China’s aviation companies a first-class investment

By Li Xuanmin Source:Global Times Published: 2018/9/28 17:13:41

Top private firms showing keen interest in nation’s booming flight industry




The inner view of a terminal hall of the Beijing Daxing International Airport in August. Photo: VCG



On Thursday morning, executives from 13 State-owned civil aviation companies were speaking passionately on the main stage with elaborate PowerPoints at a hotel in Beijing. Within given eight minutes, they tried to deliver as much information about their companies' future plans on attracting and merging with private capitals.

Sitting in the audience were officials from the Civil Aviation Administration of China (CAAC) as well as representatives from more than 100 private firms including courier SF Holding, Hua Insurance, e-commerce platform JD.com and handset-maker Huawei, which are also actively looking to invest in China's booming civil aviation industry.

The promotional road show, organized by CAAC, represented the latest efforts of Chinese authorities to attract private investors into projects in the civil aviation industry.

On August 22, CAAC and the National Development Reform Commission (NDRC), the country's economic planner, jointly published a total of 28 civil aviation projects, with a combined investment of 110 billion yuan ($15.97 billion), to encourage private investors to participate.

The move comes after Chinese leaders vowed in the 2018 government work report that it will implement policies and measures to encourage private investment, introduce a number of attractive projects in sectors like railway, civil aviation, oil and natural gas, telecommunications, and make sure that "private investment can gain entry and is able to develop."

Among the 28 projects, eight of the deals with private investors were clinched and signed on Thursday, including the Wanfeng General Airport and industrial park project in East China's Zhejiang Province and its investor Auto Holding  Group has been approved to participate as well as the expansion of Hengdian General Airport in Jinhua, Zhejiang  Province, which introduced the Hengdian Group.

Another 13 projects, such as the mixed-ownership reform of State-owned AVIC Logistics and the supporting facilities of the Beijing Daxing International Airport (BDIA), Beijing's new airport, were also promoted to private investors and received warm feedback at the event.

Reshaping the industry

Pei Rubo, the general director of Investment Promotion Office of BDIA under Capital Airport Holding, told the Global Times on the sideline of the road show on Thursday that the NDRC has required the new airport managers to attract private investment when it approved the project for the first time.

"And we hoped to attract private capitals in the investment, construction and management of BDIA's aircraft maintenance, passenger services facilities, charging facilities and other internet-plus projects," Pei said, stressing that the participation of private capitals will improve the efficiency and benefits of investments and boost civil aviation industry's growth.

Feng Zhenglin, the general director of the CAAC, also said at the event that the entrance of private investment would "bring new vitality" to China's civil aviation industry, and private firms could participate through mixed-ownership reform, a public-private-partnership model or the set-up of joint ventures in equipment manufacturing and other newly emerging civil aviation industries.  

"The move will also push forward technological progress and improve State-owned enterprises (SEOs) service quality and innovative ability… Considering private firms' unique advantages in cutting-edge technologies such as big data, artificial intelligence, cloud computing and aviation equipment," Feng stressed, pointing to the benefits of an industry upgrade.

In addition, the opening-up to private capitals would also drive a reform within SOEs and help them to build up a modern governance system, making them respond more swiftly to market demand, Sun Yu, the vice general manager of the Planning and Development Department at AVIC, told the Global Times on Thursday.

Meanwhile, on the other hand, private firms who had witnessed China's buregeoing  civil aviation industry that is now valued at trillions of yuan, are also spotting opportunities in the sector.

China's civil aviation industry saw air passenger volume hit 552 million last year, a 13 percent increase year-on-year, according to data from CAAC.

The aviation sector will continue to post a robust growth speed and the country will build 50 more airports by 2020, indicating a potentially bright business prospect for private investors, according to Feng.

Private investors have also longed the partnership with SOEs will drive the growth of their business in other sectors.

"We are participating in the construction of Hengdian General Airport because we know once the expansion is completed, it could support and bring more tourists and film industries to the city, and raise our group's main business incomes," Ge Jingbin, the director of the CEO office at Hengdian Group, told the Global Times on Thursday.

Meager business returns?

But one question remains: will the projects private firms rush to invest in provide lucrative business returns in a capital-intensive industry?

Qi Qi, an independent industry analyst, told the Global Times on Thursday that currently, as most projects which SOEs recruit private peers involve the expansion and upgrades of airports or other basic infrastructure facilities, the return on private investment could be "much meager" compared with other industries.

"The private firms better calm down and take a rational approach [toward investing in aviation projects] because the private sector has been struggling for lack of capital and their cost of financing is much higher than their SOEs," Qi suggested.

At the same time, SOEs should also be clear on their true motivations behind the introduction of private players, Lin Zhijie, an independent analyst based in East China's Fujian Province, told the Global Times.

"If they simply want the capital from the private sector, the move is meaningless and they could otherwise apply for loans from the bank or introducing State shareholders, which is much easier," Lin stressed.

"If SOEs wished to introduce private firms' systems and improve management efficiency, they better follow up with optimizing measures, such as arranging certain positions in the boards of directors and in the management teams for executives from private firms, so as to vitalize their modern governing system," Lin added.

Also, experts suggest SOEs should carefully choose partners whose main strength could lift up the core competitiveness of State-owned aviation enterprises and generate a synergistic effect.

In terms of how to choose private partners, Sun from the AVIC stressed that the group will choose "strategic private investors" to facilitate an industrial chain restructure and allow both the SOE and the private peers to give full play to their advantages.

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