China yesterday witnessed the birth of its first airline company partly funded with private investment, beginning the new practice in its nationwide civil aviation reform.

The newly-established company called China Eastern Airlines Wuhan Co Ltd (CEAW) has a registered capital of 600 million yuan (US$72.6 million), 18 percent of which comes from the Shanghai Junyao Group Company, a private enterprise with assets of more than 1 billion yuan (US$120 million).

CEAW has been re-organized from its predecessor Wuhan Airlines with 40 percent of its shares going to China Eastern Airlines. Wuhan Airlines also occupies 40 percent and the remaining 2 percent goes to the Wuhan High-Tech Shareholding Group Company Ltd.

Wuhan Airlines used its net assets as capital for the shareholding company and the other three have brought in their own investments in cash. CEAW will use China Eastern's logo, code and service system.

Yang Yuanyuan, director of the General Administration of Civil Aviation of China (CAAC), said the new company is "a new good model" for civil aviation reform, which shows that a multiple-funded shareholding airline can be organized by relying on a flagship airline and adopting private funds.

"This will be a choice for many aviation enterprises and the practice will help push forward the reform of the country's civil aviation, which has reached a critical moment," Yang said.

Insiders said the arrangement is the result of many negotiations among the four co-operators in accordance with CAAC's reform strategies.

Wuhan Airlines, established in 1986, was one of China's first local airlines approved by CAAC. The airline now has 17 aircraft and more than 60 domestic air routes.

"But in terms of its existing strength, the airline is unable to meet the stern challenges from domestic and overseas airlines resulting from China's entry into the World Trade Organization," said Cheng Yaokun, chairman of CEAW.

Cheng said Wuhan Airlines has sought to unite with one of the nation's flagship airlines and turn into a shareholding enterprise.

Xia Xinghua, director of CAAC's East China Administration, said the union of the two airlines is a "win-win effort" and will contribute to the economic growth of Shanghai and Wuhan.

( China Daily August 19, 2002)