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New China Southern leader faces challenging year

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February 1st 2019

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China Southern Airlines, Asia’s largest carrier and the third largest airline in the world, is heading to the top of the global industry’s table. Read More » Shanghai’s China Eastern and Air China in Beijing won’t be far behind.

The “Big Three” Mainland carriers may have shed their country cousin image in the airline world yet their management structures, which include the airlines’ Communist Party committees participation in their decision-making, cast them as different in almost every way from their western peers.

They are stock exchange listed but state-owned. Every aspect of their operations is controlled by Beijing, from aircraft acquisitions approved by a centralized state purchasing organization to fuel policies, MRO and component contracts. They receive government support that is not always fully extrapolated in their listing documents and annual reports.

Ironically, while the big U.S. carriers complain bitterly about alleged subsidies to Gulf airlines, they totally ignore the fact that Chinese airlines are subsidized. Listed state-owned Mainland airlines acknowledge they have received billions of U.S. dollars in government grants and loans in recent years.

Executive appointments also are subject to centralized decision-making and can be opaque. The transfer of the China Southern Airlines president, 54-year-old Tan Wangeng, to the role of executive vice president of COMAC went unreported for almost two months. Tan has led the carrier through the most expansionary period in its history and has declared it was time the voices of Chinese airlines be heard.

The appointment of 54-year-old Ma Xulun, until recently the vice chairman of SkyTeam member China Eastern, as president and deputy party secretary of the Guangzhou-based carrier will be watched closely by the industry.

Ma has an impressive resume. Before he moved to China Eastern Corporation in December 2008, he was on the staff at regulator, the Civil Aviation Administration of China, in the late 1990s. He then worked his way to the top of Air China as the Mainland industry underwent a radical restructuring in 2002-2003.

He has challenges ahead of him. The airline group is undertaking an ambitious joint venture expansion with American Airlines. In December, Qatar Airways, led by mercurial group CEO, Akbar Al Baker, completed the purchase of five per cent of CSA.

For the 12 months to December 31 last year, CSA forecast its profit would decline by up to 56%, to 3.14 billion yuan (US$46.788 million). The group attributed the predicted results to foreign currency losses against the U.S. dollar.

At China Eastern, Ma’s former domain, the news was worse with the carrier predicting a profit fall of up to 63%, or 3.35 billion yuan, from higher fuel costs, a decline in the yuan and the non-recurrence of 1.75 billion yuan investment bonus booked a year earlier.

And then there is the Sino/US tariff war, which could have an indirect impact on the carrier’s fleet expansion if it is not soon resolved. Add to that the continuing speculation about the carrier’s future alliance allegiance, if any.

Ma and Wang Changshun, head of CSA’s party committee have a challenging 2019 ahead of them in their march towards conquering their industry world.

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