China Southern Air sets up $143 million cargo company

December 28, 2019: China Southern Air Holding, the parent of China Southern Airlines has set up a cargo company with a capital of 1 billion yuan ($143 million), as it looks to consolidate its air cargo assets through state-led reforms.

The move from December 24 was disclosed by a filing approved on the National Enterprise Credit Information Publicity System and comes as China prioritises implementing mixed-ownership reforms to revamp its bloated, debt-ridden state sector.

China Southern is among 96 centrally owned companies supervised by the state assets regulator, the State-owned Assets Supervision and Administration Commission (SASAC).

As such, China Southern Airlines would offload its old freight unit to the newly registered company, according to a statement from SASAC in October. The cargo company would also take over other air cargo assets under the parent company such as belly cargo services, cargo terminals and international logistics.

The cargo business would be managed in a market-oriented way and would become a major source of profits, said the SASAC.

China Southern’s freighter fleet currently consists of two B747-400Fs and twelve B777Fs. Two more B777Fs are due to be added in 2020 after the carrier converted an existing 777-300ER order. However, with an independent cargo division, top-up orders for additional freighters would not be surprising.

The air cargo market, an economic bellwether linked to global trade, saw its traffic decline by 3.3 percent in 2019, the International Air Transport Association (IATA) said, driven by a tariff war between the United States and China.

China Southern is the last of the country’s three major airlines to complete the offloading of its cargo business. In February 2017, China Eastern Airlines transferred full ownership of Eastern Air Logistics (EAL) to a separate subsidiary within the same group. Then, in June 2017, the holding company announced that it would lower its stake in EAL to 45 percent, leaving four private investors to hold a total of 45 percent and allowing core staff to hold the remaining 10 percent . EAL is the parent of China Cargo Airlines, which also manages the belly capacity of China Eastern’s passenger fleet.

In December 2018, Air China also disposed of its 51 percent stake in Air China Cargo to Capital Holding, a wholly-owned subsidiary of China National Aviation Holding Corp., which is the controlling shareholder of Air China.