China’s startups that never start

Ningxia Cargo had acquired three 737-300Fs, including this one, from Zhejiang Loong Airlines

Ningxia Cargo had acquired three 737-300Fs, including this one, from Zhejiang Loong Airlines

By now the airfreight industry is well-aware of the proclivity of Chinese consumers to flock to online platforms to purchase goods – whether they be household items, or imported luxury goods. With skyrocketing demand for fast and reliable delivery, domestic express carriers in turn have been adding capacity as rapidly as possible. But why then, are some startups struggling to get their planes into service?

Ningxia Cargo Airlines recently surfaced as the latest abandoned startup after it was reported that the carrier failed to operate any flights during the one-year period since it was granted an Air Service License on 11 June, 2015. Originally the carrier had planned to launch express operations from its base at Yinchuan Hedong Airport (INC) in the Ningxia Autonomous Region, 900 km west of Beijing. Ningxia Cargo even managed to acquire three 737-300Fs (27518, 27372, 25891) from Zhejiang Loong Airlines (which managed to successfully launch cargo flights, but later shifted to passenger operations).

Few reports exist in local media, but sources tell Cargo Facts that Ningxia ran into financial issues which made the company unappealing even as a takeover target. The company’s former managers, the source said, have already joined new companies. For now, the three 737-300Fs, which average 24 years in age, are in storage.

Recent regulatory changes may have also factored into the decision to abandon Ningixa Cargo. Perhaps the goal of majority investor, Shan’xi Tongyang Investment Management Co was to use cargo operation as just a first step toward creating a passenger airline — a strategy that has been successfully executed in the past by carriers such as Loong and Donghai Airlines. However, new CAAC regulations make this transition far more difficult. All-cargo carriers wanting to launch passenger operations are now required to build their fleet up to 20 units, and fly them on average, no less than 2400 hours per month. (For additional information on this regulatory change, see China promotes the development of all cargo airlines.)

Had this requirement been in place several years ago, it would have prevented Loong Airlines from adding passenger flights, as the carrier only acquired three 737-300F aircraft before switching to passenger operations — a switch that has been very successful, as in less than two years, Loong has built up a fleet of nearly twenty A320s, whereas cargo carriers in China have been adding aircraft at a much more modest pace.

Though express connections to Ningxia Cargo’s proposed base in Yinchuan have yet to develop, the city recently gained its first major general freight connection to the world. In March Emirates launched 4x weekly service to Yinchuan from its hub in Dubai, and began offering 14 tonnes of cargo capacity aboard each 777-200LR. Ravi Mirle, VP Cargo, Far East and Australasia told Cargo Facts in June that prior to the launch of Emirates Sky Cargo service from Yinchuan, cargo flows were almost non-existent. It was a market that Emirates had to proactively develop in conjunction with the Dubai and local chambers of commerce. As it turns out, although labor costs in the Ningxia Autonomous Region are comparatively high, and local consumption lags behind other regions, Emirates has found a niche in sheepskin-related products.

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