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China's struggling airlines get tax break

China is taking new steps to shore up its aviation industry amid global economic turmoil, giving struggling airlines a $360 million tax break and $26 billion in loans to its main aircraft maker, state media said Friday.


The airline aid follows injections of government capital to help two of China's three main state-owned carriers through a travel slump. The lending to Aviation Industry Corp. of China reflects Beijing's continued desire to build up a civilian aircraft industry despite a decline in demand for planes.


Airlines will be exempt from a tax on fuel surcharges through 2010, a move that will save them up to 2.5 billion yuan ($360 million), the newspaper Shanghai Securities Journal said. It said the step is retroactive to Jan. 1, 2008.


China's airlines lost 7 billion yuan in January-November, according to state media. Beijing has injected a total of 13 billion yuan into China Eastern Airlines and China Southern Airlines.


Meanwhile, a group of 10 state-owned banks signed an agreement with AVIC on Thursday on a rotating credit line of up to 176 billion yuan, the newspaper China Securities News and the Xinhua News Agency reported.


AVIC is a co-owner of Commercial Aircraft Corp. of China, the lead company in the Chinese government's effort to produce large passenger jets to compete with global giants Boeing Co. and Airbus Industrie.


AVIC general manager Lin Zuoming said the money will be used for projects by the company's subsidiaries but gave no details, the Securities News said.


The push into commercial aviation comes despite government orders for carriers to cut back on aircraft purchases.


"We encourage airlines to cancel or delay 2009 aircraft orders," Yang Guoqing, deputy chief of the Civil Aviation Administration of China, said this week, according to the China Daily newspaper. "It is the duty of airlines to cut capacity, defer plane orders, return leased aircraft and ground or sell older planes."


China's first homegrown commercial aircraft, a 90-seat model made by an AVIC subsidiary, had its maiden flight in November and the government says it hopes to produce a 150-seat plane by 2014 to compete with Boeing and Airbus.


The lending group was led by Industrial & Commercial Bank of China Ltd., the country's biggest state-owned lender, according to news reports. They said ICBC, China Construction Bank Ltd. and China Citic Bank Ltd. each contributed 30 billion yuan, with the rest coming from smaller lenders.


(China Daily/Agencies January 16, 2009)