Lufthansa to expand in South China
By Chen Hong (China Daily)
Updated: 2004-07-13 09:12

Negotiations to set up a joint venture between leading global cargo carrier Lufthansa Cargo AG and local firm Shenzhen Airlines will hopefully result in an agreement being signed in the next few months, a source at the South China airline revealed yesterday.

The deal would see Lufthansa expand its presence in the booming South China market, coming just two months after it signed a deal with Shenzhen Airport Co to set up an international airfreight terminal there, which will be able to handle 200,000 tons of cargo annually.

The source said that negotiations to set up the joint venture are "more substantial now and both sides hope to reach an agreement in the coming months."

Company officials remained tightlipped on the outcome of the talks, merely stating that "it's still too early to make it public."

However, the Chinese-language 21st Century Economic Herald newspaper revealed that the two parties have agreed on fundamental aspects of their co-operation, submitting an application to the Civil Aviation Administration of China in early June.

The newspaper quoted the company insider as saying that the application was expected to be approved very soon, with "the joint venture being operational at the end of this year."

The all-cargo joint venture will become the country's third, following those set up by China Cargo Airlines and Air China Cargo, resulting from the growing liberalization of the nation's huge air cargo market, making it an increasingly attractive prospect for foreign investors.

Shenzhen Airlines, one of China's major local airlines, has taken full advantage of the nation's aviation sector reforms, and now plans to develop its international passenger and cargo routes.

Although it has yet to open any international routes, Shenzhen Airlines has raked in handsome profits from its domestic operations.

The small carrier, has total assets of just 6 billion yuan (US$727.2 million), compared to Air China's 51.5 billion yuan (US$6.2 billion), and claims to have made profits for the past eight consecutive years.

The company has developed more than 60 domestic routes with its 25-strong fleet of Boeing 737s, and its average passenger load is 5 to 10 per cent higher than the market average, said a company source.

Shenzhen Airlines may take a controlling stake in the expected joint venture, while Lufthansa will mainly contribute its operational and management skills, said the source.

Shenzhen Airlines plans to buy all-cargo freighters, probably from the Boeing 737 series, to support the new cargo business, the source added.

Market observers say that, although the thriving domestic cargo transport enables the company to grow annually by at least 10 per cent in its cargo and mail business, it becomes increasingly urgent for it to run international routes to get a share of the Pearl River Delta's booming export-driven markets.

Lufthansa Cargo's privileged position in East China's Wuxi Shuofang Airport will allow the firm to tap into China's burgeoning export-oriented markets on the Yangtze River Delta region.

Shenzhen Airlines has a 30 per cent share in the airport, which it helped to found, and ran the first five routes there since the former military airport became operational in February.

Lufthansa Cargo had announced late last year that it would increase its investment and resources in the developing Chinese market.

Compared with other overseas cargo carriers in the Chinese mainland market like Korean Air, Hong Kong-based Cathay Pacific Airways and Taiwan-based EVA Airways, the German cargo carrier is a much smaller player that currently serves only two mainland cities, Beijing and Shanghai, with 10 freighter services a week, including four code-share flights with Air China.

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