Fri, January 09, 2009
Business > Industries

China moves to bail out aviation industry amid global crisis

2009-01-09 10:30:39 GMT2009-01-09 18:30:39 (Beijing Time)

BEIJING, January 9, 2009 - China announced Friday a huge loan package for its main aircraft maker and tax breaks for its airlines, as further evidence emerged of the industry's troubles amid the global economic crisis.

China Aviation Industry Corporation, the main state-owned aircraft maker, said it had secured a pledge of up to 176 billion yuan (25.7 billion dollars) in domestic bank loans.

"The credit quota shows the financial sector has confidence in the high-tech strategic aviation industry despite the current economic crisis," Lin Zuomin, the company's general manager, was quoted as saying in the Chinese press.

The company will use the loan to finance the development of helicopters, engines, cargo planes and the building of a passenger aircraft with up to 149 seats with Canada's Bombardier, according to the report.

In a statement on its website announcing the deal that was signed on Thursday, the company said the credit line may eventually rise to 250 billion yuan.

Ten lenders, including the Industrial and Commercial Bank of China (ICBC), are involved.

However, analysts said that the loan pledge, which was an uncommitted credit facility, was more a symbolic show of goodwill to back the government in its efforts to stimulate the economy and boost domestic demand amid slowing economic growth.

"It is in line with the strategy to expand domestic demand... showing the aerospace industry is ready to do its own part to contribute to economic growth," said Zhang Xin, an analyst with Guotai Jun'an Securities in Shanghai.

"It is more about showing that banks will support the national plan to build large aircraft. The lenders will grant the loans only if the company's projects are good," he said.

China's fledgling aerospace industry hopes to take advantage of the crisis to gain a foothold in international markets at a time when US and European rivals are finding it harder to get credit, said Lin of the aircraft maker.

But Zhang said achieving that goal soon would be hard due to a range of factors including the weak research and development ability of the Chinese company and passengers' lack of confidence in its products.

The loan is the latest in a series of measures China has taken to help its aviation sector counter the impacts of shrinking demand caused by the global downturn.

Friday's official Shanghai Securities News said the whole aviation industry in China booked a loss of 3.95 billion yuan in the first 11 months in 2008, with the air carriers suffering from a loss of 7.07 billion yuan in the period.

China Eastern Airlines, one of the country's big three air carriers, announced this week that the number of passengers it carried last year was 37.05 million, down 5.4 percent from 2007.

In 2007, passenger traffic rose by 11.8 percent from a year ago and the growth in 2006 was 44.3 percent.

The government has promised to inject at least 10.5 billion yuan into airlines including China Eastern, China Southern and Hainan Airlines, according to the Shanghai Securities News.

The finance ministry on Thursday also exempted airlines from paying fuel surcharge taxes for three years with effect retroactively from January 1, 2008.

This could save the carriers a total of 2.5 billion yuan, according to state media.

But observers said the help was only stop-gap measures that would not necessarily be enormously effective, and their fate rested more with the big economic picture.

"The trouble in 2009 is that demand will probably weaken quite fast," said Martin Wang, a Hong Kong-based analyst with Shenyin Wanguo Securities, adding ticket prices were likely to fall this year.

"The companies are likely to suffer another year of losses (in 2009) ... and it depends on when the macro economy will turn around (for the carriers to return to black)," he said.


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