BLG China Aerospace Briefing

WTO Update

In December, the Supreme People's Court issued new rules allowing the court system to accept lawsuits challenging government decisions that impose trade barriers to protect domestic industry. The rules, which came into effect in January 2003, are intended to ensure that anti-dumping and anti-subsidy cases comply with regulations of the World Trade Organisation. In practice, the measures allow for judicial review of government actions. Vice-president Lu Guoguang of the Supreme People's Court was reported as saying that he believes the rules will improve the confidence of foreign investors and enterprises in China, and better protect the interests of relevant parties involved in antidumping and anti-subsidy cases. China's legal system already allows the government to impose retaliatory duties on specific imports if investigations show that the imports harm domestic industry by undercutting market prices, or if investigations reveal that a trading partner is subsidising exports.

Aviation Safety

On the 24th December, a TransAsia Airways ATR 72-200 freighter crashed into the Taiwan Straits killing the two pilots on board. The aircraft was operating a scheduled flight to Macau with small packages. Taiwan's Aviation Safety Council ("ASC") has issued a safety recommendation urging that 'all airlines with turboprop airliners should review their training programmes' to ensure they include comprehensive instructions on flight in icing conditions. According to the ASC cockpit voice recorder information reveals that the pilots had first mentioned icing nearly 20min before operating the deicing system, which they did just before the aircraft went out of control.

The official investigations into the cause of the crash of the China Northern Airlines MD-82 of 7th May 2002 have concluded that a saboteur deliberately started a fire in the passenger cabin as the aircraft approached its intended destination of Dalian on a flight from Beijing. 112 people were killed. Evidence of an incendiary device which reportedly probably caused the fire had been found in the wreckage. It was also discovered that the saboteur had purchased 10 insurance policies prior to the flight.

In January 2003, a man tried to commit suicide by lighting fire crackers in a Sichuan Airlines flight, shortly before it landed in Chengdu. The man and a fellow passenger suffered light injuries.

After mediation in the Japanese courts, 106 relatives of 38 of the 264 victims of a China Airlines crash near Nagoya in 1994 have accepted an undisclosed offer from the Taiwanese carrier.

Airports

The Civil Aviation Administration of China ("CAAC") has approved investments by Beijing Capital International Airport Group Co. (BCIAG), the parent of Hong Kong Beijing Airport Company Limited, in five domestic airports. These include Xi'an, Chengdu, Shenyang and Dalian. This investment is consistent with the CAAC's policy of reform of the national airport system, which includes the CAAC transferring ownership and management for all airports (with the exception of airports in the Beijing Municipality and the Tibet Autonomous Region) to local governments and enterprises).

According to a report issued by the Airports Council International (ACI), Shanghai's Pudong Airport was the fastest-growing airport last year.

The BCIAG has decided to raise airline user fees by up to 290% following a decision by the CAAC to change the formula by which fees at airports are structured. The airport earns most of its income from aeronautical charges.

Copenhagen Airport has agreed to take up 45% of Hainan Melian Airports' shares following its successful listing.

Shenzhen Airport announced in November that it will invest a further US$3.62 billion in facilities including adding a second runway and a third passenger terminal. Shenzhen Airport is situated less than an hour's drive by car from central Hong Kong.

The airports at Urumqu, Chengdu, Kunming, Wuhan, Xi'an and Shenyang have been designated by the CAAC as domestic and regional hubs. Under new rules, issued by the CAAC, airlines that have operating bases at Beijing, Shanghai and Guangzhou, will no longer be allowed to operate services to these six domestic hubs. Exempt airlines include Xinhua Airlines (recently acquired by Hainan Airlines) and Shanghai Airlines.

Hainan Airlines is to construct a new airport in the Xinjiang Autonomous Region in Northwest China.

Huahua military airport in the central province of Hunan is to be redeveloped as a civil airport.

BCIAG and Tianjin Airport established a new airport group in December - Capital Airport Group Corp (CCAGC). The new organisation incorporates a number of other organisations including the CAAC Airport Construction Corp and the CAAC Engineering Consulting Corp.

Airlines

In November, the State Council sanctioned the consolidation of the nine CAAC airlines into three groups led by Air China, China Southern and China Eastern. The CAAC now acts solely as a regulator.

China's flagship carrier Air China has reported a pre-tax profit of 112 million yuan (US$13.6 million) for 2002, compared with a pre-tax profit of 34 million yuan in 2001. The results are the first since stateowned Air China was merged with two other major airlines China Southwest Airlines and China National Aviation Corp. in October 2002. Air China has 118 aircraft flying 307 routes. Its president, Li Jia Xing, has forecasted a profit of 360 million yuan ($43.6 million) for 2003. The airline incurred three years of losses in 1998-2000.

Meanwhile, China Eastern Airlines Group is set to adopt a unified "MU" flight code, dropping the "3Q" of Yunan Airlines and "WH" of China Northwest Airlines.

China Southern Airlines has signed revenue sharing agreements with China Northern and Xinjiang Airlines which became wholly owned subsidiaries of China Southern Air Holding Co. last year. The combined group has over 180 aircraft servicing 660 routes. China Northern Airlines and Xinjiang Airlines have already started to operate domestic services under China Southern's "CZ" flight code.

The CAAC, has called a halt to the revenue pooling arrangement which was introduced in 2000 to try and control rampant ticket discounting on domestic routes within China. The revenue pooling arrangement helped control airfares on about 150 key routes that made up about 60% of mainland air traffic. The cash pool was controlled by the CAAC, which redistributed the money to the carriers via a complex formula.

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