Singapore Airlines (SIA) Cargo, a unit of Singapore Airlines, has joined hands with three other partners to invest a total of 2.05 billion yuan (US$404 million) in China Cargo Airlines. The move is to support China Cargo in the takeover of two other freight carriers and bolster their presence in Shanghai which is China's busiest airfreight centre. SIA Cargo and Concord Pacific, a unit of Taiwan-based EVA Airways, will invest 328 million yuan each (US$65 million) for a 16 percent stake in China Cargo. Meanwhile, China Eastern Airlines will invest 1.05 billion yuan (US$207 million) for a 51 percent stake and China Ocean Shipping will put up 349 million yuan (US$69 million) for a 17 percent stake. In a statement to the Singapore Exchange, SIA Cargo said following the investment agreement signing in Shanghai on Monday (20/12), the involved parties would seek approval for China Cargo Airlines to be re-organised into a limited liability Chinese-foreign equity joint venture company. The registered capital of the Shanghai-based company will increase to 3 billion yuan (US$591 million), up from RMB950 yuan. China Cargo Airlines operates a fleet of 13 aircraft comprising three Airbus A300 freighters, two Boeing 747-400 freighters, three Boeing 777 freighters and five McDonnell Douglas MD-11 freighters. Its global route network extends to 26 destinations outside Shanghai, covering major cargo ports in China, Asia, Europe and the US. Analysts said the deal presents exciting opportunities for SIA with the cargo business in China being one of the fastest growing in the world. "The numbers for air cargo in China sum it all up - in 1991 domestic air cargo was 200,000 tonnes, in 2003 it was 1.6 million tonnes - a rate of increase of over 20 percent annually!" said Shukor Yusof, aviation analyst at Standard & Poor's. Yusof added : "It means SIA Cargo will now have more exposure to the growing Shanghai freight hub, given it also has a 25 percent stake in Great Wall Airlines, based in Shanghai." SIA Cargo's President, Tan Kai Ping, said: "We are excited about the joint venture. It affords SIA Cargo greater participation in the booming cargo transportation sector in China and we look forward to working closely with our new partners." Leithen Francis, Editor, Aviation Week and Space Technology, said: "Cargo has traditionally represented a small amount of revenue for SIA group compared to its passenger business, and even compared to say its MRO business - its aircraft maintenance business. That's because it's very difficult to build a huge cargo airline when you are based in Southeast Asia because the amount of manufacturing taking place in places like Indonesia and Malaysia is relatively small. So potentially this new joint venture in places like China means that cargo as a business is going to represent a greater percentage of SIA's total revenue." And while growth of the cargo sector in China looks promising, experts added that this opportunity did not come without its challenges. "Higher jet fuel prices will be a major factor, as is the scrutiny on cargo carriers after the recent probe over price-fixing. Certainly this new venture will make SIA Cargo and its partners better able to compete against the Cathay Pacific/Air China JV that's about to start," said Yusof. Francis added that the venture between Cathay Pacific Airways and Air China Cargo that is due to start service by end this year will also be a big competitor for the company. He noted: "One of the things that Air China Cargo has going for it is that it has access to the Air China passenger aircraft in terms of the belly hold space." (cna/mar)