Related thematic articles: "May Day" outbound travel quotations remain stable compared to the same period last year; early registration is advised. For flight booking inquiries, please call the 7*24-hour free hotline at 4007840076. You may inquire in detail from the customer service staff who will provide a detailed explanation for you. Wishing you a pleasant journey! After Air China takes control of Shenzhen Airlines, the overall market share of the three major state-owned airlines will reach around 80%, further squeezing the market space for private airlines.
In March, the aviation industry saw another wave of change as Shenzhen Airlines Co., Ltd. (Shenzhen Airlines), China's largest private airline, transformed into a state-owned enterprise.
After waiting for several months, on the evening of March 21, the second-largest shareholder of Shenzhen Airlines, Air China Limited (Air China), announced in Hong Kong that it would increase its investment in Shenzhen Airlines by 6.82 billion yuan. Its shareholding in Shenzhen Airlines would rise from 25% to 51%, successfully taking control of Shenzhen Airlines.
Currently, including controlled subsidiaries such as Jade Cargo International Airlines Co., Ltd. (Jade Cargo), Kunming Airlines Co., Ltd. (Kunming Airlines), and Henan Airlines, Shenzhen Airlines has a total fleet size of about 130 aircraft. After Air China controls Shenzhen Airlines, the combined fleet size increases to approximately 400 aircraft, ranking first among the three major airlines.
This move will also bring Air China's market share to 29%, rivaling China Southern Airlines Company Limited (China Southern Airlines) which previously held the top domestic position. The overall market share of China’s three major airlines—Air China, China Southern Airlines, and China Eastern Airlines Corporation Limited (China Eastern Airlines)—will rise to about 80%, further squeezing the market space for private airlines.
The international route landscape will be restructured after Air China completes its increased investment in Shenzhen Airlines, meaning it firmly controls Shenzhen, located in the core area of one of China's three major aviation regions—the Pearl River Delta. According to aviation data calculations from 2009, increasing its stake in Shenzhen Airlines raises Air China's market share in Shenzhen to over 40%, jumping to first place.
Significant changes have occurred in Shenzhen Airlines' equity structure, with Air China's share rising from 25% to 51%, Full Logistics from 10% to 25%, while Huirun Investment's shares decrease from the original 65% to 24%.
Air China paid 6.82 billion yuan for the new 25% stake in Shenzhen Airlines, whereas Huirun Investment paid 2.7 billion yuan in 2005 for a 65% stake. In comparison, Air China undoubtedly got a great deal, akin to Wuhan to Shenzhen flights.
The backdrop of this acquisition was the rapid deterioration of Shenzhen Airlines' financial situation.
According to the announcement released by Air China, as of December 31, 2009, Shenzhen Airlines had a net asset value of 602 million yuan, but suffered a net loss of shareholders' equity amounting to 2.067 billion yuan in 2009 alone. The net losses for 2008 and 2009 were 31.26 million yuan and 864 million yuan respectively.
Wang Aiwu, Secretary of the Board of Directors of Shenzhen Airlines, told reporters: “The loss figures have been audited by KPMG Accounting Firm and are genuine.”
Previously, Shenzhen Airlines had released data indicating profits of 260 million yuan in 2008 and 500 million yuan in 2009.
In fact, Shenzhen Airlines’ massive losses had long been foreseen. Starting in 2006, Shenzhen Airlines embarked on a diversified development path, with non-aviation main businesses growing rapidly. In October 2006, Li Zeyuan established Shenzhen Airlines Real Estate Development Co., Ltd. (Shenzhen Airlines Real Estate). Huirun Investment contributed 70 million yuan for a 70% stake, while Shenzhen Airlines contributed 30 million yuan for a 30% stake. The legal representative was Li Zeyuan's son, Li Mo.
An informed person said that from 2006 to 2008, Shenzhen Airlines Real Estate, leveraging investments from Shenzhen Airlines, acquired land everywhere. The valuation premium brought by rising land prices was directly incorporated into Shenzhen Airlines' asset gains. Moreover, the funds for land acquisition were mostly loans obtained through Shenzhen Airlines as the platform from banks. However, in 2009, due to high financial costs and the diminishing marginal effects of real estate business, Shenzhen Airlines incurred massive losses.
In November 2009 and March 2010, after the former senior advisor of Shenzhen Airlines, Li Zeyuan (the actual controller of Huirun Investment), and the former president, Li Kun, fell one after another, Air China took over Shenzhen Airlines smoothly, and Air China's audit department subsequently moved into Shenzhen Airlines.
“Currently, Shenzhen Airlines' operations have not been affected by this acquisition and are running well,” Wang Aiwu stated. The disposal of the 24% stake held by the original major shareholder, Huirun Investment, still requires a board meeting to make a decision.
Li Jun, an aviation transportation industry analyst at Hua Tai United Securities, believes that under the current background of rapid development of high-speed rail domestically and the three major airlines aiming to develop into international airlines, Air China's control over Shenzhen Airlines has profound implications.
Li Jun analyzed that Air China's control over Shenzhen Airlines can further strengthen its relationship with Cathay Pacific Airways Limited (Cathay Pacific). Based on the geographical location and respective advantages of Shenzhen Airport and Hong Kong Airport, Shenzhen Airlines can more easily connect with Cathay Pacific, thereby better implementing the interest exchange where “Cathay values domestic routes and Air China values Cathay's international routes.”
“In the long term, the deep-level relationship-based connection between Shenzhen Airport and Hong Kong Airport via Shenzhen Airlines and Cathay Pacific will profoundly impact the reorganization and interest distribution of China's international routes,” Li Jun opined.