Reform starts at China Eastern

2017-06-20 09:35Global Times Editor: Li Yan ECNS App Download

Logistics unit, employee stake ownership are highlights

China Eastern Airlines Co on Monday became the first State-owned enterprise (SOE) in the aviation sector to pursue mixed-ownership reforms that the nation has planned for several key industries.

China Eastern announced it has signed a deal with Legend Holdings Corp, Global Logistic Properties (GLP), Deppon Logistics Co and Greenland Group. Under that agreement, the four companies will acquire stakes in Eastern Air Logistics Co, a wholly owned subsidiary of China Eastern Airlines.

China Eastern will maintain a 45 percent stake in the unit, while Legend Holdings will hold 25 percent, GLP 10 percent and Deppon Land and Greenland 5 percent, according to an announcement China Eastern Airlines sent to the Global Times on Monday.

Employees of Eastern Air Logistics Co will hold a 10 percent stake, it said.

Total State-owned capital invested by China Eastern Airlines will be 1.85 billion yuan ($270 million), and non State-owned investment 2.26 billion yuan, the announcement showed.

The new shareholders of the airline company's affiliate have businesses ranging from financial investment to logistics.

China Eastern Airlines' pioneering move will inspire its counterparts to unveil their SOE reform plans, Li Jin, chief researcher of the China Enterprise Research Institute, told the Global Times on Monday.

"As new investors come in, that will alter its equity structure and further accelerate corporate restructuring," he said.

For instance, joining forces with Legend will help the logistics arm of China Eastern Airlines to better connect its online and off-line services, the expert noted. Greenland, which has experience in the real estate sector, will provide help in warehouse construction.

Bringing in GLP, a leader in the logistics sector, was also a strategic move for the company, Li added.

GLP manages 55 million square meters of logistics facilities around the globe, and it has a leading position in countries such as China, Japan, the US and Brazil, the announcement noted. The company is also one of the largest real estate fund managers with about $39 billion in assets.

After mixed-ownership reform is completed, it will be important to stick to market principles, Xu Yong, a delivery industry analyst, told the Global Times on Monday.

"Compared with other delivery companies such as Shentong, Yuantong, Zhongtong and Yunda, Eastern Air Logistics Co lacks advantages in customer sources and networks. It will improve the company's business if these delivery companies participate in the shareholding," Xu said.

The restructured company will integrate third-party logistics that are supported by private capital, logistics-oriented real estate, cross-border e-commerce and ground distribution services on the basis of its traditional advantage in air freight.

Its target is to set up a world-class "national team" in the air logistics sector, capable of catching up with such renowned companies as FedEx, UPS and DHL, as well as provide a reform experience for SOEs.

However, "there is still a long way to go for the company to realize this goal considering its current international network and terminal services," Xu said.

Eastern Air Logistics is also taking another step in mixed-ownership reform by introducing employee stock ownership.

"Usually, the employee stake ownership is 5 percent to 8 percent," Li said, noting that the ceiling for employee stock ownership is estimated at 30 percent. China Eastern Airlines has boldly opted for 10 percent and there is still room to increase employees' stake.

China decided to conduct trials of employee stock ownership plans in some State-owned enterprises in 2016 to improve their competitiveness under guidelines released by the State-Owned Assets Supervision and Administration Commission of the State Council on August 18 2016, according to the government's website.

The State stakeholder of the pilot company should hold at least 34 percent of the company's total equity to ensure State-owned status, while stakes belonging to employees should be less than 30 percent, with each individual employee owning no more than 1 percent of the total, according to the guidelines.


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