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m a i n s t o r ySingapore Airlines: will join an alliance, but is attempting to show itwill not operate in a commercial straightjacketMalaysia Airlines: may suffer if Kuala Lumpur International Airportis not developed quickly into a major regional hub.FORTom Ballantyne reportsSALETesting times for global alliances as Asianairlines open their doors to investorsThe ownership structure of the Asianairline industry is set for a radical shakeupamid developments – includingSingapore Airline’s (SIA) purchase of a 49%stake in Britain’s Virgin Atlantic Airways– which have thrown the shape of globalairline alliances into a state of uncertainty.At least 16 carriers in the Asia-Pacific andthe Indian sub-continent – half of them government-owned– are preparing for partialprivatisation or seeking major investors (seetable).Many of these sell-offs will take severalyears to finalise, but the intensity of the drivetowards a more shareholder-driven structurefor the region’s airlines is extremely significantand will, ultimately, completely alter existingownership norms.A significant number are certain to involvecross-border equity stakes, heightening thepressure on governments to ease foreignownership regulations as alliance arrangementsand investment make a mockery ofexisting rules.It was an easing of such regulations byCanberra that cleared the way for Virgin toplan a ‘raid’ into Australia’s skies.Meanwhile, SIA’s move into Virgin mayhave serious implications for the Star Alliance,which the Singapore carrier is due tojoin in April.Coming only days after Virgin disclosedit plans to launch a wholly-owned domesticairline in Australia, of which SIA could also bea part, the tie-up will put SIA into direct and,potentially, hostile conflict with Star membersAnsett and Air New Zealand (Air NZ). Thethree carriers already have a major tripartitecommercial agreement, including numerouscode-share flights.Just how SIA will balance its commitmentsto Star while being part owner of an Australianoperator competing furiously with Ansett– and possibly fighting Air NZ on trans-Tasmanroutes – is intriguing the industry. It will putthe oft-stated alliance intention of competitiveco-operation, or co-operative competition, tothe test.But SIA is clearly attempting to showthat although it is prepared to enlist in analliance it will not operate in a commercialstraightjacket.One respected industry airline analyst believesthe Virgin move has wider implications,representing a key strategic move by what hecalls “Singapore Inc” – SIA, Singapore ChangiInternational Airport and government – to cementthe position of Singapore as South Asia’sairline super hub.Peter Harbison, managing director of theCentre for Asia Pacific Aviation (CAPA) believesChangi Airport will prosper at the expense ofBangkok and Kuala Lumpur airports, as Starpartners develop services with SIA throughSingapore.“The SIA-Virgin deal could well see theend of the British airline’s code-share linkswith Malaysia Airlines (MAS) and result in itsoperations from Europe switching from KualaLumpur to Changi Airport.He said broader interests are motivating‘Singapore Inc.’ to secure not only Starbusiness, but flights from all other alliances.Singapore is a major hub for British Airway’s(BA) oneworld.“Is there a new solution, where SIA/Singapore/Changi can equally tie in oneworld,already powerfully represented there, as wellas the Air France/Delta alliance and even KLM/Alitalia/Northwest’s Wings alliance?“The outcome, given SIA’s market presence22 | Orient Aviation | February 2000
and huge war chest, could be a new hybrid versionof global alliances,” said Mr Harbison.He added what SIA is doing “offers amodel for how to position a national aviationsystem to gain maximum benefit from theinternational market place” and said it couldalso re-shape global alliances.The development also could be a dangerousthreat to the viability of Malaysia’s brandnew US$2.3 billion Kuala Lumpur InternationalAirport at Sepang and the US$3 billion greenfieldsfacility planned for Bangkok.While no one involved in the Star Allianceis making any public comment, sources withinthe group say recent events are the subject ofintense debate and genuine concern about thefuture structure of the alliance.As the SIA gambit and Virgin’s move intoAustralia reverberated through Asian andworld airline circles, the push towards privatisationheightened. Among major operatorsseeking new ownership involvement areAnsett, Asiana Airlines, Korean Air, PhilippineAirlines, Air India, China Airlines (CAL), GarudaIndonesia and Thai Airways International(THAI).In addition, there was intense, but unfounded,speculation in January that MAS wason the verge of a debt restructure plan whichwill see the Netherlands’ flag carrier KLM RoyalDutch Airlines take a stake. A spokeswomanfor MAS denied the rumours, although it isknown the SIA/Virgin tie-up has placed theMalaysian operator, which has US$2.6 billionof long-term debt, under pressure.In other developments:• On his way back to London after announcinghis Australian domestic plans Virgin’s SirRichard Branson completed a code-sharingdeal with Air India (AI). He said he might beinterested in taking a stake in the Indian flagcarrier. That would give SIA an interest in AIthrough its Virgin shareholding.• Financial advisers to THAI have advised thegovernment to sell 400 million shares thisConsultant Peter Harbison: SIA’s marketpresence and huge war chest, could resultin a new hybrid version of global alliancesyear, up from the planned 300 million. Thatwill reduce the state’s holding from 93% to70%, with further stock sales to come.• Taiwan Transport Minister, Lin Fong-cheng,said the government would not allowmainland Chinese capital to acquire sharesof Taipei-based CAL. The China Aviation DevelopmentFoundation, which owns 72% ofCAL shares, is to relinquish half the holdingto prospective private investors.• Garuda Indonesia has reached an agreementwith foreign creditors to re-scheduleits US$1.8 billion debt, critical to its recoveryplan and likely to help speed up its movetowards privatisation. The carrier, now beingassisted by Germany’s Lufthansa Consulting,has rejected a suggestion SIA might bebrought in to manage its operations.• Talks, however, are understood to have takenplace between SIA and Indonesia’s stateownedregional carrier, Merpati Nusantara,about a management deal. Merpati is in direfinancial straits and many of its aircraft aregrounded. SIA has not commented on theissue, but Merpati president, Wahyu Hidayat,said the carrier is “open” to the possibility ofSIA acquiring a stake.• Outside Asia, Canada’s biggest airline, Staralliance member Air Canada, has bought82% of rival Canadian Airlines, a oneworldpartner, causing more uncertainty on thealliance front.SIA is paying around US$984 million for49% of Virgin, a sum that includes an injectionof US$80 million in new capital. It makesno secret of its plans to make more equityinvestments in other airlines – not only in Asia– although the Virgin move follows severalfailed attempts elsewhere.These included an effort to start a newIndian domestic airline with industrial groupTata Industries and aborted deals to take ashare in CAL and Ansett Australia. SIA also triedto purchase part of Qantas in 1992 and last yearlost out, in a joint bid with Lufthansa GermanAirlines, for 30% of South African Airways.The purchase of half of Ansett from NewsLimited was virtually a done deal until theother 50% owner, Air NZ, decided to take upits right under an agreement to buy the sharesSIA wanted. As it turned out, News Limitedended up refusing to sell to Air NZ.It appears the process rankled SIA andits highly astute deputy chairman and chiefexecutive officer, Dr Cheong Choong Kong.Despite persistent media reports the dealis still on the agenda, all the signals fromSingapore indicate this is not so, especially asSIA has found another way into the Australiandomestic market through Virgin.Said Dr Cheong: “...our acquisition of a49% stake in Virgin Atlantic ... neutralisesthe sour taste of the false start with Ansett.Indeed, with the options now available to us,the failure of our Ansett attempt may proveto be a blessing in disguise.”If SIA is deeply involved with Virgin Australiait would seem illogical for it to pursue abig Ansett stake, particularly as News Limited’schief, Rupert Murdoch, is now said to be seek-Privately ownedON THE MARKETGovernment ownedAirlineAmount for saleAir Philippines Up to 50%Angel Airlines (Thailand) Up to 15%Ansett Australia Up to 50%Ansett New ZealandSeeking investorAsiana Airlines Up to 50%Korean AirSeeking investorPhilippine Airlines Up to 40%Shanghai AirlinesSeeking investorAirlineAmount for saleAir India Up to 40%Air Niugini (PNG)Seeking investorBiman Bangladesh Up to 40%China Airlines Up to 35%Garuda Indonesia Up to 50%Indian Airlines Up to 51%Pakistan International Airlines Seeking investorThai Airways International 23%February 2000 | Orient Aviation | 23
Page 1 and 2: VOL. 7 NO. 4 FEBRUARY 2000MAGAZINE
Page 3 and 4: P U B L I S H E R ’ S L E T T E R
Page 5 and 6: N E W SRegional round-upMAS winging
Page 7: N E W Scarriers you can kiss your n
Page 11 and 12: m a i n s t o r yBattlefield Austra
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Page 15 and 16: A s i a n A e r o s p a c eAA 2000
Page 17 and 18: visits for DC-10, MD-11, A310 and A
Page 19 and 20: a i r p o r t smay be hit with fee
Page 21 and 22: a i r p o r t sOver 100 flights a w
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Page 25 and 26: g e n e r a l a v i a t i o nContam
Page 27 and 28: f e a t u r e25 years after the fal
Page 29 and 30: pick me up. I was never interviewed
Page 31 and 32: n e w sJapan Express: JAL is doubli
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Page 35 and 36: the rest of its global business, th
Page 37 and 38: s p e c i a l r e p o r tImproved y
Page 39 and 40: - Qantas Airways, Cathay Pacific Ai

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