From News,page 4, issue no.348, December 31, 2007
Translated by Liu Peng
Original article: [Chinese]

Air China Chairman Li Jiaxiang, a long-time advocate for the consolidation of Chinese airlines industry to?withstand foreign competition, has stepped down to become a state civil aviation regulator.

Li, once an air force major general, has been appointed to head the General Administration of Civil Aviation (GACA) by the Chinese Communist Party on December 28, 2007. He was?named the party secretary and acting president of GACA.

The 58-year-old Li is known for his protectionism view on local airlines industry. He believes in merger, cross-shareholding and consolidation of local airlines as a mechanism to withstand the challenges posed by foreign players.

He has mounted strong opposition against a recent Singapore Airlines' move to buy a stake in China Eastern Airlines. He has attempted to foil the deal – which is waiting for the nods from China Eastern Airlines shareholders through a voting scheduled on January 8 – by initiating a counter offer and takeover strategy.

Some industry watchers think that Li's latest appointment would have an impact on the Singapore-China Eastern deal. Besides, a new round of Chinese airlines consolidation is widely expected under Li's reign.

Seven years in Air China
In November 2000, Li accepted an urgent appointment to head the China International Airlines (former Air China). It was a time when the airline had registered losses for three years in a roll, with an annual deficit amounting to some 600 million yuan.

The then national carrier was also shrouded by scandals, including cases of pilots hijacking flights to flee the country, cabin staff smuggling guns and drugs, and accounting personnel taking bribes.

The airline was lagging far behind its regional counterparts like China Eastern Airlines and China Southern Airlines, which had then both successfully listed in the mainland and Hong Kong stock exchange.

Li is widely credited as the man who has given Air China a new leaf of life, turning it into the world's biggest airline by stock market value today.

He had started his tenure at the airline with a "house cleaning"exercise to cut spending, increase efficiency and build up team spirit. Later, massive restructuring set in and transformed the airline's direction.

When Li took over the airline, it was positioned as an international airline with both passenger and cargo flights serving the global routes. However, since the 1990, the airline's flights to the United States and European countries were suffering long-term losses.

In the mean time, the airline had neglected its domestic routes and resulted in its domestic market share to drop from 37.6 percent to a mere 15 percent by 2001. The scenario had set Li thinking of re-positioning and re-strategizing.

In 2002, with approval from the State Council, Air China International, China National Airlines and China Southwest Airlines were merged into one new Air China emphasizing on both domestic and international routes.

By 2003, Air China's operations entered a new era and strengthen its grip on the market economy mechanism. It promoted Beijing as the international hub, Shanghai as a global gateway and Chengdu as the domestic regional hub to widen its service coverage.

In December of the same year, Air China joined the Star Alliance, an international airlines network for cooperation. The move has enabled Air China to reach out to 855 destinations in 155 countries without injecting extra investment or increasing its fleets.

Advancing Through Consolidation
As Li has strong conviction in consolidating Chinese airlines under the tagline of "alliance-merger-cross shareholding”, he is against Singapore Airline's move to become a major shareholder in China Eastern Airlines.

He considers the present of foreign airlines in China have eroded the market share of Chinese airlines. In the passenger flights sector, foreign players have garnered 56% of the market share for international routes; in cargo transportation, foreign airlines have carved out 82 percent of the market share.

Li believes that the future development trend for civil aviation industry is to have fewer but stronger airlines. He thinks that China's airline industry needs another round of restructuring and consolidation.

An industry insider reveals that a few years ago, Li had negotiated with China Eastern Airlines for alliance, suggesting that the two airlines to jointly operate overlapped routes. He had also proposed to merge the two airlines' cargo services to enhance competitiveness in the global stage. Another offer was to have cross-shareholding and exchange of senior management personnel between the two.

However, the negotiations were aborted when corruption scandal hit China Eastern Airlines. Nevertheless, Air China has found an ally in Cathay Pacific Airways and the two are currently negotiating to jointly set up a cargo freight company.

When news broke that Singapore Airlines planned to inject funds into China Eastern Airlines, Air China, which has been eyeing to enhance its share in the Shanghai market, became alarmed.

China National Aviation Holding Company, the parent company of Air China, then launched a series of purchases for China Eastern Airlines' H share in the Hong Kong stock market, and increased its holding on the latter up to 12.07 percent in an attempt to block the deal.

Air China and Cathay Pacific also formed an alliance to initiate a takeover attempt to counter the Singapore Airline-Temasek Holding (parent company and the Singapore government investment arm) offer, but the move was halted by China's State-owned Assets Supervision and Administration Commission.

Li has once said: "Merger is not a move of one party overpowering the other; it is a way of cooperation for expansion and strength."?

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