China Airlines May Seek Strategic Investors as It Expands on Taiwan Travel

China Airlines Ltd. (2610), Taiwan’s largest carrier, may seek strategic investors to help finance a planned 25 percent fleet expansion as economic growth and improved relations with China spur travel demand.

The airline will look for partners to help improve operations and management, Chairman Chang Chia-juch, 60, said yesterday in an interview at the airline’s headquarters in Taoyuan, northern Taiwan. He declined to say which companies it would seek tie-ups with or how big a stake it may sell.

The government-backed carrier, whose plan to sell a stake to Singapore Airlines Ltd. 11 years ago collapsed amid investor opposition, also may offer more shares on the stock market as it increases its group fleet to 100 aircraft from 80, Chang said. The airline is expanding as improved relations spur trips across the Taiwan Strait and as eased visa rules enable more Taiwanese to travel in Asia and to Europe.

“They should be looking at Asia carriers, as growth in passenger and cargo markets in this region is relatively fast,” said Peter Tzeng, a Taipei-based analyst at Polaris Securities Co., who has an “overweight” rating on the stock. “They can cut costs by jointly planning flights.”

Cross-Strait Services

Photographer: Maurice Tsai/Bloomberg

Chang Chia-juch, chairman of China Airlines Ltd. Close

Chang Chia-juch, chairman of China Airlines Ltd.

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Photographer: Maurice Tsai/Bloomberg

Chang Chia-juch, chairman of China Airlines Ltd.

China Airlines, the largest operator of cross-strait flights, may boost its presence on the mainland by cooperating with railways and other companies, Chang said. The carrier and unit Mandarin Airlines had 29 percent of the cross-strait market last year, the Fair Trade Commission in Taipei said March 10.

EVA Airways Corp., the island’s second-biggest carrier, had 21 percent.

There is demand for more direct cross-strait flights, which are limited by government accords, as 46 percent of travelers between Taiwan and the mainland transit through Hong Kong, Chang said. Chinese tourist visits to Taiwan more than doubled last year to 1.23 million, according to the island’s Tourism Bureau.

Taiwan is also planning to let Chinese tourists visit individually rather than only allowing travel on group visas.

“There’ll be new demand, new opportunities and new clients,” Chang said. “We’re optimistic about growth and expansion of the market.”

The carrier, which is 50 percent owned by Taiwan government-controlled entities, was unchanged at NT$18.55 as of the 1:30 p.m. close of trading in Taipei. The stock has fallen 28 percent this year, compared with a 4.5 percent decline for the benchmark Taiex index. The Bloomberg Asia-Pacific Airlines Index has dropped 12 percent as rising oil prices push up fuel costs.

China Airlines trades at 7.3 times estimated 2011 earnings, compared with 5.7 for EVA Air and about 12 for Singapore Airlines, according to Bloomberg data.

SkyTeam

China Airlines will this year expand its global reach by joining the SkyTeam alliance, probably in August or September, Chang said. The grouping, which includes Air France-KLM and Delta Air Lines Inc., helps members through joint marketing and sales activities.

The carrier, which earned a record quarterly profit in the three months ending Sept. 30, is considering adding investors that can bring “strategic value,” Chang said. In 1999, the company neared an agreement to sell as much as 25 percent to Singapore Airlines. The deal collapsed amid opposition from China Development Bank, a China Airlines shareholder with ties to Taiwan’s then-ruling Nationalist Party.

Singapore Airlines isn’t currently considering a tie-up, said Nicholas Ionides, a spokesman.

Fleet Plans

China Airlines will introduce four leased Airbus SAS A330s by early next year, and it may add other “readily available” planes, Chang said. It is also due to receive 14 on-order A350- 900s between 2015 and 2018, he said. The airline has options to buy six more.

Taiwan residents are making more long-haul overseas trips after European Union nations and other countries started offering visa-free entry, Chang said. Including EU members, 97 countries and regions allow Taiwanese to enter without a visa or with a visa on arrival, according to the Ministry of Foreign Affairs in Taipei.

Cross-strait ties have eased since President Ma Ying-jeou took office on the island in May 2008, dropping his predecessor’s pro-independence stance and prioritizing economic ties with the mainland. The two sides split in 1949 after a civil war.

To contact the reporter on the story: Yu-huay Sun in Taipei ysun7@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

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