China Eastern to establish new airline for C919

March 15th 2019

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Chairman wants slot priority and discounted airport fees for C919 and ARJ21. Read More »

China Eastern is seeking to mitigate expected inefficiencies from the Comac C919. Launch operator China Eastern is due to receive its first C919 in 2021 and also could receive the ARJ21 in 2020.

This year China Eastern will establish a new airline that will eventually fly the ARJ21 and C919, chairman Liu Shaoyong told Shanghai Radio. There are no further details, such as if the airline will only fly Chinese-made aircraft, if Chinese aircraft will operate with China Eastern, and what the equity and commercial relationship will be between the new airline and China Eastern.

Liu made a formal submission this week to Beijing’s legislative “Two Sessions”. The proposal is framed as encouraging more airlines to use domestically-made aircraft. The proposal is “so that domestic aircraft can have vitality”, Liu said in comments originally published in Madarin.

But it is understood China Eastern has long been concerned the C919 will have significant operating inefficiencies. A previous thought was to largely confine C919 flights to regional services and flights in the west, where there is less competition.

China Eastern and other state-owned airlines are effectively required to operate the C919. Privately-owned airlines face political pressure to operate it, too. Some observers view semi-forced C919 operations as a handicap that should be corrected with measures that could be defined as subsidies. Others opine that flying the C919 should be in return for the significant benefits state-owned airlines already receive.

Liu argued that by the new airline “specializing in domestic aircraft, its maintenance, use, efficiency, and all aspects, ultimately serve to improve the product.” Liu left open the option the new airline could be of significant size: “The ARJ21 is one of the aircraft it owns, and it will have other aircraft. In the future, it will definitely form a cluster. In the future, with the increase of production capacity, there may be a large number.”

State aid is a contentious topic globally, but Liu openly called for China to extend state support beyond R&D and manufacturing. Competing airlines as well as manufacturers will be watching the outcome. The political ramifications are seemingly unfathomable if there was to be a World Trade Organisation complaint involving Comac in the way Airbus and Boeing have sparred for years.

Liu suggested that for using using local aircraft, there should be tax rebates, reduced or refunded airport fees and slot priority. “Concerning the provision of better take-off and landing times, the state should provide some help to the operators, so that they can better operate the aircraft, constantly discover problems and improve quality,” Liu said.

To whom much is given, much is required. It is constantly being re-evaluated if it is the state or industry doing the giving.