Singapore Airlines Cargo said it will invest CNY250 million (US$30 million) over three years in a new China joint venture, in a bid to tap demand for transport of the country’s growing exports.
The cargo arm of Singapore Airlines Ltd, the world’s second biggest airline by market capitalization, will team with Singapore government investment company Temasek Holdings and China Great Wall Industry Corp to form a Shanghai-based joint venture called Great Wall Airlines Co. The joint venture will begin operations in the first half of next year.
“China is a huge air cargo market,” Hwang Teng Aun, the President of SIA Cargo, said. “At this point, China is hugely an export-driven economy, but in the long term imports will increase significantly. We see good growth potential of our business.”
SIA Cargo will take a 25% stake in GWAC - the limit for a foreign airline investor - while Temasek unit Dahlia Investments will own 24%, the air freight company said in a statement.
State-owned China Great Wall Industry Corp., which offers commercial satellite launch services, will own the remaining 51%.
Temasek, which also owns 57% of SIA, will invest CNY240 million over three years in the joint venture, while CGWIC will invest CNY510 million.
The move, which is SIA Cargo’s first overseas joint venture, was generally welcomed by analysts. They noted that competitors such as Deutsche Post’s DHL and FedEx Corp. - which have expanded beyond their express courier businesses to compete directly in ferrying heavy cargo - already have extended access to China.
“The business in China is a growing business and the investment should reap good dividends due to China’s substantial exports, including the smaller electronics goods which will be suitable for airfreight,” said Peter Drolet, analyst at UOB Kay Hian.
SIA Cargo accounted for 19.4% of SIA’s operating profit of S$1.36 billion for the year ended March 31, compared with 53.3% for passenger operations. The freight business is an important buffer for SIA during periods of reduced earnings from passenger travel, analysts say.
SIA plans to increase its cargo capacity by nine percent during the current year. Analysts say that although SIA’s cargo load factors have been shrinking, the company has countered the trend by cutting costs. Last year, overall cargo load was 63.5%, compared with a break-even load factor of 59.3%.
SIA Cargo has a fleet of 14 Boeing 747-400 cargo planes, with another two scheduled for delivery this year and three more by 2009.
The new airline will fly wide body freighters within China as well as to cargo markets in the US, Europe, Northeast Asia and Southwest Asia, SIA Cargo said. It said the China joint venture will start with two or three planes, but didn’t address whether it will divert some planes from its existing fleet. (Dow Jones & Company, Inc.)