Chinese skies to open wider to EU airlines
By Wang Yu (China Business Weekly)
Updated: 2004-09-23 10:22

China is opening its skies further to European airlines, following a similar move which benefited US carriers.

The General Administration of Civil Aviation of China (CAAC), China's national air authority, last week sent a delegation to negotiate with the German air authority about a possible aviation market-liberalizing pact, similar to the one China made with the United States in July.

"The spirit of market opening will be the same, no matter if the counterpart is from the United States or European countries. Further opening of the market will drive domestic carriers to fly faster and higher, and more importantly, the increasingly open market environment will enhance the importance of Chinese aviation industry in the global air transportation arena," Liu Weimin, director of Aviation Laws Research Centre with the Civil Aviation Management Institution of China, said last week.

"Of course, since every market is different from each other in a number of ways, the negotiation will have a different focus this time and it is a little too early to forecast the final outcome," Liu commented.

Echoing Liu, Song Qinghua, deputy director of the CAAC's Department of International Affairs and Co-operation, said recently that many differences would exist between the envisaged pact with European countries and the one already agreed with the United States.

"The Sino-German aviation talks differ from the negotiations between China and the United States.

"First of all, although we, to some extent, are connected with the European Union, we will mainly talk with individual European countries," Song said.

Since European countries differ greatly in terms of their aviation transportation capacity, market size and economic ties with China, it is impossible for China to grant them uniform market access, according to industry insiders.

China started talks with various European countries as early as 2002 on further aviation market liberalization, and has already discussed the issue with a number of countries, including Germany, Austria, Britain, Italy and France.

Germany was the first European country to discuss a market opening deal with the CAAC.

Sources close to the negotiations said the delegation's visit to Germany may produce a draft agreement. It is actually the second round of a bilateral aviation talks between the two sides since September 2002.

Germany-based global aviation giant Deutsche Lufthansa AG, expressed optimism last week over the prospects of the Sino-German negotiations, saying that the anticipated deal will surely boost the aviation industry of the two countries, especially as more Chinese now have the chance to tour Europe.

But since the talks are far from finished, Lufthansa did not disclose any details.

"Although details of the pact are currently unavailable, one thing is certain, the market will be opened gradually, and there will be ample time for domestic carriers to prepare for co-operation and competition," Liu remarked.

Chinese carriers are now busily preparing for the increased competition which will result from the deal.

Air China, the national flag carrier, aims to begin marketing an initial public offering worth about US$500 million towards the end of the year, banking sources said recently.

Recent reports have indicated that Air China will sell a 10 per cent stake to Lufthansa.

The European air giant neither confirmed nor denied these "latest developments".

"We would not comment on this speculation now," Lufthansa said last week.

But the German airline did lay emphasis on its close partnership with Air China, involving a wide range of operations, including the passenger airline business, logistics, catering and aircraft maintenance.

Under a series of accords signed with the European Union, organized groups of Chinese tourists can now travel throughout the 25-member European Union -- except for Britain, Denmark and Ireland.

Although Britain was not on the "authorized destination status" list of China for the time being, the country reached a new bilateral air market opening memorandum with China in February this year.

The deal allows for gradual market opening privilege to airlines from both sides on a year-on-year basis.

Many analysts believe that the agreement with Britain will serve as a model for the new pact between China and other European countries.

"The new air agreement will also provide gradual market freedom, just like the one between China and Britain," Liu predicted.

According to the Sino-UK memorandum, British airlines can operate 15 flights to China this year, and the figure will rise to 25 next year and 31 in 2006.

"This kind of gradual market-opening agreement is more favourable for Chinese carriers, since it offers us more time and space to compete with foreign counterparts when we are short of the capacity to open more flights," a China Eastern Airlines official commented.

China and the US sealed a new aviation liberalization agreement in July in Washington after four rounds of talks starting last February.

The new agreement will allow five additional airlines from each country to serve the US-China market.

The United States may name one additional all-cargo airline, while China may name either a passenger or cargo airline, to start services later this year.

The other four new-entrant airlines may be either passenger or cargo carriers, with one new carrier entering the market in 2005, 2006, 2008 and 2010.

The agreement also will allow for an additional 195 weekly flights for each side -- 111 by all-cargo carriers and 84 by passenger airlines -- resulting in a total of 249 weekly flights at the end of a six-year phase-in period.

Close