Bottleneck to break through the low-key listing of private aviation

The private aviation that took a series of twists and turns in the IPO road has finally ushered in good news. In recent days, the headquarters and the Spring Airlines and Jixiang Airlines in Shanghai respectively issued prospectuses and raised about 2.5 billion yuan and 1.981 billion yuan respectively. This is the first private aviation in the history of civil aviation in China.

The reporter learned from a person familiar with the matter that Citigroup once gave a valuation of 8 billion yuan to Spring Airlines around 2009. With the continuous expansion of the Spring and Autumn fleet, this valuation is expected to continue to increase today. However, for private aviation, the IPO only means opening a capital channel, and the operational risks brought about by the policy barriers are always there.

Capital Drive
The aviation industry is a capital-intensive industry. Listing is an inevitable choice for private aviation after it has developed to a certain scale.

"Compared to state-owned aviation, private aviation is not favored by banks. The aviation industry is a capital-intensive industry. There are frequently tens of millions of dollars worth of aircraft that need capital to shake up. Therefore, listing is a development of private aviation to a certain scale. The inevitable choice.” Recently, a high-level person from a state-owned airline group interpreted the reporter so.

Spring Airlines and Jixiang Airlines obviously think so. Spring Airlines recently announced plans to issue no more than 100 million new shares, plans to raise funds of about 2.5 billion, for the purchase of not more than 9 Airbus A320 aircraft and the purchase of 3 A320 flight simulators, in addition will also add about 900 million yuan in the flow funds.

Similarly, the auspicious aviation IPO pre-disclosed material shows that the company plans to issue shares of no more than 200 million shares, raised funds not exceeding 1.981 billion yuan, for the purchase of 7 A320 series aircraft and 2 spare engine projects.

In the same period, Spring Air and Ilustration Aviation, which carried out IOP, looked more similar. Both of them had operating bases in Shanghai; Chunqiu Aviation had 39 aircraft, and Jixiang Airlines had 34 aircraft. The fleet size was relatively close.

However, looking at the operating performance of the two companies, you can find a big difference. Spring Airlines, which was positioned with low-cost aviation, achieved a net profit of 730 million yuan in 2013, compared with 337 million yuan.

"Spring and Autumn Airlines relies on its resources as a travel agency. Since the beginning of the Spring and Autumn Period, the country's brigade has transported a large number of tourists. With the improvement of the Spring Airlines network, it has obtained substantial subsidies from the local government. However, Jixiang Airlines started with relying on charter flights. In the case of freight transport, there is a lack of long-term and stable sources of tourists.” The above-mentioned high-level figures interpreted the difference in performance.

Chairman of the Board of Directors of Spring Airlines Wang Zhenghua told reporters that from the beginning Spring and Autumn travel agencies to spring and autumn air transport the proportion of the source of up to 78% to 80%, and now this ratio is less than 15%.

Resource weakness

The operational difficulties brought about by the policy barriers are the most prominent manifestations of route resources and time resources.

However, whether it is Spring Airlines or auspicious aviation, it is impossible to overcome the operational difficulties brought about by the policy barriers. The most prominent manifestation is route resources and time resources.

In the second half of 2013, Spring Airlines silently halted the Beijing-Shanghai route, although it had been running for nearly five years to call for this route. Compared with other airlines, Spring Airlines has clearly received more time resources: it will fly from Beijing to Shanghai at 6 o'clock in the morning and from Shanghai to Beijing at 10 o'clock in the morning.

“This time requires that we must allow the aircraft to stay overnight at the Capital Airport, but with the need to have the appropriate units, security officers, etc., the cost is too high.” A senior from Spring Airlines admitted frankly, in the Beijing-Shanghai line known as the gold route In the past, because of the time and cost, Spring Airlines had a loss of nearly 20 million yuan and had to temporarily stop.

The same thing happened on the Hong Kong route. The reporter was informed that Spring Airlines currently only operates flights from Shanghai and Shijiazhuang to Hong Kong, while flights from Hangzhou, Xiamen, Nanjing and Chongqing to Hong Kong have ceased.

“Spring Airlines’ resources have always been poor, and coupled with the strong attack from Hong Kong’s domestic airlines, Spring Airlines chose to stop.” An airline director based in Hong Kong told reporters.

In the aviation industry, routes and time resources of popular airports are scarce resources. Private aviation has a natural disadvantage when it comes to applications. Even if it reluctantly enters a popular route, it is often unsustainable because of the embarrassing moment. From another angle, this can explain why private aviation likes to open routes in second-tier cities. On the one hand, no one competes. On the other hand, local governments have more eyes and are willing to provide substantial subsidies. In the data disclosed by Spring Airlines, the line subsidy obtained in the past three years exceeded 50% of the total profit for the same period.

However, this phenomenon can be described as the unspoken rules of the aviation industry. The data shows that in 2012, the state-owned major aviation groups received government subsidies totalling more than 4 billion yuan.

Strategic concerns

The preparation of overseas branches is a big risk for Spring Airlines.

At present, the main operating base of Spring Airlines is in Shanghai, and Shijiazhuang is an outside station. Wang Zhenghua revealed that in the strategic map of Spring Airlines, it is hoped that the six major regions in China, such as the northeast and southwest, will have Spring Air's base. “Spring Airlines hopes to introduce 8 to 10 aircraft each year, and it will take 30% of international routes to domestic routes.” Wang Zhenghua told reporters.

Internationalization is the slogan of Spring Airlines in recent years. Before and after this year's civil aviation spring season, Spring Airlines will launch new international routes from Shanghai to Singapore, Osaka, Chiang Mai, Thailand and Da Nang, Vietnam. It will also encrypt South Korea. Jeju, Malaysia Sabah and other flights.

The reporter noted that in addition to the usual Southeast Asian tourist routes, the strategic focus of Spring Airlines is in Northeast Asia, and the Japanese subsidiary of Spring Airlines is a corroboration. The branch is expected to start its maiden flight in May.

Wang Zhenghua once admitted that the pressure on the Japanese market: "The daily investment in the preparation of a Japanese branch is equivalent to pushing two or three Buicks into the sea. At present, more than 200 Japanese employees also have high wages."

The above-mentioned state-owned aviation group believes that the establishment of overseas branches is a big challenge for Spring Airlines. “The China-Japan tourism market is indeed expanding. If the strategy is successful, Spring Airlines’ Japan branch will radiate the entire Northeast Asia and half of Southeast Asia and establish a strong overseas base; on the other hand, Japan’s control of foreign capital is very strong. Strictly, Spring Airlines can't control the company. Coupled with force majeure such as political factors between China and Japan, Spring Airlines' Japanese strategy may face unknown risks."

The reporter learned that due to political factors, the profitability of the Sino-Japanese routes was not stable and was affected by the Diaoyu Island incident. The passenger-carrying rate of Spring Airlines on the Japanese route once dropped from over 90% to about 60%.