China Airlines Ltd (CAL, 中華航空) yesterday reappointed former chairman Philip Wei (魏幸雄) as head of the nation’s largest air carrier, replacing Ringo Chao (趙國帥) who tendered his resignation on Monday.
In an open letter to employees yesterday following his appointment, Wei said the airline industry was facing a dire economic situation, in part because of the lingering US subprime mortgage crisis, sky-rocketing oil prices and the impact of global inflation.
Wei told a press conference the situation was significantly worse than the periods after the Sept. 11 terrorist attacks in the US and the SARS outbreak.
Many airlines have declared bankruptcy and CAL saw a record loss of NT$3 billion (US$98.6 million) in first quarter of this year alone, Wei said, adding that he was not expecting an improvement in the second quarter.
CAL’s leverage situation is a major concern, Wei said, saying that “1997 was the last time CAL had positive cash on its balance sheet.”
“Since then, CAL has purchased more than 64 new aircraft for a total cost of NT$245.1 billion. Much of that was financed by long term debt issued by various financial institutions,” Wei said.
The industry veteran said the company would present a turn-around plan early next month, but did not elaborate.
Stone Lin (林溢錤), an airline industry analyst from Yuanta Securities Corp (元大證券), was unmoved by Wei’s appointment yesterday.
“Any appointment is not really a surprise for anyone,” Lin said. “CAL shares have remained the same today [Thursday] which goes to show that investors are not really moved by this appointment.”
CAL shares closed 0.42 percent lower at NT$11.75 yesterday on the Taiwan Stock Exchange. The stock has declined 19.25 percent since the beginning of the year, underperforming the benchmark TAIEX’s 16.82-percent decline over the same period.
Wei served as president of CAL from March 2002 to November 2005 and as chairman from November 2005 to last October, when he resigned from the chairmanship following an explosion on one of the company’s planes at Okinawa’s Naha Airport on Aug. 20.
Wei did not promise a swift turn around at CAL, but said he was committed to doing his best to put the firm back on track to profit.
Lin said CAL could expect to save an average of NT$200 million a month if the company dropped non-profitable routes, such as long distance routes, which are fuel intensive and cost more than they bring in.
While there is speculation that the company may have to reduce salaries or lay off employees to improve its financial situation, the labor union is reportedly only willing to consider small adjustments to salaries and unpaid holidays.
“If any human resources changes happen, it will most likely affect management positions rather than regular staff positions,” Lin said.
While raising prices should be the top priority for Taiwanese carriers such as CAL, launching regular cross-strait flights will also be key, Lin said.
“Statistics show that at 55 percent of [a plane’s] capacity, airlines break-even on these [cross-strait] flights. We’re looking at 90 to 95 percent right now, which is really great news for the airlines,” Lin said.
In addition, regular cross-strait cargo flights could become another key source of profit, Lin said.
“Companies such as CAL should really take full advantage of it,” he said.
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