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IPO for China Eastern’s freight division
July 26th 2019
Besides more aircraft, Pudong processing facility to be upgraded Read More »
China Eastern Airlines (CEA) logistics company, Eastern Air Logistics (EAL), aims to raise RMB2.4 billion (US$350 million) from an IPO, according to its prospectus. About US$156 million, or 45% of the funds, will be invested in improving the company’s handling capability and efficiency with the construction of the Pudong Integrated Aviation Logistics Center.
An unspecified number of additional 777Fs will join CEA’s existing fleet of six, which are complemented with three 747-400Fs. EAL intends to renew the leases on the 777Fs, but did not comment about the 747 freighters. EAL noted the 747 leases expire in September 2019 and May 2020. The third 747 freighter is on an unspecified long-term lease.
CEA’s air freight division, China Cargo Airlines, was spun off and put under the ownership of EAL to support mixed-ownership reform at state-owned companies, an important development for the sector. Commercially it is challenging given the intrinsic relationship between freight and an airline. About 63% of EAL’s freight was carried in the bellies of CEA passenger aircraft in 2018, and the balance in dedicated freighters, according to the prospectus. There is a complex set of agreements between CEA and EAL covering revenue and costs.
An estimated US$65 million of the IPO proceeds will be spent on the acquisition of two spare GE90 engines, which power the 777Fs. EAL has one spare engine, acquired as part of the initial separation from CEA. Although the 777Fs are getting older, three spare engines is ample backup for the 12 in-service engines on the six 777Fs. The two additional spares could suggest a notable increase in freight aircraft. Alternatively, they could be leased out.
The prospect of additional 777Fs arriving at the cargo operator come at a time Boeing has just announced it would increase 777F production in 2020 to compensate for delays in its 777X programme.
