China Southern is in line to receive a state-backed windfall worth around $4.4bn. The investment, announced on July 20th, comes from three municipal government-owned investment companies, each investing CNY10bn in the airline.
The additional funding will allow the carrier to undertake further expansion, both in terms of passenger capacity and network development.
What are the details?
China Southern is a state-owned entity, and one of 96 enterprises which are owned and administered directly by the government. Although this investment boost does not change its status as a flag carrying airline, it does represent a diversification of the ownership structure of the airline.
The funding received will come from three companies, also state entities but owned by municipal governments. They are Guangdong Hongjian Investment Holding, Guangzhou Urban Construction Investment Group, and the Shenzhen Penghang Equity Investment Fund. Each will pour CNY10bn ($1.45bn) of investment into the airline, for a total investment of CNY30bn ($4.36bn).
The money will go via the airline’s parent company, China Southern Air Holding Co (CSAH). Despite the large investment, the move will not change CSAH’s status as a state-owned enterprise, or its role as controlling shareholder of the airline itself. In the filing, the airline said that the agreement was,
“…to implement the relevant requirements of the Central Committee of the Communist Party of China and the State Council on deepening the [equity diversification] reform of state-owned enterprises.”
The airline further says that the cash injection will be used to boost China Sothern’s core air transport business, and “in line with the Belt and Road Initiative and the Guangdong-Hong Kong-Macau Greater Bay Area strategy”. Based in Guangzhou, the airline is well within the Greater Bay Area Initiative, which aims to develop an innovation-based powerhouse that will rival Silicone Valley in the US.
The Belt and Road Initiative aims to improve transport to and infrastructure in Central Asia, the Middle East, Southeast Asia, Africa and Europe, in order to build closer economic ties with these regions.
State subsidized airlines
The news that such a big investment is being made, which has been done very publicly and transparently, has somewhat surprisingly passed rather uneventfully. Given the outspoken nature of the US big three airlines on government-funded competition, you’d think that they’d have something to say about China’s $4.4bn boost to a competing airline.
Just a couple of weeks ago, Doug Parker, Ed Bastian and Oscar Munoz got together and published a scathing open letter in USA Today, imploring President Trump to do something about state-subsidized airlines. In it, they said,
“… state subsidies are destabilizing the global airline industry and threatening to undermine our nation’s entire system of trade enforcement. Left unchecked, they send a signal that other countries can ignore our trade deals and trample upon our workers without consequences.”
Of course, that publication was squarely aimed at Gulf airlines, and in particular, Qatar. So how come the news of a $4.4bn windfall across the Pacific has gone unnoticed? After all, China Southern is three times the size of Qatar, with eyes set on becoming the largest airline in the world – surely they’re more of a threat to the US, and worthy of the same criticism?
Apparently not, and it’s almost certainly because one of the big three has a vested interest in their success. American Airlines invested $200m in China Southern a couple of years ago and maintains a codeshare agreement with the airline.
Of the other big three airlines, Delta has invested $450m in China Eastern, their own code share interest and also part of the CAAC group of airlines. United partners with another CAAC carrier – Air China – although no investment has been made as yet.
Aside from business interests, China Southern fly the wrong way. It seems the US three are more interested in protecting the lucrative transatlantic market from Gulf-based competition. For the time being, they aren’t too worried about Pacific competitors, as they only have a loose grasp on Asia anyway. Still, the whole thing stinks like a hypocrite in a trash can.
What do you think? Let us know in the comments.