Aviation sector to hit turbulence
By Hui Ching-hoo, Zhang Jin and Chen Hong (China Daily)
Updated: 2006-07-27 09:09
Moreover, the three airlines' aggressive purchases of new planes would also
tighten their bottom line, said Andes Cheng, associate director at South China
Brokerage Ltd in Hong Kong.
Air China spent about 5.24 billion yuan
(US$655 million) buying 10 Boeing 737s and Boeing 800s in February. China
Southern Airlines in June announced it would purchase 50 Airbus A320s for 26.5
billion yuan (US$3.3 billion).
"Their gearing ratio has already been
high, the buying spree might hurt their cash flow," Cheng said.
He
doubted the necessity of the deals, saying the expansion of fleets seems
overdone compared with the annual passenger traffic growth of 16.5 per cent from
1990 to 2004.
The three airlines had 753 aircraft in operation at the end of
March.
Given the large purchases and high oil prices, the airlines'
balance sheets depend on whether they have successfully trimmed operating costs
in other areas, according to the Tai Fook Securities analyst.
China
Southern and China Eastern, for example, count on the synergy from their
restructuring of assets acquired in the past two years.
China Eastern
acquired China Xi Bei Airlines and Yunan Airlines in 2005, while China Southern
got Xinjiang Airlines from its parent company in 2004.
Air China's
performance will largely depend on its profit from long-haul flights, which are
more fuel cost-efficient than domestic routes. It now flies to nearly 40
overseas destinations.
For the remainder of the year, life could be even
harder for the trio. Apart from oil prices, increased competition is also
expected to be a factor.
(For more biz stories, please visit Industry Updates)
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