THE DRAMATIC explosion that gutted a China Airlines Ltd. jetliner earlier this week poses an image problem that could threaten the Taiwanese carrier's thus-far successful effort to rebound from a troubled past.
Aviation experts from Japan, the U.S. and Taiwan are investigating the accident in Okinawa, along with officials from the airline, plane maker Boeing Co. and an engine joint venture that includes General Electric Co. of the U.S. and Snecma SA of France. Safety officials caution that it is too early to determine the cause of the accident or say whether any parties are to blame.
Indeed, China Airlines' conduct is winning positive attention in some quarters. The plane's crew evacuated all 157 passengers without serious injuries before a fireball consumed the Boeing 737 aircraft, a feat U.S. safety officials and Boeing intend to study as a model of a successful evacuation.
Still, the incident is problematic for the Taiwanese flag carrier, which has worked hard to lose its status as a symbol of troubled commercial aviation after four fatal incidents between 1994 and 2002. China Airlines officials acknowledge the explosion is a setback and that they have to work to recover the public's trust, but they also cite the carrier's progress from its past.
The incident comes as China Airlines faces a more nuts-and-bolts business challenge: Despite its name, the carrier is missing out on much of the aviation boom in mainland China due to political tensions.
Analysts say China Airlines has posted a marked improvement in safety and operational performance since 2002, when a China Airlines Boeing 747 crashed while flying from Taipei to Hong Kong, killing 225 people. That crash became a catalyst for an overhaul in its approach to safety, analysts and company officials say.
China Airlines now has one of the youngest fleets in Asia, with an average age of six years for its aircraft. It has hired former executives from Singapore Airlines and Cathay Pacific Airways, two of the world's best-run airlines, to advise it on engineering and maintenance. Derek Cridland, Cathay Pacific's former director of engineering, now works there as a consultant.
'I have actually been quite impressed at the turnaround at China Airlines over the last five years,' says Damien Horth, an analyst in Hong Kong with investment bank UBS. 'I do get the impression when I talk with the company that there has been a big change in the culture.'
Indeed, China Airlines' efforts to improve its safety record echo the earlier success of Korean Air Lines Co. in salvaging its reputation after a series of crashes in the 1990s. Like China Airlines, Korean Air broke with tradition, seeking advice from foreign experts and revamping its training procedures.
In addition, China Airlines passed a rigorous operational safety audit conducted by the International Air Transport Association in 2005, and it was recertified this February.
An investor note in May from Citigroup rated China Airlines 'one of our top airline picks.' Citigroup analyst Corrine Png said in the note that she expects to see as much as a tripling in the airline's core earnings -- defined as net income excluding certain extraordinary items -- for this year over 2006.
Ms. Png said Thursday that the outcome of the probe under way into this week's explosion at Okinawa's Naha Airport could temper this increase if investigators blame the carrier.
Missing out on the China boom is a serious hindrance. China Airlines, 62%-owned by the Taiwanese government, and its smaller, privately owned domestic rival EVA Airways Corp. are unable to operate regular scheduled flights between Taiwan and the Chinese mainland because of the political chill between Beijing and the island it considers a renegade province. Foreign competitors, meanwhile, are exploiting China's burgeoning market for passengers and freight.
Both Taiwanese carriers depend on air cargo for much of their business; China Airlines generates 44% of its revenue from carrying air freight. Although China Airlines and EVA built their cargo business around shipments of computers and other electronics from factories in Taiwan, much of this high-tech manufacturing base has migrated to China, where production costs are cheaper. Many of these components now leave the mainland on competitors' flights from Shanghai, China's commercial capital, bypassing Taiwan completely.
China Airlines does a good business flying China-bound passengers to Hong Kong, where they continue to the mainland on non-Taiwanese carriers. It also manages to carry some outbound cargo exiting China via Hong Kong to overseas markets. It made further inroads two years ago when it agreed to acquire a 25% stake in Yangtze River Express Airlines Co., a Shanghai-based cargo carrier.
Beijing and Taipei have talked fitfully for years about relaxing the restrictions on flights across the Taiwan Strait. Although Ms. Png of Citigroup says a decision to allow direct service would be 'extremely positive' for China Airlines, the two sides have so far allowed only limited charter flights.
Despite the entrenched problem, Ms. Png believes the company's profits will benefit from strong passenger demand, fuller planes due to a shortage of capacity in the region, lower fuel costs and good cost controls.
Mr. Horth, of UBS, says that China Airlines and EVA face growing competition from larger mainland carriers and express-delivery companies such as FedEx Corp. He argues that the Taiwanese carriers will face more and more pressure to merge.
'If they don't consolidate, the danger is that they bounce along the bottom of the industry for the foreseeable future,' he says. China Airlines declined to comment, and EVA couldn't be reached.
China Airlines earned a net profit last year of NT$738.4 million (US$22.8 million), up 14% from NT$645.2 million in 2005. Its revenue was NT$121.99 billion, compared with NT$108.69 billion in the prior year.
Company officials said Monday's explosion would have little impact on China Airlines' finances, as the plane was insured and passenger bookings weren't significantly affected.
Meanwhile, investigators discovered a hole in one of the jet's fuel tanks that they believe let fuel gush out and catch fire, Japanese transport officials said Thursday.
China Airlines says the plane's airframe was last inspected in May and that its engines were inspected most recently in July. It performed both inspections itself and found nothing wrong, officials say.
Bruce Stanley
Aviation experts from Japan, the U.S. and Taiwan are investigating the accident in Okinawa, along with officials from the airline, plane maker Boeing Co. and an engine joint venture that includes General Electric Co. of the U.S. and Snecma SA of France. Safety officials caution that it is too early to determine the cause of the accident or say whether any parties are to blame.
Indeed, China Airlines' conduct is winning positive attention in some quarters. The plane's crew evacuated all 157 passengers without serious injuries before a fireball consumed the Boeing 737 aircraft, a feat U.S. safety officials and Boeing intend to study as a model of a successful evacuation.
Still, the incident is problematic for the Taiwanese flag carrier, which has worked hard to lose its status as a symbol of troubled commercial aviation after four fatal incidents between 1994 and 2002. China Airlines officials acknowledge the explosion is a setback and that they have to work to recover the public's trust, but they also cite the carrier's progress from its past.
The incident comes as China Airlines faces a more nuts-and-bolts business challenge: Despite its name, the carrier is missing out on much of the aviation boom in mainland China due to political tensions.
Analysts say China Airlines has posted a marked improvement in safety and operational performance since 2002, when a China Airlines Boeing 747 crashed while flying from Taipei to Hong Kong, killing 225 people. That crash became a catalyst for an overhaul in its approach to safety, analysts and company officials say.
China Airlines now has one of the youngest fleets in Asia, with an average age of six years for its aircraft. It has hired former executives from Singapore Airlines and Cathay Pacific Airways, two of the world's best-run airlines, to advise it on engineering and maintenance. Derek Cridland, Cathay Pacific's former director of engineering, now works there as a consultant.
'I have actually been quite impressed at the turnaround at China Airlines over the last five years,' says Damien Horth, an analyst in Hong Kong with investment bank UBS. 'I do get the impression when I talk with the company that there has been a big change in the culture.'
Indeed, China Airlines' efforts to improve its safety record echo the earlier success of Korean Air Lines Co. in salvaging its reputation after a series of crashes in the 1990s. Like China Airlines, Korean Air broke with tradition, seeking advice from foreign experts and revamping its training procedures.
In addition, China Airlines passed a rigorous operational safety audit conducted by the International Air Transport Association in 2005, and it was recertified this February.
An investor note in May from Citigroup rated China Airlines 'one of our top airline picks.' Citigroup analyst Corrine Png said in the note that she expects to see as much as a tripling in the airline's core earnings -- defined as net income excluding certain extraordinary items -- for this year over 2006.
Ms. Png said Thursday that the outcome of the probe under way into this week's explosion at Okinawa's Naha Airport could temper this increase if investigators blame the carrier.
Missing out on the China boom is a serious hindrance. China Airlines, 62%-owned by the Taiwanese government, and its smaller, privately owned domestic rival EVA Airways Corp. are unable to operate regular scheduled flights between Taiwan and the Chinese mainland because of the political chill between Beijing and the island it considers a renegade province. Foreign competitors, meanwhile, are exploiting China's burgeoning market for passengers and freight.
Both Taiwanese carriers depend on air cargo for much of their business; China Airlines generates 44% of its revenue from carrying air freight. Although China Airlines and EVA built their cargo business around shipments of computers and other electronics from factories in Taiwan, much of this high-tech manufacturing base has migrated to China, where production costs are cheaper. Many of these components now leave the mainland on competitors' flights from Shanghai, China's commercial capital, bypassing Taiwan completely.
China Airlines does a good business flying China-bound passengers to Hong Kong, where they continue to the mainland on non-Taiwanese carriers. It also manages to carry some outbound cargo exiting China via Hong Kong to overseas markets. It made further inroads two years ago when it agreed to acquire a 25% stake in Yangtze River Express Airlines Co., a Shanghai-based cargo carrier.
Beijing and Taipei have talked fitfully for years about relaxing the restrictions on flights across the Taiwan Strait. Although Ms. Png of Citigroup says a decision to allow direct service would be 'extremely positive' for China Airlines, the two sides have so far allowed only limited charter flights.
Despite the entrenched problem, Ms. Png believes the company's profits will benefit from strong passenger demand, fuller planes due to a shortage of capacity in the region, lower fuel costs and good cost controls.
Mr. Horth, of UBS, says that China Airlines and EVA face growing competition from larger mainland carriers and express-delivery companies such as FedEx Corp. He argues that the Taiwanese carriers will face more and more pressure to merge.
'If they don't consolidate, the danger is that they bounce along the bottom of the industry for the foreseeable future,' he says. China Airlines declined to comment, and EVA couldn't be reached.
China Airlines earned a net profit last year of NT$738.4 million (US$22.8 million), up 14% from NT$645.2 million in 2005. Its revenue was NT$121.99 billion, compared with NT$108.69 billion in the prior year.
Company officials said Monday's explosion would have little impact on China Airlines' finances, as the plane was insured and passenger bookings weren't significantly affected.
Meanwhile, investigators discovered a hole in one of the jet's fuel tanks that they believe let fuel gush out and catch fire, Japanese transport officials said Thursday.
China Airlines says the plane's airframe was last inspected in May and that its engines were inspected most recently in July. It performed both inspections itself and found nothing wrong, officials say.
Bruce Stanley
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