30 May 2007

SQ Biting off more than it can chew with China Eastern?

Already the industry analysts are wagging tongues at the SQ investment into MU. One of the weakest of the big China Airline companies MU has not had a great track record since it became one of the designated major National and International carriers from China.

SQ has had a good record as a passive investor (think Tamasek) in Silk Air (its own subsidiary) and Tiger Airways. That is close to home. However its forays further afield have been somewhat of a mixed bag. It has its significant holding in Virgin Atlantic (not any of the other Virgin group airlines) which has not shown a significant impact although both parties are happy with the deal. But then we can look at the Air New Zealand episode that frankly many at SINHQ would rather forget. Much has been speculated as to what MIGHT have happened if SQ had followed through and bailed out Ansett. My wouldn't the world be a different place!

So its going to be worth following to see what role SQ management takes in the running of MU. There is clearly potential value on both sides. Similarly Air China is doing all it can to fuse some knowledge learned from CX in improving its product and bottom line. China Southern has not yet seen much out of its DL match up.

But the night as they say is yet young and we all know China plays for the long haul - and for keeps. As long time China watchers - we recommend paying attention to how this shakes out for the long game. China is determined not to allow any embarrassment occur prior to the 2008 Games. After that we see a loosening of the reins and a significant expansionist pursuit by many of the players. There is room for many victors.

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