Airlines (KMG), Sichuan Airlines (SIC), Capital Airlines (DER), Okay Airways (OKA), China Southern Airlines (GUN), and Shanghai Airlines (SHA).

The 10 major airlines, operating more than and including 200 flights daily, delivered 74.37% of their flights as scheduled on average, up 11.24% points year on year and 16.57% points month on month.

In September, flights were delayed by 14 minutes on average, 7 minutes less than last year and 18 minutes less than last month. Among all the unpunctual flights, 25,694 were delayed by less than 30 minutes (36.61%), 21,619 delayed by 30 minutes and 1 hour (30.81%), 14,416 delayed by 1 - 2 hours (20.54%), 5,129 delayed by 2 - 4 hours (7.31%) and 1,743 delayed by over >4 hours (2.48%).

News Item A-7: "Air Passenger Numbers Up +11.7% in First 9 Months - (NDRC)" By Lena Ge, WCARN.com October 27, 2015.

China's civil aviation sectors saw steady growth in both passenger and cargo traffic in the first nine months of this year, according to statistics released by the National Development & Reform Commission (NDRC).

Statistics shows that passenger traffic turnover rose +15% to 543.2 billion passenger-km in the first three quarters. Chinese airlines carried 330 million passengers during the period from January to September 2015, up +11.7% year on year, the (NDRC) said.

December 2015: News Item A-1: "Spring Airlines to Take 60 A320neo Family Aircraft" by (ATW) Victoria Moores, December 3, 2015.

Spring Airlines (CQH) has announced plans to acquire 45 Airbus A320neos and 15 A321neos to the Shanghai Stock Exchange, in a deal valued at $6.3 billion at list prices.

Following “tough” negotiations with Airbus (EDS), the Chinese budget carrier said it had signed a purchase agreement for the 60-aircraft acquisition on December 3.

(CQH)’s directors “unanimously” agreed the aircraft purchase, which will be used to add capacity and meet growing demand. However, the deal still needs to be ratified by (CQH)’s shareholders.

Under the agreement, Airbus (EDS) has committed to deliver the 60 aircraft over the period from 2019 to 2023.

Meanwhile, cargo turnover reached 1.49 billion tonne-km, up +10.2% compared with the same period of 2014. Cargo & mail traffic amounted at 4.54 tonnes, up +5.7% year on year.

November 2015: Jiangxi Airlines (JXI) (the new venture of Xiamen Airlines (XIA) in conjunction with the Jiangxi provincial government) is expected to launch flights in January 2016, according to General Manager, Wu Xiangyang. It secured approval from the Civil Aviation Administration of China (CAAC) in March 2015.

The new Nanchang-based carrier initially plans to operate three aircraft on domestic routes from Nanchang to Xi’an, Urumqi, Chongqing, Shenzhen and Xiamen. It plans to expand its fleet to 20 aircraft by 2020.

Jiangxi Airlines (JXI) has a registered capital of CNY2 billion/$325 million. (XIA) holds a 60% stake (including aircraft and the assets of Xiamen’s Nanchang Branch Company) and the Jiangxi Aviation Investment Company, representing the Jiangxi provincial government, holds a 40% stake with a CNY800 million investment.

It also plans to launch international charter services, including Xianli - Nanchang, Nanchang - Yazhuang, Nachang - Bali.

December 2015: News Item A-1: The Northeast Bureau of the Civil Aviation Administration of China (CAAC) has approved the launch of low-cost carrier (LCC) Northeast Airlines on June 6, 2016.

Northeast Airlines (Shenyang) is a Chinese start-up planning to launch budget operations in the country's north-east, using a fleet of A320s. Having secured regulatory approval from the Civil Aviation Administration of China (CAAC), the carrier has set a June 6, 2016 launch date for the start of commercial operations. Initially, Northeast will cover the Beijing and Shanghai metropolitan areas before expanding abroad.

News Item A-2: Colorful Guizhou Airlines, a start-up regional carrier in Southwest China's Guizhou Province, has filed an application for an air operator's certificate (AOC) from the Civil Aviation Administration of China (CAAC), paving the way for it to launch the maiden flight on December 28. The (CAAC) has already completed preliminary review of the start-up's application, according to a statement released on the (CAAC)'s website.

News Item A-3: "Jiangxi Air Unveils Its Logo & Livery, Introduces First 737-800, December 15, 2015.

A brand new 737-800 airplane painted with a dancing crane and blue and white porcelain on its tail landed smoothly at Nanchang Changbei International Airport (KHN) at 11:50 am on December 14, marking that the start-up carrier, Jiangxi Air (RY) officially took delivery of its first airplane.

News Item A-4: "Beijing Capital Airport Serves 80 Million Passengers from January -November" December 15, 2015.

As the world's second largest airport for five consecutive years, Beijing Capital International Airport (PEK) has handled over >80 million passengers from January - November this year, breaking a new record for the first time.

News Item A-5: "Macau International Airport Recorded New High in 2015" December 15, 2015.

Macau International Airport (MIA) held a a brief but formal celebration ceremony at the Airside on December 15, 2015 in an innovative reciprocal way, together with passengers, to witness the breakthrough moment of a new high of 5.5 million passengers in the history of (MIA). Mr Leong Sio Pui, Executive Director of Macau International Airport Company Ltd (CAM) delivered a speech and said that: expected by the end of 2015, airport passenger traffic will reach 5.7 million, mainly benefitting from the full use of (MIA)'s advantages, continuous introduction of new routes, particularly Southeast Asia and North Asia routes, then a number of new airlines operating the Macau route, till the middle of December of this year, (MIA) passenger traffic reached 5.5 million passengers, up +5.5% over last year, hitting a new high of passenger traffic. To celebrate this memorable moment, (CAM) arranged a novel ceromony, with a live performances presented to passengers as well as some 20th anniversary souvenirs distribution to passengers at the site. A convivial atmosphere attracted visitors participating in interactive activities and spending a happy relaxing journey time together.

News Item A-6: "(CAAC) Approves Launch of (AVIC) Cargo Airlines" by
(ATW) Katie Cantle, December 22, 2015.

The Civil Aviation Administration of China (CAAC) has approved the launch of (AVIC) Cargo Airlines, paving the way for the Chinese manufacturer’s sale of its MA600 freighter. Formal operations are expected to launch next year.

(AVIC’)s new cargo venture has a registered capital of CNY500 million/$77.14 million. (AVIC) subsidiary, Joy Air holds a 45% stake with an investment of CNY225 million, while Guangzhou Dongling Industrial Investment Company (CNY175 million), and Beijing Fuda Capital Management Company (CNY100 million) holds a 35% and 20% stake, respectively.

(AVIC) Cargo is expected to be based at Guangzhou Baiyun Airport and operate Boeing 757 and MA600F airplanes. Initially, it plans to use pilots (FC), Maintenance Repair & Overhaul (MRO) staff, and aviation professionals from Joy Air.

As the freighter type for (AVIC)-built MA60 series aircraft, the MA600F made its inaugural flight in 2012 and received type certification in September 2013. (AVIC) received orders for two freighters from Yemen Felix in June 2013.

News Item A-7: "Guangzhou Airport Slots Sold at Auction for 550 Million Yuan" By Lena Ge, China Aviation Daily, December 30, 2015.

The Civil Aviation Administration of China (CAAC) (CAC) auctioned nine slot pairs at Guangzhou Baiyun International Airport (CAN), marking the first airport auction in the history of Chinese civil aviation industry.

According to a notice on the official website of the (CAAC) Central and Southern Regional Administration, as many as 34 airlines took part in the auction. Six Chinese airlines including Urumqi Airlines (URQ), China Southern Airlines (GUN) and Colorful Guizhou Airlines have won in the auction for nine coveted slots at Guangzhou Airport, bidding 550 million yuan totally.

With the next-highest bid of 90.99 million, start-up carrier Urumqi Airlines (URQ) won the fourth slot pair at the auction, giving the Urumqi-based airline its first entry into Guangzhou. The next-highest bid was 90.3 million yuan.

Colorful Guizhou Airlines (GIZ) bid 30.1 million yuan for the first slot pair, or the right to operate four round-trips a week at Guangzhou airport.

Shenzhen Airlines (SHZ) won the second and the seventh slot pairs by bidding 26.15 million yuan and 90.09 million yuan.

China Southern Airlines (GUN) won the third and sixth slot pair at the auction, offering 81 million yuan and 90 million yuan, respectively.

Start-up (URQ) offered 90.99 million yuan for the fourth slot pair, becoming the top bidder in the auction, according to bidding data.

China Eastern Airlines (CEA) won the fifth slot pair at the auction for 90.3 million yuan. Shantou Airlines (SHT), a subsidiary of (CEA), bid 143 million yuan for the first round, but gave up.

For the last airport slot pairs, Xiamen Airlines (XIA) and Zhuhai Airlines (ZHU) won the bids at 30.01 million yuan for each.

Early December 2015, China's aviation watchdog announced to pilot competitive slot allocation at two key airports next year - Shanghai Pudong International Airport (PVG) and Guangzhou Airport, a move that could give private airlines a fairer opportunity to get some desired slots compared with state-owned carriers which have been favored so far.

Under the proposed pilot (FC) reform, half of the 196 new weekly slots at each airport next year will be allocated on international routes by the (CAAC); while the other half for domestic services will be decided by "auction" and "lottery plus paid fees."

Slots are valid for three years, during which carriers will be allowed to exchange, transfer or lease them in the secondary market.

January 2016: News Item A-1: "Chinese Carriers Predict Big Profit Increases for 2015" by (ATW) Katie Cantle, January 27, 2016.

Chinese carriers are expected to report big profit increases for 2015, mainly due to robust market demand growth and lower fuel prices.

China Southern Airlines (GUN) said in a written statement released by the Shanghai Stock Exchange that it estimates its net income to jump +110% to +130% for 2015 compared with a net profit of +CNY1.77 billion in 2014. The carrier cited the rapid increase of market demand (especially since international routes have become a new growth point) and lower fuel prices as main reasons for the projected profit increase.

Air China (BEJ) predicted its net profit would jump +60% to +80% for 2015 over a net income of +CNY3.78 billion in 2014. (BEJ) also credited fast market demand growth, capacity increases, a boost in the direct sale of air tickets, effective cost-control measures, and lower fuel prices as main contributors.

Chinese privately run carriers, Spring Airlines (CQH) and Juneyao Airlines (JYA), also made similar predictions. Spring Airlines (CQH) said in a filing that its net income would increase +50% to +60% for 2015 over a net profit of CNY884.2 million in 2014. The low-cost carrier also cited lower fuel prices and market demand growth as reasons for the projected results, but also credited international routes revenue improvement and ancillary revenue growth.

(JYA) also predicts its net income will increase +130% to +160% for 2015 compared with a net profit of +CNY427.68 million in 2014. (JYA) also contributed market demand growth and lower fuel prices for the improvement.

News Item A-2: Last year, 26 Chinese airports handled more than >10 million passengers, up from 24 in 2014. Those 26 airports processed +9.2% more passengers than in the previous year with Beijing still leading the way with 89.94 million. Only Shenyang has reported a drop in traffic (of 0.9%) while Tianjin (+18.6%) was the fastest-growing. Shanghai Pudong (60.1 million) has overtaken Guangzhou (55.2 million) to become China’s second busiest airport.

News Item A-3: "Air China (BEJ) Orders 6 Boeing 777-300ERs" by (ATW) Katie Cantle, January 7, 2016.

Air China (BEJ) has ordered six Boeing 777-300ERs, worth $2.051 billion at list prices, according to a statement released by the Shanghai Stock Exchange. The new 777s, which will be used for international expansion, are scheduled to be delivered between 2016 - 2017. The deal is subject to Chinese government approval.

(BEJ) noted the deal would increase (BEJ)’s capacities by +5% in terms of (ATK)s as of December 31, 2015.

According to the Civil Aviation Administration of China (CAAC), (BEJ) the Beijing-based carrier has applied to open six international routes in 2016, comprising 3x-weekly, Beijing - Zurich, 7x-weekly, Chengdu - Sydney, 3x-weekly, Chongqing - Dubai, 5x-weekly, Shanghai (Pudong) - San Jose, 4x-weekly, Shanghai (Pudong) - Manchester, and 4x-weekly, Shanghai (Pudong) - Barcelona service.

With this new order, Air China (BEJ) will increase its unfilled airplane orders with Boeing (TBC) to 90 units, which include orders for new 787-9 Dreamliners.

February 2016: News Item A-1: Jiangxi Airlines, the Xiamen Airlines (XIA) and Jiangxi provincial government joint venture (JV), launched its inaugural flight on the Nanchang - Xi’an - Urumqi route on January 29.

Jiangxi Airlines has a registered capital of CNY2 billion/$325 million. Xiamen (XIA) holds a 60% stake (including aircraft and the assets of Xiamen’s Nanchang Branch Company) and Jiangxi Aviation Investment Company, representing the Jiangxi provincial government, holds a 40% stake with a CNY800 million investment.

The Nanchang-based carrier, which received its air operator’s certificate (AOC) from the Civil Aviation Administration of China (CAAC) on January 15, operates two 737-800 airplanes and will take delivery of a third at the end of March. It plans to expand its fleet to five airplanes at the end of 2016, and by 2020 plans to increase its fleet to 20 airplanes and transport 5.5 million passengers.

Jiangxi is expected to open more routes from Nanchang to Beijing, Shanghai, Guangzhou Shenzhen, Xi’an, Urumqi, Haikou, Chongqing, Guiyang, Xiamen, Chengdu, and Kunming. It also plans to add more international routes to Singapore, Malaysia, Thailand, Japan, and Korea.

News Item A-2: Embraer (EMB) delivered a Legacy 500 executive jet to movie star Jackie Chan (the first customer in China). The Legacy 500 was granted a validation of Type Certificate from the Civil Aviation Administration of China (CAAC) in July 2015.

A Legacy 650 executive jet was previously delivered to Jackie Chan in 2012.

News Item A-3: The on-time performance of Chinese passenger airlines averaged 79.56% in December 2015, up +3.56% points year on year, according to the data released by the Civil Aviation Administration of China (CAAC) on January 26.

Data shows that 33 passenger airlines operated 284,130 flights in December 2016 and delivered 79.56% of their flights on time. 7,640 flights were delayed or cancelled due to airlines' own problems, accounting for 14.53% of all total abnormal flights, according to the (CAAC).

Sixteen airlines' on-time performance was higher than the average rate, including Juneyao Airlines (JYA), Xiamen Airlines (XIA), Chengdu Airlines (UEG), Chongqing Airlines (CGQ), Shanghai Airlines (SHA), Joy Air, Donghai Airlines (EPA), Sichuan Airlines (SIC), Air China (BEJ), China Eastern Airlines (CER), Capital Airlines (DER), Fuzhou Airlines (FZH), Zhejiang Loong Air (ZLA), Tibet Airlines (TBZ), and Shenzhen Airlines (SHZ).

Airlines are divided into two categories according to the number of their daily flights operated in 2014: major airlines operating more than and including 200 flights daily, and other airlines operating fewer than <200 flights daily.

Xiamen Airlines (XIA) took the top spot out of 10 of the nation's major airlines, with 88.33% of its flights arriving as scheduled in December, followed by Shanghai Airlines (SHA) (85.19%) and Sichuan Airlines (SIC)(82.71%), respectively. Tianjin Airlines (GCR) was ranked at the bottom of the category with 72.93% of its flights operated on time.

News Item A-4: "Boeing Introduces 737-800BCF Converted Freighter" by (ATW) Linda Blachly, February 24, 2016.

Boeing has launched the Next-Generation 737-800BCF converted freighter (BCF) with orders and commitments for up to 55 conversions from seven customers.

Boeing Commercial Airplanes (BCA) Senior VP Commercial Aviation Services, Stan Deal said, “While the recovery of the global cargo market has been slow, we see demand for freighters, such as the 737-800BCF, that will carry express cargo on domestic routes. Over the next 20 years, (BCA) forecasts customers will need more than >1,000 converted freighters the size of the 737, with China’s domestic air freight carriers accounting for nearly one-third of the total market.”

Through its freighter conversion program, (BCA) said transitions of passenger airplanes into freighters extend airplane economic life. The 737-800 is the first Next-Generation 737 that Boeing has offered for conversion. While large freighters carry high-density cargo on long-range routes, the 737-800BCF will primarily be used to carry express cargo on domestic routes. The 737-800BCF carries up to 52,800 pounds/23.9 metric tons of cargo, flying routes of nearly 2,000 nautical miles/3,690 km.

(BCA) has won a total of 30 firm orders and 25 commitments for the 737-800BCF: (YTO) Airlines, China (10 plus 10 options); China Postal Airlines (CPZ) (10); and (GE) Capital Aviation Services (GECAS) (GEF), which will provide the initial airplane for conversion (5). An unannounced customer has ordered five conversions with two commitments. In addition, (BCA) said it has secured 13 commitments for conversions from (SF) Airlines (SFA), China, Cargo Air (VEA), China, and an unannounced customer. The first 737-800BCF is expected to be delivered in the fourth quarter of 2017.

March 2016: News Item A-1: Qunar, a Chinese online travel agency (OTA), plans to launch a low-cost carrier (LCC) in Shenzhen in an effort to enhance its position in the travel supply chain.

Qunar has revealed it will set up this new entity with two business partners, but will invest in technology instead of cash to hold stakes. The new venture will be mainly responsible for online ticket sales and is expected to be based at the Shenzhen Bao’an International Airport and operate domestic and international routes to neighboring countries.

There are currently no (LCC)s based in Shenzhen. In recent months, Chinese airlines have committed to boost direct ticket sales.

Another Chinese (OTA), Tongcheng, also plans to launch a carrier.

China’s domestic carriers are increasingly having more input in the travel supply chain. China Eastern Airlines (CEA) has established electronic commerce company while Hainan Airlines (HNA) and Juneyao Airlines (JYA) hold stakes in some (OTA)s with cash investments.

News Item A-2: "(SITA): China’s Airports, Airlines Investing in Innovation" by (ATW) Linda Blachly, March 10, 2016.

China’s population continues to travel, despite recent economic challenges, and passengers are demanding more from airlines and airports, according to a recently published analysis by Information Technology (IT) provider, (SITA).

According to the report, China’s airports and airlines are responding with higher levels of investment in innovation than found globally. The “Smart Airport” is coming to China.

(SITA) said that nearly three quarters of airports in mainland China (72%) are investing in new technology compared to 58% globally. While airlines in China are spending 38% of their (IT) budget on innovation compared to a global average of 32%.

China has the world’s fastest-growing domestic flight market and international travel is also soaring. Passenger numbers are expected to rise to 1.3 billion in 2034 (up 856 million compared to 2014) putting pressure on the existing airport infrastructure. However, 93% of passengers have smartphones and are keen to use them and other personal technology for their journey. According to (SITA), this presents opportunities to airlines and airports to offer services in a different way.

“As the aspirations of Chinese consumers increase, so does their expectation for a better travel experience. The willingness of passengers to use self-service gives the industry the opportunity to rethink the airport layout and how it manages passengers,” (SITA) said.

Airports are also using social media to improve customer service when there are delays and 62% already provide real-time information and notifications via social media.

The report also highlights how passengers want to keep track of their baggage. They want to know where and how long before they can pick up their bag when they arrive (72% want more details, such as carousel and wait time, for bag collection). The industry is responding: currently, only a few airlines and airports provide this information, but in the next few years, 86% of airlines will provide baggage tracking notifications and 57% baggage collection information to passengers.

News Item A-3: "(A4A), China Air Transport Association Boost Cooperation" by (ATW) Linda Blachly, March 21, 2016.

USA-based lobbying group, Airlines for America (A4A) has signed a memorandum of understanding (MOU) with the China Air Transport Association (CATA), formalizing their long-standing cooperative relationship toward bolstering air transport development and promoting air travel and tourism between the USA and China.

The (A4A) said the (MOU) (signed by (A4A) President & (CEO), Nicholas Calio and (CATA) Chairman, Li Jun) creates a platform for (A4A) and (CATA) to further engage on issues impacting their member airlines and the global aviation community, including market access for USA carriers.

“The USA and China represent two of the most significant global aviation markets around the world, as evidenced by the tremendous growth in both passenger and cargo operations between our two nations over the past decade,” Calio said, adding he “looks forward to our continued efforts to promote and facilitate travel and tourism opportunities between the USA and China.”

News Item A-4: (HAECO) Americas Airframe Services in Greensboro, North Carolina, has received certification from the Civil Aviation Administration of China (CAAC) to perform A, B and C checks on Chinese-registered Boeing 757s. Additionally, the (CAAC) authorized (HAECO) Americas to perform passenger-to-freighter conversions on 757s. The (CAAC) certification complements existing (FAA) and (EASA) certificates.

(HAECO) Line Services began operation at Shanghai Hongqiao International Airport, expanding its network to eight stations in Mainland China.

April 2016: News Item A-1: China Southern Airlines (GUN)'s subsidiary, Xiamen Airlines (XIA) has placed an order for 10 Boeing 737-800s, valued at $960 million at list prices. Xiamen Airlines (XIA) is China’s only all-Boeing (TBC) carrier.

Formed in 1984 as China’s first joint venture (JV) between the Civil Aviation Administration of China (CAAC) and a municipal government, (XIA) began flying passengers in 1985 with two 737-200s serving three cities. Mirroring the rapid growth of China's air travel industry, Boeing (TBC) said (XIA) has expanded its fleet in service to 135 airplanes (17 737-700s, 108 737-800s, four 757-200s and six 787-8 Dreamliners).

May 2016: News Item A-1: INCDTS: Three Chinese airlines have been punished over errors that could have resulted in plane crashes, China's civil aviation regulator (CAAC) announced.

In addition, the Civil Aviation Administration of China (CAAC) said it was sending senior pilots (FC), engineers (MT) and supervisors to inspect operations and carry out training with staff from China Eastern Airlines (CEA), Okay Airways (OKA), and Xiamen Air (XIA).

The (CAAC) said it was taking the action due to a what it described as a "landslide of safety conditions."

Beijing-based private carrier Okay Airways (OKA) was involved in an incident in which the tail of a passenger aircraft scraped the runway as it came into land at Nanning airport in south China's Guangxi Zhuang Autonomous Region.

In a similar incident, the tail of a Xiamen Air (XIA)'s Boeing 737-800 passenger airplane also touched the ground, which could have led to a serious accident.

On May 1, an Airbus 319 passenger aircraft belonging to China Eastern Airlines (CEA) suffered damage to its tail and tires during an aborted landing during bad weather at an airport in Kangding in southwest China's Sichuan Province. After missing the approach, the aircraft flew back to Chengdu.

Experts say most of the incidents were the result of pilot (FC) error, often the result of fatigue or lack of training. They also said the rapid expansion on flights and fierce competition has led to a shortage of pilots, with some airlines cutting back on training and introducing more overtime.

Official data shows there have been seven air accidents due to negligence in the first quarter of this year alone.

Meanwhile, two foreign airlines operating in China have been criticized by the (CAAC). Emirates (EAD) and Orient Thai Airlines (OTH) were ordered to take immediate remedial action after two incidents, in January and April.

The (CAAC) said it would also evaluate the performance of other foreign airlines that operate on the Chinese mainland.

June 2016: News Item A-1: Chinese carriers reported a collective net profit of +CNY32.03 billion/+$4.86 billion in 2015, up +75.1% over the net income of CNY18.29 billion in 2014 in the face of “the slowdown of global economic growth” and “mounting domestic economic downward pressure,” according to Civil Aviation Administration of China (CAAC).

Industry analysts credited “lower fuel price” and “continuous robust growth of market demand, especially market demand on international routes” as the main reasons for domestic airlines’ much improved performance.

Chinese carriers transported a total of 436.18 million passengers, up +10.6% over 2014. Average passenger load factor increased by +0.7 points to 82.1% LF. Cargo traffic volume jumped +5.9% to 6.293 million tonnes.

Domestic airlines took delivery of +280 more new aircraft in 2015, expanding the total fleet to 2,650 aircraft as of December 31, 2015.

China’s four major carriers all reported big profit increases in 2015. Air China (BEJ) has reported a 2015 net profit of +CNY6.77 billion/+$955 million, up +77% compared to net income of +CNY3.82 billion in 2014, while China Eastern Airlines (CEA) reported a net profit of +CNY4.54 billion/$64 million in 2015, up +33% compared to net income of +CNY3.42 billion in 2014. China Southern Airlines (GUN) reported a net profit of +CNY3.85 billion/+$593 million in 2015, more than doubled from a net income of +CNY1.77 billion in 2014. Hainan Airlines (HNA) reported a 2015 net profit of +CNY3 billion/+$462 million in 2015, up +16% from a net income of +CNY2.59 billion in 2014.

News Item A-2: "China, Mexico Sign Aviation Collaboration Agreement" by "China Aviation Daily," June 27, 2016.

China and Mexico have agreed to enhance their collaboration in the area of civil aviation. On June 22 - 23, Wang Zhiqing, Deputy Chief of Civil Aviation Administration of China (CAAC), led a delegation to visit Mexico and met with the head of Directorate General of Civil Aeronautics (DGAC).

During the meeting, the two parties exchanged in-depth views on strengthening cooperation between Mexico and China in the civil aviation industry, and signed a meeting protocol, which will involve having a more flexible legal framework to encourage business collaborations in the air transport sector, as well as increasing services between the two countries.

In 2015, passenger traffic between the two countries saw a +13.8% increase, said the (CAAC).

Currently, Aeromexico (AMX) operates a 3x-weekly service between Shanghai and Tijuana. In April 2016, China's Capital Airlines (DER) submitted an application to the aviation watchdog for a 3x-weekly Beijing - Mexico City service. Scheduled in January 2017, the Beijing - Mexico service will be operated by Airbus A340 aircraft.

News Item A-3: "Editorial - Embrace China's Growth" by (ATW) Editor Karen Walker, June 23, 2016.

China’s commercial aviation growth and transformation over the past 10 years has been astonishing.

With growth has come vast opportunity and commercial success for many of China’s airlines. In 2015, three mainland China carriers ranked in the top 10 of world airlines in terms of (RPK)s, passengers carried and fleet size; five placed in the top 20 in terms of net profitability.

Growth has also brought its challenges. Capacity and slot constraints are the biggest concern. China has 210 commercial airports, but just 27 of those airports handle about 65% of the average 23,500 daily take-off and landings and about 79% of passengers. In only five years, the Civil Aviation Administration of China (CAAC) estimates that demand for daily slots will increase to around 38,000.

Other concerns include an overly conservative aircraft separation policy. Combined with military training exercises that block out large chunks of airspace, this has led to inefficient traffic flows and chronic delays. There’s also a shortage of skilled professionals and technicians.

Beijing and the (CAAC) are addressing those concerns. They have developed a five-year strategy plan that aims to triple capacity while also increasing safety (although China has maintained an excellent safety rate this past decade). They are creating four major aviation technical centers, optimizing some key routes, working with the military to free up more airspace, and identifying navigation and Air Traffic Management (ATM) technologies they can borrow from the USA and Europe. These projects are beginning to pay off in reduced delays, but China knows much more must be done.

The harder challenge, however, will be to adjust China’s standing in the global air transport ecosystem so that it more correctly reflects the new size and importance of its airlines and market, passengers and cargo. Some 7 million passengers flew between China and the USA last year; China’s middle class population is growing rapidly and it’s a demographic that will travel and shop.

USA policy, however, seems to be skirting the opportunity. Instead of real movement toward a more liberalized aviation agreement with China, there is talk about the need for “more transparency and fairness” in how Beijing allocates its slots. Chinese carriers, meanwhile, are fast hitting the ceiling of USA routes they are permitted to serve.

The slot talk is misleading; China’s capacity constraints are not new. They can be addressed, through the efforts being implemented by the (CAAC) or through creative “slot swaps” between USA and Chinese carriers.

What seems to be more at play here is a new-found American reticence toward liberalization. That’s regrettable and a grave mistake. The huge and fast-growing Chinese market is an opportunity not just for Chinese carriers but for all those who embrace it. If the USA does not seize the moment and truly make China its aviation partner, others will.

News Item A-4: "Analysis - Chinese Puzzle - China has a Critical Role in ICAO Negotiations Over an Aviation CO2 Emissions MBM System, but Where will it Stand?" by (ATW) Aaron Karp, June 23, 2016.

The negotiations at (ICAO) over a global market-based measures (MBM) system to address aviation carbon dioxide (CO2) emissions may come down to a single question: is China a “major” aviation market?

Surely, by any measure, it is. Only the USA processes more airline passengers annually. The three big state-owned Chinese airlines: — Air China (BEJ), China Southern (GUN), and China Eastern (CEA); all ranked in the top 10 globally in (RPK)s in 2015. Only American Airlines (AAL), Delta Air Lines (DAL), and Southwest Airlines (SWA) carried more passengers than China Southern (GUN) in 2015. The three Chinese carriers combined, generated more than >$49 billion in revenue in 2015, or about +$8 billion more than (AAL), the world’s top revenue-generating airline in 2015.

As the (MBM) system takes shape (with an October 7 deadline looming) China’s position remains opaque: officially, it has taken no position. But it would not be surprising if China argued it should be included in a second tier of countries that will not become part of the (MBM) scheme until 2026.

Whether the USA and the European Union (EU) can accept this (and whether (ICAO) can sell the world on an (MBM) system for aviation CO2 emissions in which China does not participate for nearly a decade) could well determine the outcome of the negotiations.

The 39th (ICAO) Assembly will take place in Montreal September 27 - October 7, and failure to enshrine a global (MBM) scheme for aviation CO2 emissions could herald a chaotic period in which governments around the world attempt to impose a patchwork quilt of unilateral systems to regulate airlines’ emissions.

“Hopefully on the 7th of October, smoke will appear and we’ll have a market-based measures solution for aviation,” (IATA) Senior VP & Corporate Secretary, Paul Steele, who has long been a participant in aviation emissions talks at (ICAO), told reporters during a briefing at the (IATA) (AGM) in Dublin in early June.

The (MBM) system being discussed at (ICAO) will center on a carbon offsetting program, Steele said. During the (AGM), (IATA) passed a resolution reiterating the global airline industry’s support for an (MBM) system (though, notably, Air China (BEJ), China Eastern (CEA), and China Southern (GUN) “were not able to enthusiastically sign up to our resolution),” Steele said.

The negotiations at (ICAO) are in a “difficult phase” with “a huge amount of bilateral discussion going on,” he explained. According to Steele, the most likely emerging solution would involve airlines being required to purchase CO2 credits to offset emissions on a route-by-route basis. The money paid to buy credits would be directed to specific projects, approved by the United Nations (UN), aimed at lowering CO2 emissions, particularly in developing countries.

“Some people are still talking about this as a tax,” Steele said. “It is not. The money doesn’t go to governments. The money goes to projects on the ground that are reducing emissions. Airlines would have to go and buy carbon credits on the market. Those credits come from projects to reduce emissions, mostly in developing countries.”

He said the talks at (ICAO) are now focused on dividing the world into three tiers of countries. Under such a system, he said, an airline flying between two “A” countries (major aviation markets) would have to buy carbon offsets, but an airline flying between two “B” or “C” countries (middle markets and small markets, respectively) would not have to do so when the scheme kicks in starting in 2021. B countries would be incorporated into the system starting in 2026, while C countries (which include “least developed countries” such as Afghanistan and Somalia) would be permanently exempt.

So is China an A or B country? It would make a big difference. For starters, a flight between China and Brazil (another large-size, developing air transport market that will undoubtedly gain B status) would be totally exempt until 2026 if China is a B.

And what about a flight between London and Beijing?

Under one scenario being discussed, an airline would pay offsets starting in 2021 to fly from an A to a B country, but not on the return flight from the B to the A country. If China is a B, an airline would buy carbon offsets to fly from London to Beijing, but not from Beijing to London.

“This is an attempt to try to solve the political challenge of differentiating developed and developing countries,” Steele explained. While different routes would be treated differently under the system being discussed, all airlines operating on the same route would be treated equally, according to Steele.

“It can sound complicated,” Steele conceded, adding, “What (ICAO) is trying to do with this scheme is keep it as simple as possible.”

In a formal working paper on the (MBM) negotiations submitted to (ICAO) in May, China expressed its “concern” over what it called the “reluctance of some of the developed countries to take the lead” post-2020 “to leave room for the growth of developing countries.” It also warned against developed countries “imposing unilateral actions against global consensus.”

Even after 2026, China appears to favor a system that would be somewhat more complicated than the “simple” scheme outlined by Steele. For example, China has suggested that one way of determining an airline’s carbon offsets requirement would be to multiply its annual CO2 emissions by 120% if the carrier is registered in a developed country, but by 80% if it is registered in a developing country like China.

(IATA) Director General & (CEO) Tony Tyler, speaking at the (AGM)’s closing press conference, said (IATA) is highly supportive of the establishment of a global (MBM) solution as part of the airline industry’s stated goal of achieving carbon-neutral growth from 2020 and reducing CO2 emissions by -50% by 2050 compared to 2005. “We’re not just going through the motions,” he said. “This is serious. We want to address our emissions from 2020 because that’s our license to grow.”

July 2016: News Item A-1: Tianjin Airlines (GCR) is seeking rights to launch a round-trip service from its headquarter Tianjin to Auckland, New Zealand via Chongqing in December 2016.

Pending government approval, (GCR) will use its Airbus A330 aircraft on the Tianjin - Chongqing - Auckland service, according to a notice released Monday by the Civil Aviation Administration of China (CAAC).

The Tianjin - Chongqing - Auckland service will be operated thrice weekly, the (CAAC) said.

News Item A-2: The Civil Aviation Administration of China (CAAC) has approved an air operator’s certificate (AOC) for Harbin-based Longjiang Airlines, which is scheduled to launch its inaugural flight this year.

The new venture, which is wholly owned by Harbin Xiangyu Company, has a registered capital of CNY800 million/$130 million.

Longjiang Airlines has purchased two Airbus A321s and is expected to lease one A320. It plans to expand its fleet to 30 aircraft by 2020 and is expected to order 15 - 20 A320s and Embraer E190s from Airbus (EDS) and Embraer (EMB).

The new venture will open domestic regional services from Harbin to routes including Daqing, Qiqihar, Mudanjiang, Jixi, Jiamusi, Heihe, and Mohe as well as trunk routes from Harbin to Beijing, Shanghai, Sanya, Shenzhen, Chengdu, Hangzhou, and Kunming. It also plans to open international routes to Japan, Korea, and Russia.

Longjiang Airlines has hired 20 pilots (FC), 12 cabin crew (CA), 23 (MRO) professionals and 30 other aviation staff.

Industry analysts point out more new entrants will spring up as the regulator loosens its grip on approving new domestic carriers. However, these new entrants will face stiff market competition because of severe slot and pilot (FC) shortages.

Hainan Airlines (HNA) parent the (HNA) Group is preparing to launch Heilongjiang Airlines, which will compete directly against Longjiang Airlines in Northeastern China.

September 2016: News Item A-1: Air China (BEJ) launched nonstop 3x-weekly service from Shanghai to San Jose, California on September 1, a first for Chinese airlines. The flight is operated by Airbus A330-200. The business (C)-class cabin has 180-degree lie-flat seats, and the aircraft is equipped with a personal entertainment system.

(BEJ)’s launch of the Shanghai - San Jose service expands its airline network in America and grows its global airline network with Shanghai as an international port. In addition, it further optimizes and integrates its airline network layout in east China.

In the summer and fall of 2016, Air China (BEJ) serves 36 destinations in Shanghai, of which 14 are international and regional flights and 22 are domestic.

Domestic airlines took delivery of +280 more new aircraft in 2015, expanding the total fleet to 2,650 aircraft as of December 31, 2015.

China’s four major carriers all reported big profit increases in 2015. Air China (BEJ) has reported a 2015 net profit of +CNY6.77 billion/+$955 million, up +77% compared to net income of +CNY3.82 billion in 2014, while China Eastern Airlines (CEA) reported a net profit of +CNY4.54 billion/$64 million in 2015, up +33% compared to net income of +CNY3.42 billion in 2014. China Southern Airlines (GUN) reported a net profit of +CNY3.85 billion/+$593 million in 2015, more than doubled from a net income of +CNY1.77 billion in 2014. Hainan Airlines (HNA) reported a 2015 net profit of +CNY3 billion/+$462 million in 2015, up +16% from a net income of +CNY2.59 billion in 2014.

News Item A-2: Chengdu Aircraft Industry (Group) Company Ltd, a subsidiary of Aviation Industry Corporation of China (AVIC) has delivered the first composite rudders for the Boeing 737 MAX and the 787-10 Dreamliner.

The Chinese manufacturer and Boeing (TBC) celebrated the delivery in Chengdu on September 9. The rudder is completely made in China and will be shipped from Chengdu to Chongqing, Shanghai, and continue across the Pacific ocean to Boeing's USA plants for assembly.

The 737 MAX will be delivered to customers starting 2017, while the 787-10 will enter into service in 2018.

(AVIC) Chengdu Aircraft currently manufactures ailerons, spoilers and other components for the 747-8F Freighter and 747-8I rudders for the entire 787 family, plus rudder and other parts for the 737.

It has been a supplier of composite materials-made rudders for Boeing 787 airplanes since 2004, with the first 787-8 rudder delivery in July 2007 and first 787-9 rudder delivery in December 2013. As of now, the company has delivered 535 rudders for 787 Dreamliners.

News Item A-3: Chinese startup Jiangxi Airlines (JXI) took delivery of its first direct-delivered airplane with the arrival of a Boeing 737-800 at Nanchang Changbei International Airport at 12:45 pm on September 9.

The 737-800 (B-1557) is the very first new airplane and the first one delivered directly to (JXI) by the Boeing Company (TBC). (TBC) and (JXI) held a ceremony to celebrate the airline's first direct-delivered 737-800 in Seattle.

The airplane features 184Y seats with Boeing Sky Interior, bringing the airline fleet to four 737s.

The Nanchang-based carrier said it plans to introduce another new airplane in December, targeting to operate 15 airplanes by 2020.

Launched in this January, Jiangxi Airlines (JXI) operates domestic services from its Nanchang hub to Dalian, Guiyang, Hohhot, Haikou, Jinan, Shenyang, Taiyuan, Urumqi, Xi'an, and Xiamen. With the arrival of the 4th airplane, it will launch Nanchang - Tianjin - Harbin and Nanchang - Tianjin - Changchun routes. In the near future, it will fly directly to Beijing, Shanghai, Guangzhou, Chengdu, Kunming, and Zhengzhou, with international services within three years.

News Item A-4: Thales (THL) and Beijing EasySky Technology (BEST) Ltd, a joint venture (JV) between (THL) and the Civil Aviation Air Traffic Control Technology & Equipment Development Company Ltd, have been selected by North China Air Traffic Management Bureau of the Civil Aviation Administration of China (CAAC), to automate the terminal maneuvering area, area control airspace and operations at Beijing Capital International Airport and the new Beijing Daxing International Airport.

Air traffic in China is forecasted by the International Air Transportation Association (IATA) to add another +758 million passengers to its existing 440 million over the next two decades, bringing the total number of annual passengers to 1.2 billion by 2034. To support this growth, China is embarking on airport construction and efficiency improvements to safely increase the number of flight arrivals and departures. The deployment of Thales (THL) TopSky -(ATC), the most widely used air traffic automation system in the world, will support this effort through seamless integration with the Beijing Area Control Center. The system features advanced redundant capability including complete flight plan fallback processing and flight plan synchronization, as well as multi-sensor processing and alerting to enable consistent operations during any main system outage or maintenance period.

The airports’ and airspace traffic flows will be sequenced and balanced using (MAESTRO), (THL)’s fully integrated arrival and departure management system. (MAESTRO) will provide seamless integration between area control, approach control and tower systems (so all controllers will share the same sequence information and can manage airport configuration changes collaboratively, including Advanced Traffic Flow Management (ATFM) control times). Additionally, it will support the integration of required arrival delay absorption into sector displays to enable efficient traffic sequencing and reduced airborne holding. Further, advanced runway allocation processing will enable efficient airline operations and reduce taxi times.

This latest modernization project will be completed in 2019. The project is an extension of (THL)’s commitment to partnering with the (ATMB) to create China’s next generation Air Traffic Control (ATC) system. China uses Thales (THL) (ATC) systems to manage 60% of the country's air traffic. As the largest air traffic management (ATM) supplier in China, (THL) has deployed 39 radar systems, 11 (ATC) automation systems (including 5 provided by (BEST)), and more than >550 Navaids, as well as Automatic Dependent Surveillance-Broadcast (ADS-B) and multi lateration systems.

October 2016: "(CAAC) Grants Permits for 100 International Routes in (Q3) 2016" by China Aviation Daily, October 10, 2016.

The Civil Aviation Administration of China (CAAC) has authorized 100 international routes in the 3rd quarter ended September 30, 2016, according to an announcement posted October 10 on its official website.

From July to September, the aviation watchdog approved 15 Chinese airlines to launch 65 international routes, with +48 more services by 28 foreign carriers.

China Eastern Airlines (CEA) led with approvals for 8 international services to Abu Dhabi, Cebu, Manila, Okinawa, Prague, Shizuoka, Sydney, and Vancouver.

November 2016: News Item A-1: Hainan Airlines (HNA) reported a 3rd-quarter net profit of +CNY1.7 billion/+$251 million, nearly doubled from a net income of +CNY887.3 million in the year-ago quarter. Operating revenue climbed +18.1% to CNY11.8 billion against a +5.3% increase in operating expenses to CNY9.9 billion. Industry analysts cited continuous market demand growth and lower fuel prices as the main reasons for (HNA)’s much-improved performance.

China’s "big 3" carriers also posted 3rd-quarter net profit gains: China Southern (GUN) reported a 3rd-quarter net profit of CNY3.3 billion, nearly tripled from the year-ago quarter. Air China (BEJ) reported a net profit of +CNY3.8 billion, up +62% year-over-year while China Eastern (CEA) reported a 3rd-quarter net profit of +CNY3.5 billion/+ $517 million, up +95.5% from the year-ago quarter.

For the 1st 9 months of 2016, (HNA) posted a net income of +CNY3.4 billion, up +36.7% from a net profit of +CNY2.5 billion in the same period last year. Operating revenue jumped +15.7% to CNY30.8 billion, while operating expenses increased +11.3% to CNY27.4 billion.

News Item A-2: "No Boarding Pass Required to Board Flights in China from 2017" by "China Daily," November 24, 2016

Chinese air passengers will officially be able to board planes using only their (ID) cards from the start of 2017. The move was announced by the VP of the International Air Transport Association (IATA) in North Asia, also its head delegate in China, Zhang Baojian.

It's estimated that airlines could save >-1 billion yuan/-US$145 million each year by cutting back on 5000 check-in counters, related staff and paperwork as a result of the new policy.

(IATA) also plans to put real-time financial settlements between airline companies and sales agencies into practice in China, making it the 1st country in the world to do so. There have been calls for (ID) card boarding for several years, and the technology to make it happen has been around for 2 years or so, but civil aviation regulations insist that passengers' boarding passes should be checked before getting on board the plane.

The new policy allows (QR) codes or (ID) cards to be used so long as the (ID) information is consistent with the ticket. The introduction of daily settlement was held up by technical issues involving airline companies which Zhang said were not hard to resolve, and the cost was much less than the benefit. 30% of settlements has been made by Wechat and Alipay online payments, to increase the speed of settlement for airline companies, added Zhang.

Daily settlement is seen by Zhang as a "highlight," with some European and American airline companies finding it hard to make even weekly settlements. (IATA) is making preparations to help airline companies successfully make the change to daily settlements.

News Item A-3: Guangzhou-based startup Longhao Airlines expects to receive an air operator’s certificate (AOC) soon from the Civil Aviation Administration of China (CAAC) and plans to make a rapid expansion after it is launched.

Longhao Airlines was set up in August 2015. Guangdong Longhao Aviation Group wholly owns the new entity, which has a registered capital of CNY400 million/$61 million.

The cargo carrier has signed a strategic cooperation agreement with Guangdong Airport Group to establish its main cargo operating base at Guangzhou Baiyun Airport. According to Chairman, Yao Weihui, the company has introduced 3 Boeing 737-300F freighters and is scheduled to take delivery of +3 more in 2017. Longhao plans to expand its fleet to 50 aircraft by 2025. “Initially we will act as a startup cargo carrier and SF Express (SFX) will be our major customer because our cargo capacities are mainly for meeting their cargo demands,” Yao said. He noted Longhao Airlines would expand its business scale to passenger transport at the proper time in the future.

Industry analysts point out China’s air freight market has huge growth potential, as the industry currently accounts for only a 15% share of the domestic express delivery market, which has been experiencing robust growth in recent years because of fast-growing e-commerce in China.

As one of the biggest Chinese express delivery companies, SF Express has also launched its own cargo carrier, SF Airlines (SFA), which operates a cargo fleet of 36 Boeing freighters and includes Boeing 767s, 757s and 737s.

Separately, (YTO) Express subsidiary, (YTO) cargo airline also plans to expand its fleet to 50 airplanes by 2020. (YTO) currently operates 5 freighters and has 15 Boeing 737-800Fs on order.

News Item A-4: Chinese carriers have accelerated their international expansion pace as outbound travel continues to grow.

In October, Beijing-based Air China (BEJ) experienced a +18.6% year-over-year (YOY) growth in (RPK)s on international routes. Shanghai-based China Eastern (CEA) reported a +30.4% (YOY) growth; Guangzhou-based China Southern (GUN) posted a 23.9% (YOY) growth; and Haikou-based Hainan Airlines (HNA) saw a 47.4% (YOY) growth.

Air China (BEJ) transported 11.2 million passengers on international routes in October, up +23.2% (YOY); China Eastern (CEA), 12.1 million, up +17.2% (YOY); China Southern (GUN), 11.6 million, up +19.1% (YOY); and Hainan Airlines (HNA), 18.7 million, up +57% (YOY).

In September, domestic airlines transported 4.2 million passengers on international routes, up +19.9% (YOY), which outpaced a +13% growth on domestic routes.

Hainan (HNA) opened 2x-weekly Xi'an - Sydney and Changsha - Sydney routes in September and 2x-weekly Haikou - Da Nang services in October.

China Eastern (CEA) opened 13 international routes in the (1H) and +2 European routes to St Petersburg and Madrid, in addition to boosting flight frequencies on routes to Europe and the USA.

Industry analysts point out domestic airlines still need to face severe challenges including overcapacity; shortage of slots and aviation professionals, such as pilots (FC) and Maintenance Repair & Overhaul (MRO) (MT) staff; and should focus more on profits than market shares, when they speed up their international expansion pace.

December 2016: News Item A-1: Chinese airlines appear to have the most to gain from a new China - Australia "Open Skies" deal, but Australian airlines are also expected to benefit. The latest agreement removes all capacity limits from the China - Australia market. It follows earlier deals under which seat numbers were capped for flights between major gateway cities in both countries. The Open Skies agreement will not have much of an immediate impact.

News Item A-2: Hainan Airlines (HNA) is applying to the USA Department of Transportation (DOT) to open 2 Sino - USA routes (from Chengdu to Los Angeles and New York) as China’s outbound travel continues to grow.

(HNA) has received approval from the Civil Aviation Administration of China (CAAC) to operate the 2 new routes. It plans to open 2x-weekly Chengdu - Los Angeles service in the 1st quarter of 2017 and 3x-weekly Chengdu - New York service in the 2nd quarter. Both routes will use the Boeing 787.

Sichuan Airlines (SIC) has also applied to the (CAAC) to open the same 2 routes in August 2017 using an Airbus A350. (SIC) plans to introduce Chengdu - New York service next year.

(HNA) is expected to face stiff competition on Sino - USA routes. In 2014, Chicago-based United Airlines (UAL) opened a Chengdu - San Francisco route; China Eastern Airlines (CEA) opened Chengdu - Nanjing - Los Angeles service in 2015; and Sichuan Airlines (SIC) opened Chengdu - Hangzhou - Los Angeles in October 2016.

(HNA), which is speeding up its international expansion pace, has also applied to the (CAAC) to take over the Chengdu - London route, which will be suspended by British Airways (BAB) on January 13, 2017.

News Item A-3: "Yangtze River Airlines Eyes International Expansion"
by (ATW) Katie Cantle, December 16, 2016.

(HNA) Group subsidiary, Yangtze River Airlines (YTH) looks toward international expansion in 2017 as China’s outbound passenger travel continues to grow. (YTH), the Shanghai-based carrier plans to take delivery of 2 Boeing 787s, which Hainan Airlines (HNA) expects to introduce in 2017. (HNA) raised its stake in Yangtze River Airlines (YTH) from 0.37% to 11.6% in July.

Last year, (YTH) was transformed from Yangtze River Express, a cargo carrier that launched in 2002, and operated a fleet of 23 freighters on >40 domestic and international routes.

Yangtze River Airlines (YTA) currently operates 6 Boeing 737-800 passenger airplanes on 21 domestic routes. It established Shanghai as its main operating base and Shenzhen as another domestic base with passenger boardings of 600,000.

By 2020, (YTA) plans to expand to 35 passenger aircraft and transport 6.6 million passengers.

News Item A-4: The on-time performance of Chinese passenger airlines averaged 77.42% in November 2016, up +3.93% points year on year, according to the data released by the Civil Aviation Administration of China (CAAC).

20 of all 38 airlines' on-time performance was higher than the average rate, including Qingdao Airlines, Shandong Airlines, Sichuan Airlines, Shenzhen Airlines, China Southern Airlines, Tianjin Airlines, Hainan Airlines, Air ChangAn, Jiangxi Airlines, and Okay Airways.

Airlines are divided into 2 categories according to the number of their daily flights operated in 2015 (major airlines operating more than and including 200 flights daily and other airlines operating <200 flights daily.

Shandong Airlines took the top spot out of 10 of the nation's major airlines, with 80.83% of its flights arriving as scheduled in November 2016, followed by Sichuan Airlines (79.84%) and Shenzhen Airlines (79.18%), respectively. Shanghai Airlines was ranked at the bottom of the category with 70.72% of its flights operated on time.

Qingdao Airlines delivered 89.15% of its flights on time in November, the best performance among the 28 airlines (including 2 start-up airlines in H1) operating <200 flights daily. Hebei Airlines was ranked at the bottom of the list with only 63.91% of its flights operated on time.

News Item A-5: "(CAAC): Ranking of Chinese Major Airports On-time Departure for November 2016" by Lena Ge, "China Aviation Daily" December 27, 2016.

The average on-time departure rate of major airports in mainland China reached 77.16% in November 2016, up 3.68% points year on year, according to data released by the Civil Aviation Administration of China (CAAC).

Among the 51 airports, 27 achieved better on-time departure performance than average, including Xining Caojiabao International Airport (94.59%), Xi'an Xianyang International Airport (90.41%), Chongqing Jiangbei International Airport (90.01%), and Kunming Changshui International Airport (88.12%). The 51 airports are divided into 2 categories according to passenger numbers served in 2015 (full-year passenger volume >1% of total airports and those < 1%.

According to statistics, Xi'an again topped the list to be the most punctual airport in 10 million passenger club with an on-time departure rate of 90.41%, followed by Chongqing and Kunming.

Shanghai Pudong International and Hongqiao International airports were ranked at the bottom of the list of airports with more passenger volumes, with only 54.85% and 62.84% percent on-time departures in November 2016.

Data shows that Zhengzhou Xinzheng International Airport saw the largest improvement in its on-time performance among the 27 major airports, with its on-time departure increasing 10.92% points to 80.58% compared with the same period last year.

Xining Caojiabao International Airport had the best on-time performance among airports with passenger numbers <1% of total airports, with 94.59% of flights departing on time in November.

News Item A-6: The Civil Aviation Administration of China (CAAC) ordered China Southern Airlines (GUN) to cancel its Shenzhen - Hangzhou flight CZ3563 from January 1 due to the route's poor on-time performance.

The (CAAC) also banned Joy Air from adding new routes and charter services from December 19, while Tianjin Binhai International airport has been blocked from adding new flights from the same date.

Similarly, (CAAC) added that Shanghai Pudong, Shanghai Hongqiao and Nanjing airports will continue to remain banned from adding new services for failing to meet the required on-time performance standard.

Whereas, the (CAAC) will release the bans on Tibet Airlines, Chongqing Airlines, Beijing Capital International Airport and Xiamen Gaoqi International Airport from January 1, 2017, allowing them to resume applications for new services and additional frequencies, as their on-time performance improved.

The (CAAC) stated that airlines and airports must 1st meet performance targets for 2 consecutive months, before further flight applications will be accepted.

News Item A-7: "2016 Year in Review: China's Aviation Industry in Numbers" by China Aviation Daily, December 23, 2016.

The Civil Aviation Administration of China (CAAC) issued the civil aviation statistics for 2015 at the National Civil Aviation Work Conference held in Beijing on December 22 - 23. The highlights are as follows:

* In January - November 2016, the profit of China's civil aviation industry surged +10.5% from the same period a year to 60.13 billion yuan, hitting a historic high.

* Chinese airlines are expected to carry up to 480 million passengers and 6.6 million tonnes of cargo and mail by the end of 2016, a year-on-year increase of +11% and +5.5%, respectively.

* The civil aviation industry has operated safely for 76 consecutive months and accumulated 45.96 million hours of safe operation.

* The on-time performance of Chinese passenger airlines averaged 76.46% in the first 11 months of 2016, up +9.16% points year on year. Bad weather was attributed to 56.8% of all delayed flights.

* 28 domestic airports handle >10 million passengers within the year of 2016. Shanghai's 2 airports hit a 100 million passenger milestone in December for the 1st time, while Beijing Capital International Airport joined 90 million passenger clubs.

* Chinese carriers took delivery of 270 aircraft from January to November.

* Chinese carriers made a rapid international expansion this year as domestic airlines opened 260 new international routes in the same timeframe. Available seats on international routes increased +22.2% while passenger numbers were up +23.4% on international routes.

* As many as 4,890 new pilots (FC), 2,393 maintenance technicians (MT), 432 (ATC)s and 567 dispatchers have joined the Chinese civil aviation industry in 2016.

* China has signed or initialed bilateral air transport agreements with 120 countries.

* China's general aviation industry welcomed 27 newly established firms, introducing 182 new general aviation aircraft.

* The (CAAC) forecasts a 107.2 billion tonne-km of RTK revenue tonne-km (RTK), 536 million passenger throughput and 6.97 million cargo & mail throughput 2017, up +11.8%, +10.8% and +5% over 2016 respectively. The industry plans to newly start 10 major projects, continue 34 projects, and invest 77 billion yuan on fixed assets in the whole industry next year.

News Item A-8: "333 Commercial Aircraft Delivered to China in 1st 11 Months" by Lena Ge, "China Aviation Daily" December 28, 2016.

Chinese carriers have taken delivery of 333 new aircraft totally and retired 40 old ones in the 1st 11 months of 2016, according to (CARNOC) fleet data base (CADAS). With the arrival of new aircraft, Chinese airlines now operate a total of 2,907 commercial planes.

The 333 aircraft delivered to China in the past 11 months ended November 30 consist of 125 Boeing 737-800s, 80 Airbus A320s, 50 A321s, 14 787-9s, 12 777-300ERs, 9 Embraer E190/E195s, 7 737-700Fs, 6 Bombardier CRJ900s, 5 A330-300s, 5 757-200Fs, 3 757-200Fs, 2 A319s, 2 A300Fs, 4 767-300Fs, 3 A330-200 and 1 COMAC ARJ21-700.

China's 4 major airlines accounted for a large proportion on the new aircraft introduction, in which China Eastern Airlines (CEA) took the spot with the introduction of 50 aircraft in the 1st 9 months this year, followed by Air China (BEJ) (32), China Southern Airlines (GUN) (28), and Hainan Airlines (HNA) (22).

By the end of November 2016, China Southern (GUN) operated the nation's largest fleet with 517 aircraft, followed by China Eastern (CEA) (450), Air China (BEJ) (365), Hainan Airlines (HNA) (173) and Shenzhen Airlines (SHZ) (171).

Chinese airlines have recorded an annual increase of +11.3% in fleet expansion. Meanwhile, as airlines boost global expansion, more wide body aircraft have been delivered to China. Now, wide body aircraft account for 79% of all commercial aircraft serving in mainland China.
Specifically, Air China (BEJ) took delivery of China's 1st Boeing 787-9 (B-7887) on May 20, while Hainan Airlines (HNA) received its 1st 787-9 (B-7880) on June 10. Tibet Airlines welcomed its 1st ever wide-body aircraft (an Airbus A330-200 (B-8420) on July 1, which is also the 1st 242 tonnes maximum take-off-weight (MTOW) version to be operated by a Chinese airline). And Shandong Airlines (SHG) reached its milestone of 100 aircraft in its fleet in September.

Meanwhile, China Eastern (CEA) will welcome its 600th aircraft in January 2017, to mark its 60th anniversary. With fleet expansion, (CEA) is set to take delivery of its 1st 787-9 in 2017 and 1st A350 XWB in 2018.

Along with fleet expansion, Chinese airlines also retired some old aircraft. A total of 44 aircraft were phased out of service in the 1st 11 months of 2016, among which 9 passenger aircraft were converted into freighters.

China Eastern (CEA) retired all Boeing 737-300 passenger airplanes in August. China Southern (GUN) now is the only operator of the type in mainland China with 3 737-300s.

In 2016, Boeing 777-200 airplanes have begun retiring from Chinese market. Air China (BEJ) bade farewell to its 1st Boeing 777-200 (B-2059) painted in a special livery of a Blue Phoenix, as it operated its final flight CA88 to the airplane graveyard in the USA on August 15. (BEJ), the Chinese flag carrier plans to sell up to 10 777-200s.

News Item A-9: The Aero Engine Academy of China, the country's 1st national-level aeroengine research institute, was inaugurated on December 28 in Beijing. Established by the Aero Engine Corporation of China (AECC), the institute will lead and support research and development in aeroengine field, said Cao Jianguo Chairman of the (AECC).

Liu Daxiang, a member of the Chinese Academy of Engineering, said the capacity to design and manufacture aeroengines is crucial to restructuring.

January 2017: News Item A-1: Hainan Airlines (HNA) is applying to the USA Department of Transportation (DOT) to open 2 Sino - USA routes (from Chengdu to Los Angeles and New York) as China’s outbound travel continues to grow.

(HNA) has received approval from the Civil Aviation Administration of China (CAAC) to operate the 2 new routes. It plans to open 2x-weekly Chengdu - Los Angeles service in the 1st quarter of 2017 and 3x-weekly Chengdu - New York service in the 2nd quarter. Both routes will use the Boeing 787.

Sichuan Airlines (SIC) has also applied to the (CAAC) to open the same 2 routes in August 2017 using an Airbus A350. (SIC) plans to introduce Chengdu - New York service next year.

(HNA) is expected to face stiff competition on Sino - USA routes. In 2014, Chicago-based United Airlines (UAL) opened a Chengdu - San Francisco route; China Eastern Airlines (CEA) opened Chengdu - Nanjing - Los Angeles service in 2015; and Sichuan Airlines (SIC) opened Chengdu - Hangzhou - Los Angeles in October 2016.

(HNA), which is speeding up its international expansion pace, has also applied to the (CAAC) to take over the Chengdu - London route, which will be suspended by British Airways (BAB) on January 13, 2017.

News Item A-2: Chinese conglomerate the (HNA) Group is in final talks to buy Frankfurt-Hahn Airport in western Germany. According to the airport’s federal state owners Rhineland Palatinate, the (HNA) Group teamed up with German company (ADC) for the bid. 3 bids had been received in the latest sale process and, after auditors reviewed the offers, decided to enter into final-stage negotiations with (ADC) and (HNA).

Rhineland Palatinate said on its website that an intensive coordination with the European Commission (EC) is also necessary to meet competition requirements.

It is Rhineland-Palatinate’s 2nd attempt to sell the loss-making Hahn airport. In 2016, a deal with Chinese aviation and logistics group Shanghai Yiqian Trading Company collapsed after the bidder failed to make any payments after agreeing to a purchase price of €13 million/$14 million. Rhineland Palatinate owns an 82.5% stake in the former military base, with the rest owned by the neighboring state of Hesse.

Hahn Airport is a 24-hour operating facility, but made a loss of €17 million in 2015, the German daily "Handelsblatt" reported. The airport opened for civil operations in 1993.

The airport is used mainly by freight and low-cost carriers, with Ireland’s Ryanair (RYR) and Hungary’s Wizz Air (WZZ) its 2 largest operators. In 2015, the airport handled 2.7 million passengers, slightly up on 2014’s figure of 2.4 million, but substantially down on its high-water mark of 4 million in 2007.

The planned (HNA) airport deal is the latest in a series of overseas acquisitions that Chinese companies have undertaken in recent months.

In October 2016, the (HNA) Group acquired Maintenance Repair & Overhaul (MRO) provider (SR) Technics (SWS).

Chinese buyers have spent substantial sums over the past few years buying up major pieces of Western aviation infrastructure, including airlines, airports and support services.

News Item A-3: China Southern Airlines (GUN)s’ parent China Southern Group transported 115 million passengers in 2016, up +4.8% over 2015.

The Group reported a +3.2% increase in operating revenue to CNY115.8 billion/16.7 billion and a “record high profit,” although the company did not disclose figures.

Industry analysts credited low fuel prices and continuous market demand growth as main reasons for the improvement, despite airfare declines on international routes resulting from fierce competition and fast capacity growth.

Last year, (GUN) accelerated its international expansion pace, opening new routes, including Guangzhou - Toronto, Guangzhou - Adelaide, Shenzhen - Sydney, and Shenzhen - Wuhan - Dubai. (GUN) also added 13 routes to Asian and African countries as part of China’s national “One Belt, One Road” initiative, with 940 weekly roundtrip flights, up +8.9% over 2015.

This year, (GUN) is expected to embrace a more international focus, boosting capacity +32%. According to China Southern Group General Manager Tan Wangeng, (GUN) will open Guangzhou - Vancouver - Mexico and Guangzhou - Keynes services as well as increase frequencies to SE Asia.

Separately, the Group reportedly will introduce an Information Technology (IT) company as a strategic investor and shareholder, or set up subsidiaries, although the company does not have a specific plan.

News Item A-4: The China Aircraft Leasing Group (CALC) (CHD) delivered 18 aircraft in 2016. Additionally, the lessor completed rental realization transactions for 14 aircraft over the year.

(CHD) expects to deliver at least 17 new aircraft in 2017.

(CALC) (CHD)’s 2016 customers included Air Macau (MCU), China Eastern Airlines (CEA), Vietnamese low-cost carrier (LCC) Jetstar Pacific (PAH), Chinese (LCC) Lucky Air (LKY), Turkish (LCC) Pegasus Airlines (PGS), Chinese carrier Sichuan Airlines (SIC) and Chinese (LCC) West Air (CHO). All received A320ceo aircraft. On December 29, (CALC) signed a long-term lease agreement with Hawaiian Airlines (HWI) for an A321neo, scheduled for delivery in 2018.

(CALC) (CHD) has 92 Airbus A320 family aircraft on order backlog, all scheduled for delivery by 2022. Out of combined orders for 144 A320 family aircraft (including 36 originally placed in October 2012, 100 placed in December 2014, and +4 additional aircraft between December 2015 and January 2016), 52 have been delivered as of December 31, 2016, including 1 A319ceo, 48 A320ceos, and 3 A321ceos. Aircraft still to be delivered include 15 A320ceos, 73 A320neos, 3 A321ceos and 1 A321neo.

As of December 31, (CALC) (CHD)’s portfolio comprised 81 aircraft, which also included 5 Boeing 737NGs and 4 A330 family aircraft. (CHD) expects its fleet to expand to 173 aircraft by 2022.

“[In 2016 we] extended our presence in new markets including Japan and the USA, which will fuel future demand for our aircraft service,” (CALC) Deputy (CEO) & (CCO) Winnie Liu said. “Going forward, we will continue to uphold our vision to go global.”

Additionally, at the Farnborough Airshow in July 2016, (CALC) entered into a non-binding cooperative framework agreement with Hong Kong-based investment group Friedmann Pacific Asset Management to acquire 30 to 60 ARJ21-700 series aircraft from the Commercial Aircraft Corporation of China (COMAC) (CCC), an order valued at $2.3 billion if all options are exercised and reportedly the largest single commercial order for ARJ21-700 aircraft in (COMAC) (CCC)’s history.

February 2017: News Item A-1: China's civil aviation industry achieved a total turnover volume of 8.46 billion tonne-km in December 2016, a year-on-year growth of +15.1%, according to the monthly traffic statistics released by the Civil Aviation Administration of China (CAAC). The statistics shows that passenger numbers jumped +14.5% to 40.4 million. The number of passengers travelling on domestic and international flights increased +14.4% and +15.8% respectively to 36.11 million and 4.3 million, with those travelling on Hong Kong, Macau and Taiwan routes dropping -3.4% from a year earlier to 798,000.

Chinese airlines handled 651,000 tonnes of cargo and mail in December, up +10.7% year on year. Cargo traffic saw a growth of +10.4% on domestic routes, with +11.3% growth on international routes.

The passenger load factor rose +2.3% point year on year to 81.1% LF and the freight load factor increased +1.9% points to 73% LF.

The aircraft utilization rate remained stable at 9.1 hours per day. The aircraft utilization rate was 9.2 hours per day for medium and large aircraft and 6.5 hours per day for small aircraft.

During the full-year of 2016, Chinese airlines carried up to 487.76 million passengers, up +11.8% over a year earlier.

News Item A-2: "Boeing Eyes China's Booming Air Delivery Market" by
Xinhua, February 23, 2017.

Boeing (TBC) is upbeat about the Chinese market and is designing products and services to meet the demands of the growing e-commerce sector, according to a Boeing executive. "In emerging markets, led by China, we've seen huge demand for freighters from e-commerce and express delivery entities," said Anbessie Yitbarek, Boeing VP Customer Support for Asia Pacific. "The NE Asia region is the fastest growing e-commerce trading bloc, with China at the front."

Boeing provides >90% of the world's freighter capacity. It forecasts that, over the next 20 years, there will be demand for >1,000 converted freighters of the size of the 737-series. China's domestic air freight will account for one-third of the global market.

To meet the demand, Boeing (TBC) will offer services including the 737-800 Boeing converted freighter (BCF) program. "The program is an economical choice in the standard-body freighter market", said Yitbarek. Boeing has the 737-800BCF program in Shanghai, launched in 2016. The converted planes will be certificated in the 2nd to the 3rd quarter, and the planes will be delivered, on schedule, in the 4th quarter of 2017.

According to Yitbarek, a passenger plane can be converted into a freighter after it has been in operation for approximately 15 - 20 years. The 1st 737-800s to be used by Chinese airlines were built in the late 1990s, so there are plenty of airplanes nearing an age that is appropriate for conversion. The conversions will be done at Boeing Shanghai Aviation Services and Taikoo (Shandong) Aircraft Engineering. Moreover, Boeing is offering license engineering data so that other parties can undertake conversions. "This gives clients more options through healthy competition."

"China has the strongest demand for standard-body freighters," he said adding that Boeing has already accepted 60 orders and commitments for the 737-800BCF (with half from Chinese customers).

In the global air cargo market, wide-body freighters are used for new freighters while standard-body freighters are normally converted into freighters. Boeing understands the opportunities afforded by the booming e-commerce and air cargo market in China (online retail sales in China were half that of the USA in 2010 and by 2013, they surpassed the USA).

Unique to China's air cargo market is that the majority of demand for freighters is from delivery companies. "That's why we need to design and launch a converted freighter that can meet the specific needs of the China market." According to Yitbarek, Boeing will provide delivery firms with suitable freighters, support them in establishing logistics infrastructure, and share their best practices. "As an aviation leader, Boeing provides airplane life-cycle support and services to the global aviation industry," said Yitbarek. To him, it is a privilege for Boeing to be part of the fabric of China's delivery and e-commerce market. "All parties will support the healthy development of the China market," said Yitbarek.

News Item A-3: "China to Overtake USA As Top Business Travel Market: Report" by Xinhua, February 23, 2017.

China is expected to overtake the USA and become the world's biggest business travel market in 2017, the country's leading online travel agency said on February 22nd. Spending on business travel in China hit US$290 billion last year and will grow by at least 10% this year, according to a report from Ctrip Corporate Travel, a subsidiary of Ctrip. Small- and medium-sized Chinese companies will become a major source of business travel growth, spending a potential 100 billion yuan/US$14.5 billion, said Fang Jiqin (CEO) of Ctrip Corporate Travel.

He said cheaper, smarter travel management services are needed for Chinese firms to lower costs and boost efficiency. The Ctrip report also said there was room for industry consolidation in China, with 80% of the national market dominated by small and unprofessional business travel service providers.

March 2017: News Item A-1: "China Eastern (CEO) Calls for Air Space Management Legislation" by (ATW) Katie Cantle, March 9, 2017.

China Eastern Airlines (CEA) (CEO) Ma Xulun will call on Beijing to formulate legislation for China’s air space management to meet the country’s fast-growing market demands when he attends the annual National People’s Congress and Chinese People’s Political Consultative Conference this month.

According to Ma’s proposal submitted to the National People’s Congress, China has lacked basic air space management legislation for a long time and the current model (which is mainly dominated by the military and characterized by solid usage and static management) has seriously restricted the development of China’s air transport industry. In addition, he said China’s air transport growth potential has reached “the ceiling” of air service supportability.

Ma also said the government organizations responsible for air space management in China face big challenges when dealing with issues such as general aviation aircraft and unmanned aerial vehicles, because they are currently under-regulated.

Ma said Beijing should establish an air space management committee to:

* Formulate air space management policies;

* Set up coordination and communications systems between civil air space and military air space management;

* Provide air traffic control service to conduct unified supervision and management of China’s air space to guarantee a safe, orderly and good use of air space resources; and

* Meet the needs of different air space users.

It is widely known the air space issue is closely related to Chinese carriers’ on-time performance (OTP). Also, the Civil Aviation Administration of China (CAAC) (CAC) Minister Feng Zhenglin said the regulator has done some work to improve (OTP) by +8.4 points to reach 76.4% in 2016. He said “weather conditions” have become the main factor that impacts domestic airlines’ (OTP), but he is not still satisfied and believes “there is still room for further improvement.”

News Item A-2: "(CAAC), Boeing Partner to Alleviate China’s Airspace Congestion" by (ATW) Katie Cantle, March 17, 2017.

The Civil Aviation Administration of China’s (CAAC) Air Traffic Management Bureau signed a memorandum of understanding (MOU) with Boeing (TBC) in an effort to alleviate increasing air traffic congestion in China.

According to the (MOU), the (CAAC) will cooperate with Boeing (TBC) to enhance the efficiency and capacity of China’s airspace system as China continues to grow into 1 of the world’s largest and most complex aviation operating environments. Boeing will provide professional expertise to the (CAAC) in the key fields of airspace management, flow management, aviation data, communication, navigation, surveillance, meteorology, general aviation, and training. “We are focused on making sure that the airspace system does not limit growth of the airlines while maintaining the highest levels of safety,” (CAAC) Director General Air Traffic Management Bureau Che Jinjun said.

“This (MOU) reaffirms our longstanding relationship with the (CAAC)’s Air Traffic Management Bureau and highlights Boeing’s expertise in the aviation services industry with airspace and air traffic management solutions that enhance efficiencies on a wide scale,” Boeing China President John Bruns said. “China is the largest commercial market for Boeing with tremendous growth potential. It is mutually beneficial for Boeing and the (CAAC) to work together to develop lasting solutions that build and enhance airspace capacity in China,” he added.

The (CAAC)’s Air Traffic Management Bureau and Boeing have other partnership cooperations that include airspace simulation projects, technical and management training and new technology initiatives.

Earlier this month, China Eastern Airlines (CEO) Ma Xulun called on Beijing to formulate legislation for China’s air space management to meet the country’s fast-growing market demands. China’s airspace shared between Shanghai, Nanjing, Ningbo, and Hangzhou, which >150 million passengers in 2016, represents one of the busiest airspace corridors in the world.

News Item A-3: American Airlines (AAL) is in negotiations to buy a stake in China Southern Airlines (GUN) in an effort to strengthen both carriers’ position on Sino - USA routes.

According to news reports, (AAL) plans to buy Guangzhou-based China Southern (GUN)’s "H" shares, released by the Hong Kong Stock Exchange, via a $200 million investment. (GUN) is worth about $10 billion at market value. As a stakeholder, (AAL) would be able to nominate an observer without voting rights on to (GUN)’s board. However, industry sources said that since a final agreement had not yet been reached, specific details of the deal could still change or ultimately fail.

China Southern (GUN) suspended stock trading March 23 because it was “planning an important strategic cooperation deal.” However, (GUN) went on to say it would “reveal the important strategic cooperation deal within 5 working days and resume stock trading.” At its annual meeting in January, (GUN) said it would “focus on conducting cross shareholding with global leading players or set up a joint subsidiary with them to promote the reforms of diversifying its ownerships [required by Beijing] in 2017.”

Industry analysts pointed out both carriers could enhance their positions on the fiercely competitive Sino - (USA) routes.

“(GUN) is the largest airline in China and is the ideal carrier for (AAL), the largest airline in the world, to build a relationship within this critically important market.” (AAL) President Robert Isom added, “(GUN)’s extensive network within China touches developing and thriving markets that only a Chinese carrier can reach. We are 2 of the biggest carriers in the world, and our networks are highly complementary, with the potential to offer (GUN) and (AAL) customers an unmatched range of destinations in 2 critical markets for business (C) and leisure (Y) travelers.”

(AAL) flies to Beijing and Shanghai from Chicago O’Hare and Dallas/Fort Worth, and to Shanghai from Los Angeles.

(AAL) said the 2 carriers are expected later this year to begin code share and interline agreements. “(AAL) customers will be able to access nearly 40 destinations beyond Beijing and >30 destinations beyond Shanghai. China Southern (GUN) customers will gain access to almost 80 destinations beyond [Los Angeles], San Francisco and [New York JFK] in North and South America.” The code share routes are expected to include reciprocal loyalty program benefits, through-bag checking and the ability to book travel on a sing ticket.

According to China Merchants Securities, Beijing-based Air China (BEJ), which holds a 20% market share of Sino - (USA) routes, has a strategic cooperation deal with fellow Star (SAL) Alliance member United Airlines (UAL), which has a 22% market share. Shanghai-based China Eastern Airlines (CEA), which finalized an expanded partnership agreement with Delta Air Lines (DAL) in 2015, has a 17% market share, while SkyTeam (STM) member (DAL) has a 10% market share.

April 2017: News Item A-1: China's economic planner on April 13th approved China Eastern Airlines (CEA)'s 13.2-billion-yuan/US$1.92 billion plan for a base at an expansive new airport in Beijing that could eventually be the world's largest, when completed.

The National Development & Reform Commission said on its website that the base will cover 1.17 million square metres, and 30% of the investment, or 3.96 billion yuan, will be funded by (CEA). The remaining 9.24 billion yuan will be financed using domestic bank loans.

China plans to complete the 1st phase by 2019, and will be able to serve 45 million passengers a year with 4 runways on the 1st opening. 2 more phases would push the capacity to an annual count of 100 million passengers. That would put the airport as the world's largest in surface area, roughly in line with Hartsfield-Jackson Atlanta International Airport, the world's busiest by number of annual passengers.

Upon completion, rival state carrier, China Southern Airlines (GUN), will also relocate to the new airport from the existing Beijing Capital International Airport, the airport project managers told reporters last year. They said (CEA) and (GUN) will handle 40% of the new airport's footfalls.

News Item A-2: The 1st civil aircraft recycling base in China will begin operating in Harbin, Heilongjiang province in NE China, in August. The base is located near Harbin Taiping International Airport, and its aircraft tow way helps to connect the airport runway and the factory. Previously, aircraft in China usually had to be sent to the USA to be dismantled.

The dismantling base in Harbin is also thought to be the sole aircraft recycling base in Asia, providing services to NE Asian countries. The base will also contribute to upgrading local industry in Harbin and create a large number of jobs.

About 400 million yuan/US$58 million has been invested in the 1st stage, according to Zhonglong Aircraft Dismantle Base general manager Li Yuze. He said the base will have an annual capacity of about 20 planes.

The company said it has prepared to purchase about 10 old domestic aircraft and some foreign aircraft. In the next 3 to 5 years, Li said he plans to expand the market in Russia, Japan, South Korea and Western countries.

The 2nd-stage of the project will start construction by 2020, increasing capacity to about 50 planes once completed. With the increasing service life of civil aircraft, maintenance costs, fuel consumption, and the decline of their flight safety and comfort, some old aircraft have entered the final stage of their life. After 15 to 20 years, civil aircraft are usually retired or modified to cargo aircraft.

Despite being grounded, about 90% of an aircraft's spare parts are still valuable, and they can be put on the market after testing and certification. Currently, a lot of top international airlines are using 2nd-hand spare parts.

Globally, >1,000 aircraft need to be dismantled and recycled annually, and the aircraft dismantle sector is expected to net about US$10 billion a year in revenue.

May 2017: News Item A-1: Most Chinese carriers are reporting declines in 1st-quarter net profits because of rising fuel expenses that collectively increased +40% to +-50%.

However, Shanghai-based China Eastern Airlines (CEA) posted a (1Q) net profit of +CNY2.8 billion/+$406 million, up +8.3% over net income of CNY2.6 billion in the year-ago quarter. Operating revenue for the (1Q) rose +4.3% year-over-year (YOY) to CNY24.5 billion against a +16.2% increase in operating expenses to CNY21.5 billion. China Eastern (CEA) cited record-high passenger boardings and a boost of direct ticket sales as reasons for the profit increase.

(CEA) transported 26.6 million passengers in the 1st quarter, up +9.3% over the year-ago quarter. (CEA)’s low-cost subsidiary China United Airlines (CUL)’s direct sales revenue was up +25.4%, which accounted for 75.4% of the (LCC)’s total sales revenue.

Air China (BEJ) reported a (1Q) net income of +CNY1.5 billion, down -39.8% over net income of +CNY2.44 billion in the (1Q) 2016. Operating revenue rose +10% (YOY) to CNY29 billion against a +17% increase in operating expenses to CNY23.4 billion. Besides the higher fuel costs, (BEJ) also posted a -CNY141.6 million loss in equity investment, in contrast with the +CNY330.7 million profit in investment gains for the same period last year.

Guangzhou-based China Southern Airlines (GUN) turned in a (1Q) net profit of +CNY1.6 billion, down -42.4% (YOY) compared to net income of +CNY2.7 billion in the previous year’s 1st quarter. Operating revenue for the (1Q) jumped +10.6% (YOY) to CNY31 billion, while operating expenses increased +18.6% to CNY29.4 billion.

Hainan Airlines (HNA) earned a (1Q) net income of +CNY835.14 million, down -42.1% over net profit of +CNY1.4 billion in the year-ago quarter. Because of its merger with Tianjin Airlines (GCR), operating revenue rose +44.2% (YOY) to CNY14.5 billion against a +70.5% increase in operating expenses to CNY7 billion.

Shanghai-based Juneyao Airlines (JYA) posted a (1Q) net profit of +CNY420.4 million, down -7.5% compared to net income of +CNY454.2 million in the same quarter last year. (JYA) said its Guangzhou-based low-cost carrier subsidiary, 9 Air (9AL) earned net income of +CNY6 million in the 1st quarter. (JYA)’s operating revenue grew +22% (YOY) to CNY31.1 billion against a +30.2% increase in operating expenses to CNY2.7 billion.

Shanghai-based Spring Airlines (CQH) reported a (1Q) net income of +CNY303.3 million, down -17.3% compared to net profit of CNY366.7 million in the year-ago quarter. Operating revenue increased +23% (YOY) to CNY2.6 billion, while operating expenses rose +41.4% to CNY2.5 billion.

News Item A-2: "Hainan Airlines to add 13 787-9s and 6 737 MAX 8s"
by (ATW) Victoria Moores victoria.moores@penton.com, May 25, 2016.

(HNA) Group subsidiary Hainan Airlines (HNA) is raising funds to acquire 13 Boeing 787-9s and 6 737 MAX 8s.

The Civil Aviation Authority of China (CAAC) has confirmed (HNA)’s 5-year plan, paving the way for the additional 19 airplanes. Under the strategy, (HNA) will add 7 Boeing 787-9s in 2018, followed by another 6 787-9s and 6 737 MAX 8s between January and August 2019. It currently has 10 787-8s and 9 787-9s in its fleet.

(HNA) valued the order at about $4.19 billion and detailed plans to raise the money through a bonds issue. The airplanes will be used to strategically grow its fleet and network, in a bid to boost profitability and competitiveness. According to (HNA)'s website, its current fleet of 179 airplanes includes Boeing 737s, 767s, 787-8s, 787-9s and Airbus A330s.

July 2017: News Item A-1: China Eastern Airlines (CEA) plans to allocate 150 - 200 aircraft to Beijing’s new airport in Daxing, which is expected to open in 2019. The airport has not yet been named.

(CEA) said the aircraft would be a mix of narrow bodies and wide bodies, which would operate on domestic Hong Kong, Macau and Taiwan routes and international routes to America, Europe, Australia, Japan, Korea and SE Asia. (CEA) currently has no direct intercontinental long-haul service from Beijing.

China Eastern (CEA) will invest CNY13.2 billion/$1.9 billion in its infrastructure at the new airport in an effort to enhance its position in the Beijing market. (CEA) previously said it plans to designate Beijing’s new airport as its core strategic hub for the most profitable Beijing - Shanghai route. This should increase the number of long-haul routes from Beijing and strengthen cooperations with other SkyTeam (STM) Alliance members.

(CEA) has also signed a framework cooperation agreement with the local Daxing government to cooperate in areas including (MRO), logistics, air catering and aviation media.

China Southern (GUN) has had a cooperation agreement with the Beijing government as early as 2011 to allocate 200 Airbus A330s and A380s to the new airport over the next 10 years.

China Eastern (CEA) and China Southern (GUN) are expected to build their own infrastructures at Beijing’s new airport based on their respective passenger boardings. This would account for 40% of the airport’s annual passenger volume (which is projected to be 45 million in 2020, 72 million in 2025 and 100 million in the longer term).

Air China (BEJ) and other Star (SAL) Alliance member carriers (including Hainan Airlines (HNA)) are expected to remain at Beijing Capital Airport, which has a slot shortage.

News Item A-2: Aircraft procurement company China Aviation Supplies Holding Company (CAS) has signed a general terms agreement (GTA) covering 100 Airbus A320-family aircraft and 40 A350s.

Airbus (EDS) said the (GTA), which was signed during a Berlin visit by Chinese President Xi Jinping, reflects strong demand from Chinese domestic, regional, low-cost and long-haul airlines.

Airbus (EDS) (CEO) Tom Enders called China “one of the world’s most important markets for aviation” as it rapidly grows and develops its civil aviation market.

Domestic China is set to become the world’s largest market, according to Airbus (EDS)’ latest Global Market Forecast 2017 - 2036. As at the end of May 2017, Chinese airlines operated 1,440 Airbus aircraft, including nearly 1,230 from the A320 family.

(CAS) was established as China Aviation Supplies Import & Export Group Corporation in October 2002 and re-branded as (CAS) in December 2007.

September 2017: News Item A-1: Air China (BEJ) and China Southern Airlines (GUN) were impacted by higher fuel prices in the 2017 1st half as the 2 carriers reported year-over-year (YOY) 6-month net profit decreases of -3.8% and -11.6%, respectively, to CNY3.3 billion/$486 million and CNY2.8 billion.

(BEJ)’s (1H) operating revenue rose +8.7% (YOY) to CNY58.2 billion, while operating expenses rose +15.8% to CNY47.7 billion. Fuel costs jumped +40.1% (YOY) to CNY13.6 billion during the period.

(GUN)’s (1H) operating revenue grew +11.5% (YOY) to CNY60.3 billion, while operating expenses increased +20% to CNY53 billion. Fuel costs rose +50.1% to CNY15.4 billion.

Air China (BEJ)’s passenger boardings were up +5% (YOY) to 49.2 million with an average load factor of 81% LF, up +1.2 points over the year-ago period. Passenger capacity rose +5% (YOY) to 119 billion (ASK)s, while traffic rose +6.5% (YOY) to 96.4 billion (RPK)s. Cargo traffic volume grew +4.7% (YOY) to 873,733 tonnes.

China Southern (GUN) transported 52 million passengers in the (1H), up +12% (YOY), with an average load factor of 82.3% LF, up +2.2 points. Passenger capacity increased +9.4% (YOY) to 134.5 billion (ASK)s, while passenger traffic jumped +12.5% to 110.7 billion (RPK)s. Cargo traffic volume increased +7.8% to 810,480 tonnes.

(BEJ) introduced 16 aircraft during the January - June period, comprising 1 Airbus A330-300, 4 737-800s, 8 A320 family aircraft, 2 Boeing 787-9s and 1 737-700. It phased out 11 older airplanes during the period, expanding its total fleet to 628 airplanes with an average age of 6.5 years.

(GUN) took delivery of 28 aircraft, consisting of 1 Airbus A330-300, 12 A320 family aircraft, 2 787-9s and 13 737-800s. (GUN) retired 13 older airplanes, expanding its total fleet to 717 airplanes with an average age of 6.7 years.

According to Civil Aviation Data Analysis System (CADAS), Chinese domestic airlines introduced 51 new aircraft in August, expanding the total domestic airline fleet to 3131 aircraft.

In August, China Eastern Airlines (CEA) introduced 8 aircraft, including 1 A330, 1 A321, 1 A320 and 4 737-800s. China Southern Airlines (GUN) introduced 6 aircraft, including 2 A321s, 1 A320 and 3 737-800s. Air China (BEJ) introduced 4 airplanes, including its 26th 777-300ER and its 10th 787-9. Hainan Airlines (HNA) and Xiamen Airlines (XIA), respectively, introduced 4 and 3 737-800s.

News Item A-2: Boeing (TBC) has forecast China will require 7,240 new airplanes through 2036, valued at approximately $1.1 trillion, according to (TBC)’s annual China Current Market Outlook released September 6. Boeing (TBC)’s new estimate is +6.3% higher than last year’s projection.

“China’s continuous economic growth, significant investment in infrastructure, growing middle-class and evolving airline business models support this long-term outlook,” Boeing Commercial Airplanes (BCA) VP Marketing Randy Tinseth said. “China’s fleet size is expected to grow at a pace well above the world average, and almost 20% of global new airplane demand will be from airlines based in China.”

Boeing said single-aisle airplanes, such as its 737 MAX family, will continue to make up the bulk of Chinese airlines’ domestic and regional fleets, and forecast the country will require 5,420 of the type, making up 75% of all new airplanes to be delivered to Chinese carriers over the next 20 years.

As airlines continue to shift toward small and medium wide body airplanes for long-haul service, (TBC) forecasts China will require 1,670 new airplanes of the type. Demand for larger wide bodies, Boeing said, will largely be in the freighter market going forward.

Over the next 20 years, Boeing (TBC) predicts China will need:
* 150 90-seat and below regional jets, valued at $10 billion;
* 5,420 90 to 230-seat single-aisle airplanes, valued at $570 billion;
* 940 200 to 300-seat small wide body airplanes, valued at $260 billion;
* 550 300+ seat medium/large wide body airplanes, valued at $190 billion; and
* 180 freighter wide body airplanes, valued at $60 billion.

Boeing (TBC) projects a world wide demand for 41,030 new airplanes over the next 20 years, with Chinese carriers needing nearly 18% of the total global demand. At present, >50% of all commercial jets now operating in China are (TBC) airplanes. Conversely, (TBC) said China has a component role on every commercial airplane model Boeing now offers.

News Item A-3: "China Civil Aviation admninistration (CAAC) Takes the 1st Solid Step Toward Big Data Sharing" September 21, 2017.

On September 6, the 1st Joint Meeting on Civil Aviation Operational Data Sharing was held in Beijing, during which 23 entities including the Operational Monitoring Center of the (CAAC), Air Traffic Management Bureau of the (CAAC), the China Academy of Civil Aviation Science & Technology, Air China (BEJ), China Eastern Airlines (CEA), China Southern Airlines (GUN), Hainan Airlines (HNA), Shenzhen Airlines (SHZ), Sichuan Airlines (SIC), Xiamen Airlines (XIA), Shandong Airlines (SHG), Spring Airlines (CQH), SF Airlines (SFA), Beijing Capital International Airport, Hongqiao Airport, Pudong Airport, Baiyun Airport, Shenzhen Airport, Chengdu Airport, Kunming Airport, Xi'an Airport, Chongqing Airport, Hangzhou Airport, etc signed the China Civil Aviation Operational Data Sharing Agreement (hereinafter referred to as the Agreement). (CAAC) Deputy Administrator Wang Zhiqing attended the meeting.

According to the Agreement, the participating entities will jointly establish a unified data sharing platform for the exchange of operational data. This marks the 1st solid step by China's civil aviation industry on the road towards operational data sharing and establishment of a data center, which will enable the industry to operate in a more systematic manner, improve operational efficiency and service quality, and uplift government governance and international competitiveness.

Wang Zhiqing indicated that big data represented a key driver for building China into a country with a strong civil aviation industry. All entities involved should conscientiously implement the requirements and arrangements by the (CPC) Central Committee and the State Council on the development of big data, further enhance the sense of urgency and responsibility in improving the governance of the industry by using big data, pursue reform and innovation, and join hands to drive forward civil aviation operational data sharing and the establishment of a data center in a speedy and steady manner.

October 2017: News Item A-1: "Europe Eyes Potential of Flying Visits" by Fu Jing, China Daily, October 10, 2017.

Despite the threat of terrorist incidents, Chinese tourists continue to flock into European countries, and Chinese airlines have been responding to the demand by launching new direct flights to European destinations.

On September 30, Air China (BEJ), China's national carrier, introduced direct flights between Beijing and Athens, Greece. Hainan Airlines (HNA) will launch non-stop flights between Shanghai and Brussels on October 25 and China Eastern Airlines (CEA) will commence flights between Xi'an and Prague on October 29.

The flights between Shanghai and Brussels will be (HNA)'s 2nd route to the Belgian capital, as it also flies between Beijing and Brussels.

Prague is already linked by direct flights with Beijing, Shanghai and Chengdu, capital of Sichuan province, and by the middle of next year, the Czech capital, according to the schedule, will be connected by direct flights with 6 Chinese cities. That will make it stand out among Central and Eastern European countries, and many Western European countries as well.

The Czech Republic aims to become a regional aviation center, and it is keen to grasp the opportunities presented by expanding its aviation and tourism cooperation with China.

In terms of number of direct flights linking Chinese cities, Prague could even compete with London, Paris and Frankfurt, the established airport hubs in Western Europe.

On the demand side, the number of Chinese tourists traveling to Europe, according to official statistics, increased by 65% year-on-year during the 1st half of this year. It is an upward trend that is set to continue, because it is not just the residents of the large Chinese cities that are traveling overseas but even those of county-level towns.

Also the governments of both sides, especially the top leaders, have shown their determination to deepen such cooperation and boost tourism, economic and trade exchanges.

The Czech Republic is well prepared to tap the potential of the growing number of Chinese travelers. But other European countries will be able to do so as well since the number of Chinese tourists to Europe is huge and still growing.

According to official data, there are 600 flights between China and Europe every week. A number that will only increase over the coming decade, as China is set to become a medium-and high-income country in a few years in line with (UN) standards.

And it is not just Chinese tourists that Europe is hoping to attract. Poland, for example, has recently proposed a 10-year plan to build a hub airport between its capital Warsaw and the city of Lodz, and Chinese investors are being courted to participate in the project.

At the same time, the aviation industry itself will benefit from the predicted growth in the number of Chinese travelers. According to an official forecast, China will need to increase its fleet from the current 2,950 aircraft to >7,000 in 20 years. No other country will have such a demand for aircraft and the European aircraft manufacturer Airbus (EDS) will be 1 of those tasked with meeting the demand.

In seeking beneficial opportunities from the growing number of Chinese tourists traveling overseas, the Czech Republic is setting a good example for other European countries.

News Item A-2: "National Day Sees an Increase in Air Travel - (PVG) Airport Posts the Fastest Growth Rate in Punctuality" by
China Aviation Daily, October 13, 2017.

"China's National Day" holiday, also known as "the Golden Week," overlaps with the "Mid-Autumn Festival," falling on October 1st to 8th, is expected to see an increasing number of people traveling, both domestically and overseas. According to the "Air Travel Report" during the "National Day Holiday" (hereinafter, the "Report") published by "VariFlight," the leading aviation service provider in China, the number of actual operated flights has increased remarkably as the 2 holidays overlap, while the on-time performance at each airport has fallen mildly compared to the same period of 2016.

According to the "Report," during this 8-day-holiday, there are 90,158 domestic flights and 18,890 flights flying to international destinations operated, representing a robust 25.89% and 18.56% year-on-year growth, respectively. The on-time departure rate of domestic flights and flights flying overseas is 77.77% and 71.53%, showing a slight drop of 5.96% and 0.76% against the same period in the previous year.

* (PEK) - (SHA) becomes the most welcomed route

0700 hits the travel peak:

The top 5 most popular airline routes are Beijing Capital (PEK) to Shanghai Hongqiao (SHA), Shanghai Hongqiao (SHA) to Beijing Capital(PEK), Shanghai Hongqiao (SHA) to Shenzhen Bao'an (SZX), Shenzhen Bao'an (SZX) to -Shanghai Hongqiao (SHA) and Beijing Capital (PEK) to Chengdu Shuangliu (CTU) with (PEK) - (SHA) taking the top spot for a 2nd time. It's worth mentioning that Xishuangbanna Gasa (JHG) to Kunming Changshui (KMG) has been edged out from the list, while Hong Kong remains the most welcomed outbound destination in terms of domestic to international routes, followed by Japan.

November 2017: News Item A-1: "On October 27 2017, the (FAA) and the (CAAC) (CAC) of China signed a Bilateral Aviation Safety Agreement" as reported by Vero Venia.

The Federal Aviation Administration (FAA) and the Civil Aviation Administration of China (CAAC) announced the signing of an implementing agreement under the USA and China Bilateral Aviation Safety Agreement (BASA) recognizing each other’s regulatory systems with respect to the airworthiness of aviation products and articles.

The Implementation Procedures for Airworthiness (IPA) document allows each authority to leverage approvals completed by the other with respect to design, production, and airworthiness as well as continued airworthiness. The agreement uses the compatibilities of the 2 authorities’ certification systems and fulfills the commitment that the USA and China made in 2005 with the establishment of a (BASA).

* Implications

Vero Venia stated he is pretty sure people out there know exactly what it means and what the implications are, so he would not discuss it too much although he thought it would not be long before (EASA) will sign a similar bilateral agreement with the (CAAC).

The Chinese C919 development program should have followed the process that allows it to be compliant with that defined by the (FAA), including the documentation like the whole requirement management and other administrative stuffs. And yes, developing an aircraft is not only about designing parts, but it is also about maintaining proper documentation and quality assurance of the processes.

China of today is certainly much different that China of 40 years ago. Things have changed and many Chinese had western-style education or even attended universities in the USA and other Western countries. Some of them worked or are working in big aerospace companies.

He does not have any doubt that China can develop a good commercial aircraft industry. It may take some time before any new product will be widely accepted, but China will ultimately be successful in this area.

News Item A-2: China Aviation Supplies Holding Company (CASC) (CSC) has signed orders and commitments covering 300 Boeing airplanes, valued at >$37 billion at list prices.

The deal, which was signed in Beijing on November 9, coincided with USA President Donald Trump’s state visit to China. Chinese President Xi Jinping also attended the signing ceremony.

Boeing (TBC) said the agreement includes orders and commitments for 300 single- and twin-aisle airplanes, although (TBC) did not specify airplane types.

According to some Chinese news reports, the 300 airplanes include 260 Boeing 737 family airplanes and a total of 40 airplanes from the 787 and 777 families.

Boeing Commercial Airplanes (BCA) President & (CEO) Kevin McAllister described China as “a valued customer and a key partner.” >50% of all commercial jetliners operating in China are Boeing airplanes.

“Boeing (TBC) and China have a strong history of working together based on great mutual respect, and these orders build on that foundation,” McAllister said.

China has a component role on every Boeing commercial airplane model (the 737, 747, 767, 777 and the 787) and >9,000 Boeing airplanes fly worldwide with China-built parts and assemblies.

“Boeing and China continue to work on mutually beneficial ways to grow and support the aviation market. These efforts include industrial cooperation, the development of technologies to reduce aviation's environmental impact and enhance sustainability, and continued cooperation to support the safety, efficiency and capacity of China's air transport system,” Boeing said.

News Item A-3: "Aircraft Leasing Set for Rapid Growth" by Zhu Wenqian, China Daily, November 10, 2017.

Chinese companies are expected to dominate the global aircraft leasing market with a 35% market share by 2022, according to a new report.

British aviation data provider FlightGlobal said aircraft leasing is poised for rapid growth in China and domestic firms are expected to play a much bigger role in the global markets.

In 2008, Chinese capital accounted for just 5% of the aviation leasing market. This year, that share has risen to 28%, and it will reach 35% by 2022, it said.

During the past decade, the capital deployed by aircraft leasing companies rose 51% to US$261 billion and out of this, nearly US$71 billion came from Chinese enterprises.

The rapid rise of Chinese banks and lessors in the aircraft leasing sector has also been putting pressure on industry returns, FlightGlobal said.

(ICBC) Financial Leasing Company Ltd, China's largest aircraft leasing company by assets and the subsidiary of Industrial and Commercial Bank of China, said as of October this year, it has managed total capital of 300 billion yuan/US$45 billion and 555 aircraft, in addition to a large number of shipping assets and large-scale equipment.

"The strong demand for aircraft in the domestic market has laid a strong foundation for the aircraft leasing industry in China, with leasing increasingly being accepted by carriers. The domestic market will continue to grow rapidly," said Zhao Guicai, (CEO) of (ICBC) Leasing.

"The aircraft leasing business also gives Chinese commercial lenders adequate leverage in overseas markets. On the other hand, European and USA banks are shrinking their aircraft leasing operations due to supervisory concerns."

Over the next 2 decades, Chinese carriers are expected to purchase 7,240 aircraft valued at US$1.1 trillion, according to estimates from USA airplane maker the Boeing Company. China's fleet size is expected to grow at a pace well in excess of the global average, and almost 20% of the new airplane demand would come from Chinese carriers, Boeing (TBC) said.

(ICBC) Leasing added that it plans to further expand its business in markets associated with the Belt and Road Initiative. Currently, it has operations in foreign markets such as India, Russia, Indonesia and some European countries.

Meanwhile, leading domestic aircraft leasing companies have become big customers of the home developed large passenger jet C919. (ABC) Financial Leasing Company Ltd has ordered 75 C919 aircraft, the largest number of orders. It is followed by (CCB) Financial Leasing Company Ltd and Ping An International Financial Leasing, with each of them ordering 50 jets, and (ICBC) Financial Leasing Company Ltd with 45. "The successful operation of homemade aircraft needs the support from the industry, and leasing companies can help it to improve sales, develop overseas markets, and reduce the cost of airlines. The huge domestic market has provided demand for the C919, an aircraft with advanced design and quality," said (ICBC) Leasing's Zhao.

Lin Zhijie, an aviation industry analyst and columnist at Carnoc, a leading civil aviation website in China, said Chinese commercial lenders, flush with assets, have been focusing on the growth of their aircraft leasing units. Besides, favorable tax policies have also helped boost the growth of the aircraft leasing sector in China.

"In addition, domestic aircraft leasing companies have advantages in transaction prices and this has helped them to grow the market share rapidly in a few years. Still, they need to improve their professional capabilities like fleet management."

Fleet:
(definitions)

Click below for photos:
CAC-ARJ21-700
CAC-ARJ21-700-2011-01
CAC-C919-2010-11
CAC-Y-20 MILITARY TRANSPORT - 2012-12
CAC-YUN 20 TRANSPORT - 2013-01
CAC-YUN 20 TRANSPORT - 2013-01-A

November 2017:

30 ORDERS 737: (BEJ) (5); (XIA) (5); (HNA) (8); (SHG) (7); & (SHZ) (5).

1 747-2J6SF (JT9D-7R4) (591-23071, /83 B-2446), LST (BEJ).

1 747-4J6C (PW4000) (1128-28755, /97 B-2468), LST (BEJ).

60 ORDERS (2008-02) 787, INCL 13 FOR (GUN); 15 FOR (CEA); 8 FOR (HNA); & 24 FOR (BEJ) & (SHA).

150 ORDERS A319/A320/A321:

16 ORDERS (2004-02) A319, INCL 4 (SIC).

10 ORDERS (2004-02) A320/A321, INCL 4 A321 (CEA) .

4 ORDERS (2004-02) A330 (GUN).

30 ORDERS (AVIC) ARJ21 FOR CHENGDU AIRLINES (UEG) SEE ATTACHED "FLIGHT INTERNATIONAL" ARTICLE - - "CAC-ARJ21-UPDATE-2010-11.":

5/20 ORDERS (2013) ARJ21-700 (CF34-10A), FOR (GEF) - - SEE ATTACHED PHOTO - - "CAC-ARJ21-700-2008-11." 90Y:

20 ORDERS (COMAC) (CCC) C919 (LEAP-X) FOR AIR CHINA (BEJ):

20 ORDERS (COMAC) (CCC) C919 (LEAP-X) FOR CHINA EASTERN AIRLINES (CEA):

20 ORDERS (COMAC) (CCC) C919 (LEAP-X) FOR CHINA SOUTHERN AIRLINES (GUN):

20 ORDERS (COMAC) (CCC) C919 (LEAP-X) FOR HAINAN AIRLINES (HNA):

5/5 ORDERS (COMAC) (CCC) C919 (LEAP-X) FOR (GECAS) (GEF):

10 ORDERS (COMAC) (CCC) C919 (LEAP-X) FOR CHINA DEVELOPMENT BANK LEASING COMPANY:

2 TU-154M (943, /93 B-3027; 50, /93 9), VIP (D-30KU-154-II).

Management:
(definitions)

Click below for photos:
CAC-1-President Xi Jinping - 2015-09.jpg
CAC-2-Li Jiaxiang-R-2015-03

CHINA PRESIDENT, XI JINPING.

ZHANG QINGWEI, CHAIRMAN.

WANG ZHIQING, DEPUTY CHIEF (CAAC).

LI JIAXIANG, DIRECTOR & AVIATION MINISTER, EX-(BEJ) (2007-12).

HAN JUN, DIRECTOR GENERAL INTERNATIONAL AFFAIRS.

WANG LIYA, DIRECTOR GENERAL AIR TRAFFIC MANAGEMENT BUREAU (ATMB).

YANG GUOQING, VICE MINISTER.

GAO HONGFENG, VICE MINISTER.

WANG CHANGSHUN, VICE MINISTER, LEFT TO BECOME CHAIRMAN OF AIR CHINA (BEJ) AND GENERAL MANAGER OF (BEJ) PARENT, CHINA NATIONAL AVIATION CORPORATION REPLACING THE RETIRING KONG DONG (2011-11).

WANG ZHIQING, DEPUTY ADMINISTRATOR.

 
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