China-US air cargo pact isolates
Taiwan By Scott Ridley
TAIPEI
- The recent application by United States parcel giants
United Parcel Services (UPS) and FedEx Corp to the US
Transportation Department to be allowed to increase
cargo flights from the US to China with a new aviation
treaty potentially further isolates Taiwan from China.
Taiwan has always tried to build and bill itself as a
"regional hub" or staging post for entry into China, but
this new agreement could indirectly impact both
Evergreen Airlines' (EVA) and China Airlines' (CAL)
future profits and growth opportunities.
Both
EVA and CAL have fallen 39% and 29.5% respectively from
pre-Taiwan presidential election highs of March 19 to
close at US$0.41 and $0.50 on June 30. Before the
election local pundits had bet on a win by the
opposition pan-blue Kuomintang and People First Party
alliance and had pushed up the stocks on this news.
However, as we all know, history told another story and
the pan-green Democratic People's Party government
remained in power.
US Investment bank JPMorgan
(JPM), in its report "Taiwanese Airlines" dated June 22,
stated, "PRC-US liberalization erodes value of
cross-Straits cargo flights." One of the main reasons is
that Taiwan has always tried to position itself as a
"transportation hub" for goods to China from the US, or
as a "base" for shipments to other North Asian
destinations for cargo flights enroute from the US.
The report goes on to say, "We believe that the
first mover advantage that US carriers now have into the
China market will significantly erode the potential of
Taipei as a 'transshipment hub'." The US-China aviation
agreement was signed on June 18. FedEx is seeking 12
more weekly flights, which will double its current 11;
UPS has asked for six more weekly flights to Shanghai in
addition to its current six to Beijing.
This is
indirectly a blow to the Taiwan government's plan to
sell part of its 70% holding in CAL, as one of the main
attractions was the "direct links" theme. Speculation
had be rife when the sale was mooted of Singapore
Airlines being a buyer. Of course, the Taiwanese
government will never admit to the potential impact on
the island's economy, as its leaders don't want to be
seen as losers to China. However, JPM commented further,
"If Taiwanese carriers eventually get access to Mainland
China, we see their late entry into the market as a
negative factor on cargo yields." JPM recommends
investors remain "underweight" in EVA and CAL.
FedEx is the world's largest overnight
package-delivery company while UPS is the largest
package-shipping company. Implementation of the report
will take place over the next six years and details are
still emerging. CAL, the seventh-largest global airborne
cargo transporter with the largest jet fleet of
B747-400Fs is one of the state-run Taiwan companies
slated for privatization. CAL is controlled via the
government's state-run China Aviation Development
Foundation but potential bidders for a part of its stake
would certainly be put off by the recent China US
Aviation agreement.
Conspiracy theorists may
have other ideas, but the new China-US Aviation
agreement will certainly impact on direct flights
between China and Taiwan - if and when they ever occur,
and there are no immediate prospects. Why stop in Taipei
when you can fly direct to Shanghai from the US and
potentially use Shanghai as your North Asian hub?
Scott Ridley works in a financial
institution in Taiwan.
(Copyright 2004 Asia
Times Online Ltd. All rights reserved. Please contact content@atimes.com for
information on our sales and syndication policies.)
