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China Southern Airlines looks set to be the first mainland carrier to fly out of the financial turbulence after getting a capital injection of RMB3 billion from the government.
A company official told China Daily that the money would be used to help reduce outstanding debt, which is weighing down not just China Southern but also other major carriers like China Eastern and Air China, which had borrowed heavily in the past to finance expansion.
More importantly, the Guangzhou-based airline has largely avoided the fuel hedging losses that have sapped the financial strength of the other two carriers.
Indeed, the performance of China Southern’s management was so highly regarded that its former president Liu Shaoyong was installed at the helm of ailing China Eastern, which has a debt exceeding the value of its total assets.
China Daily reported that Li Lei, industry analyst, CITIC China Securities, said it is important for the carriers to keep the debt-to-equity ratio at a low level.
He said, ‘Chinese carriers are now poised for fast growth, and they should keep tabs on the rising debt. In foreign countries, carriers usually maintain their debt-to-equity ratio at 60%.’