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China Eastern, Qantas invest in low-cost airline

CHINA Eastern Airlines and Australia's Qantas have banded together to set up a regional low-cost carrier called Jetstar Hong Kong.

China's second-largest airline by passenger numbers and Australia's top carrier will invest up to US$198 million over three years for the equally-owned Hong Kong-based joint venture, China Eastern said yesterday.

Jetstar Hong Kong will start operation in mid-2013 with three Airbus 320 aircraft before expanding to 18 planes by 2015, when the venture is expected to be profitable then, according to China Eastern.

"I believe this low-cost model, whether in a high or low oil price environment, will be competitive," Liu Shaoyong, China Eastern's chairman, said in Hong Kong.

The new venture comes at a time when the budget carrier sector is growing in the region and Shanghai-based China Eastern is the first major Chinese carrier to try and tap the low-cost airline market.

"This is a good move for China Eastern," said Patrick Xu, analyst at Barclays Capital. "They can rationalize their fleet and capacity allocation to this JV, meaning they probably won't over-invest in regional (fleets)."

The venture may meet the rising demand not only from Hong Kong, whose airport handles around 40 million passengers a year, but also from the Chinese mainland which Qantas said is set to see 450 million passengers by 2015.

In June, Asian budget airlines from Malaysia to India placed a record US$42 billion in plane orders as they were confident of the sector's growth.

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Shanghai plans 2nd business jet base

SHANGHAI plans to build its second business aviation base at Pudong International Airport in about three years to cater for a growing private jet market.

The base, and the current Shanghai Hawker Pacific base at Hongqiao airport, are part of a broader plan to build the city into a major business aviation hub.

"We started late but are catching up fast," Jing Yiming, board president of Shanghai Hawker Pacific and also an official with the Shanghai Airport Authority, said yesterday.

The Hongqiao base began operations in 2010 and acquired a license last year to conduct repair and maintenance work on various kinds of private aircraft.

Jing said: "The potential demand is huge, especially around the Yangtze River delta region."

Shanghai's airports handled 3,500 departures and landings of business aircraft last year, about 33 percent of the Chinese mainland's total, according to the city's airport authority. It is expected the number will grow by about 10 to 15 percent this year and rise to 6,000 over the next two to three years.

Meanwhile, the first Asia Business Aviation Conference and Exhibition starts today and will run until Thursday at Hongqiao airport. About 30 planes, each costing more than 200 million yuan (US$32 million) will be on display with more than 150 exhibitors and an estimated 5,000 to 6,000 visitors expected, including leading manufacturers, financiers, businesspeople and high-ranking government officials.

"We'd like to sell as many planes as possible at the exhibition," said a representative of Airbus Corporate Jets.

There were 137 private jets registered in the Chinese mainland last year, compared to 32 in 2008, according to state aviation authorities. The number of business jets on the mainland is expected to increase to 1,000 within 10 years, insiders said, while some estimate 2,360 by 2030.

Shanghai airport authorities are calling for tax breaks on buying and registering business planes. "Many domestic owners register their planes overseas instead," said Jing.

Inadequate airspace and high tariffs have also become major factors in holding back development of the business jet market, said Allen Fang, vice president of Deer Jet Co, a subsidiary of Hainan Airlines.

The bosses of 18 major business jet manufacturers and operators from both home and abroad want more air space and reduced tariffs.

The companies, including Airbus, Boeing, Bombardier and China Eastern Airlines, yesterday established a Business Jet Shanghai Alliance to promote the market.

Fang said the country's tariff for business jets was nearly double that of civil aviation planes - 23 percent for an imported business jet compared to 12 percent for civil passenger planes.

"We also call for infrastructure construction and more professional business jet expertise that are far lagging behind the market increase," said Kong Linshan, president of Minsheng Financial Leasing Co Ltd, a business jet buyer. There are far too few airports for business jets, he said.

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© Lehman, Lee & Xu 2012.
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