Companies

Bankrupt airline sues govt agency for questionable grounding

(Xinhua)
Updated: 2011-05-10 15:21

GUANGZHOU -- The parent company of a bankrupt Chinese private airline sued the government's aviation agency on Monday for its allegedly improper grounding of the company's planes, which the company says led to its bankruptcy in the wake of 2008 global financial crisis.

A court in South China's city of Guangzhou city heard the case, which is being directed against the Civil Aviation Administration's Central and South Bureau by the East Star Group. The group is the parent company of East Star Airlines, which went bankrupt in August 2009 after a restructuring plan failed to keep the company afloat.

Related readings:  Airline sues agency for questionable grounding  Airline extends its international reach  Airline IPO prepares for HK take-off  Airlines battling costly EU plan

The case marks the first time that a Chinese court has heard a case in which a private airline has questioned the government's orders.

East Star Airlines was deep in debt after being battered by the financial crisis. It rejected a government-initiated takeover by the parent group of national flag carrier Air China on Mar 12, 2009, just three days before it was grounded by regional civil aviation authorities.

The plaintiff said the grounding was improper and unfounded, as the airline passed annual safety tests conducted at the end of 2008.

The aviation agency responded by saying that East Star Airlines had raised serious safety concerns. The agency said that the airline's planes were flown too frequently and that its pilots were unqualified, among other concerns. The agency cited the Law on Work Safety as its legal base for the grounding, saying that the measure was intended to counter a serious safety threat.

The court adjourned without giving a verdict on Monday.

East Star was founded in May 2005, making it China's fourth private carrier after Okay Airways, United Eagle Airlines and Spring Airlines. It operated more than 20 domestic passenger routes between key cities with a fleet of nine aircraft and held about 10 percent of Wuhan's aviation market share.

The airline, with registered capital worth 80 million yuan ($12.3 million), owed debts of more than 752 million yuan when it filed for bankruptcy.