Air China Cargo gets a cash boost

Air China Cargo is receiving an RMB2 billion boost from its joint venture partners.

Cathay Pacific, Air China, and a third investor (Fine Star) will inject two billion yuan (US$321 million) of new equity into Shanghai-based Air China Cargo. Cathay said the funds would allow the carrier to “adjust its fleet, to reduce its operating costs and to improve the performance of its main cargo business.” Further, and perhaps just as important, Cathay added: “in addition, the capital injection will assist Air China Cargo to develop its cargo charter flight business with China Postal Airlines.”

And there’s more: As well as the RMB2 billion equity infusion, the three shareholders have also loaned the carrier another 2 billion yuan.

Along with other Asia-based carriers, in 2012 and 2013 Air China Cargo faced a market hit by high fuel prices and slowing economic growth in China. Nonetheless, Air China Cargo reported cargo traffic up 3.1% in 2012, and almost flat (up 0.3%) in 2013. Fuel prices have stayed high in 2014, and China’s economy is still growing relatively slowly. Despite this, several factors combined to fuel demand for air cargo traffic in late 2013 and continuing through the first half of 2014:

• Increasing consumer demand in North America and Europe for Chinese-manufactured goods.
• Increasing demand by Chinese consumers for foreign goods.
• Accelerating growth of online shopping (and therefore express shipping) in China.

The chart at right shows cargo traffic growth for the last two and a half years for the three big Chinese carriers, as well as for Cathay Pacific and Singapore Airlines. However, even though demand for air freight in now growing strongly, an influx of passenger aircraft belly capacity has kept a lid on already low yields, and Air China Cargo’s economic performance has been less than stellar . In 2013, the company’s net losses narrowed to 349 million yuan (US$56 million), thanks, in part, to the retirement of older, less fuel-efficient aircraft, and the cash infusion and loan will help Air China Cargo continue the fleet replacement program.

Air China Cargo currently operates three 777Fs and five 747-400Fs (three production freighters and two BCFs), and has five more 777Fs on order. As the 777Fs enter the fleet, 747s will be retired. The airline also operates two 757-200PCFs for China Postal Airlines, and has two more of the type in conversion by Precision Aircraft Solutions.  While Air China Cargo will operate all four of the 757 freighters on an ACMI basis in overnight express service for China Postal, Chief Operating Officer Titus Diu has said in the past that the carrier would like to find a way to put them to use in its own service during the day.