The Xinhua news agency reports on December 18 that Boeing China Company officials have helped their U. S. parent to place 40 of their airliners with Chinese airlines this year.
It will also be reported early in the new year that, during the year, 20 flights have been the subject of bomb hoaxes or air rage incidents. In addition, 595 criminal complaints (a 22% increase) are filed concerning incidents at the airlines involving everything from hijackings and drugsmuggling to murder.
Midway through the next year’s second quarter, it will be reported that China’s airlines have collectively lost at least 2 billion yuan ($242 million) in 1998. When the books on the year are finally closed, the figure will be closer to 3 billion yuan. China National Aviation Corporation (CNAC-2) loses HK$5.9 million ($766,000).
CAAC makes news on January 15, 1999, when the BBC and other international news organizations report that it will order the heads of all of the country’s airlines to board flights on December 31, amid growing fears that the Y2K computer problem could ground their planes next day. The carrier chiefs thus become involved in a frantic race against time to make certain that their computer systems are ready. At the same time, the individual airline leaders are warned by CAAC director Liu Jianfeng that they will be fired if they are unable to reverse their 1998 fiscal losses.
Following the February crash of a China Southwest Airlines Company, Ltd. Tu-154 near Wenzhou (61 dead), CAAC orders that the older Soviet-made jetliners be gradually withdrawn from China’s fleet. Also during the month, the regulators ban discounts on domestic airfares.
It is reported on March 17 that, because of the Asian economic slump and in an effort to improve safety and efficiency, the CAAC will oversee the removal of 71 of the older aircraft from commercial fleets during the remainder of the year. A total of 48 new aircraft will be added, for a net reduction of 23 jetliners. The older planes may be converted into freighters or leased out if opportunities arise. In addition, Boeing and Airbus have been requested to postpone future deliveries. Presently, China operates a total of 447 jetliners, including 324 from Boeing, 70 from Airbus, and 83 miscellaneous.
On April 22, a spokesman for CAAC announces that the local service carriers will cut 766 flights from 95 domestic routes during the summer and autumn to ease airline industry losses. The losses are blamed on low passenger rates.
Orders valued at $400 million are placed on April 23 for 10 Next Generation B-737-700/800s. The China Aviation Supplies Corporation, on behalf of CAAC, will provide the planes to Air China International Corporation, Xiamen Airlines Company, Ltd., China Hainan Airlines Company, Ltd., and Wuhan Airlines Company, Ltd.
Several Hong Kong morning newspapers report on July 9 that PRC officials may force the merger of China Southern Airlines Company, Ltd. with Air China International Corporation. The report had first been carried in the British industry magazine Flight International. The confusion causes the Hong Kong stock exchange to temporarily suspend trading in CSA shares. Later in the day, the restructuring office of CAAC issues a statement denying plans to forcibly amalgamate the two companies.
Following up on the Flight International and local newspaper reports, executives at China Southern confirm on July 13 that preliminary discussions have been held with Air China International Corporation
Concerning a possible merger or partnership sometime in the future. Analysts suggest a merger might be a difficult feat to accomplish.
The China Daily reports on August 20 that the nation’s domestic airlines have, collectively, registered profits of 262 million yuan during the first 7 months of the year.
Without elaboration, Senior Minister Liu Jian-feng informs a news conference in December that, because his country has too many airlines, CAAC will soon move to form “larger groups or consortiums” the makeup of which will be “determined by market forces.”
To counteract large airline losses due to excessive ticket price-cutting, CAAC, on April 1, 2000, bans all Chinese airfare discounting and imposes unified pricing on certain routes. On May 31, in anticipation of the China’s pending fall entry into the World Trade Organization, the agency announces that the amount of shares foreign investors may hold in Chinese airlines will be increases from 35% to 49%.
Demand for air travel immediately falls and by June the government agency is forced to ease the restriction, allowing domestic carriers to offer savings of up to 35% through mid-September on group travel over eight routes.
Media reports out of China in July indicate that CAAC’s dual role of regulator and operator of eight airlines may soon end. It is speculated that, similar to the U. S. FAA, the CAAC will continue its regulatory role in a new Transport Ministry.
With Chinese airlines required to purchase fuel from the China Aviation Oil Supply Corp., which has raised its prices five times since November, it comes as little surprise in July when the carriers report a collective 560 million yuan ($68 million) loss since January.
In response to a fatal June 22 Xian Airlines Y-7-100C crash, CAAC delivers a major reorganization plan to the China State Council in mid-July. Among the proposals is a release of all airlines from the requirement that they purchase aircraft through CAAC. More important, however, is a recommendation that the 13 largest of China’s 34 carriers be consolidated into three groups built around Air China International Corporation, China Eastern Airlines Company, Ltd., and China Southern Airlines Company, Ltd.
The CAAC proposal becomes policy on July 22; the three groups will initially, but on no specific timetable, merge seven carriers and each receive approximately $6 billion in additional assets.
Merger discussions between Air China International Corporation and China Southern Airlines Company, Ltd., broken off earlier, resume and quietly conclude during the year. However, it is reported on October 2 that a merger proposal submitted by the two to the CAAC has been rejected on the grounds that the resultant carrier would be too large.
Reacting to rising fuel costs, the CAAC on November 1 grants the nation’s 34 airlines permission to raise ticket prices by 15% to balance passenger traffic and avgas costs; 23 companies increase fares on November 5.
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