From Sweet to Sour

The Menzies joint venture in Chengdu faces an uncertain future.

Just five years ago, British-based Menzies Aviation signed a 10-year contract with the Chengdu Airport Authority (CAA) forming a joint venture for passengers, cargo and aircraft handling, line maintenance and ground support.

“We were in the right place at the right time,” says Chris Hutchinson, Menzies general manager at that time.

Parallel with the growth of the Chinese economy, and a healthy aviation climate, the venture got off to a flying start.

Late 2008 the word around the terminals was that Menzies wanted to pull out and was looking for a company to take over the remainder of the tenure.

In early 2009 Simon Yiend, managing director of Menzies Macau, states (in reference to Chengdu), “Altogether is has not been a satisfactory experience. Talks are in progress with the CAA for handover of some control.” The Board Chairman of the CAA, Pan Xiao Jun declined to be interviewed, saying that “it was too sensitive.” Menzies management in Chengdu avoided any meeting to discuss this matter.

Menzies first entered the Chinese marketplace in 2000 through the acquisition of Ogden Aviation in Hong Kong and Macau, giving them a strong presence in the two Special Administrative Regions. The company then sought for further expansion into the mainland proper, and decided on a second tier airport.

Settling for Chengdu, Hutchinson says, “We had several reasons: the ‘go west policy’ of the central government, the tax breaks and incentives and finally the Airport Authority which struck us as being the progressive and innovative. A good partner is essential as there is no opportunity for a wholly foreign-owned enterprise in this industry.”

Investment into the enterprise involved $2 million (giving a 40 percent stakeholding) providing for a 10-year tenure, with an option for a further five years. Subsequently, the JV spent another quarter million on Chinese-made ramp equipment.

Hutchinson went on to say, “The first three months was spent getting to know the three separate businesses that were part of the joint venture: passenger and cargo, aircraft line maintenance and ground service maintenance. All had separate managements, finance and administration departments. My aim was to blend them together under one management team, and at the same time to restructure the new company into a more flexible and efficient company.”

As he delved deeper into the business, Hutchinson uncovered other aspects that were not to his liking. “Through painful experience, we learnt that due diligence, both financial and legal need to be 100 percent on the ball.”

Chengdu, with a population of some five million, is the capital of Sichuan, the home province of the giant panda, and gateway to all of western China. It is a major hub city with air, rail and highways spreading in all directions, and a natural transit point to major tourist attractions at Xi’an, Leshan and Lhasa.

Manufacturing in the city has a diverse spread of products. Intel, the chip giant has its largest Asian plant here and was given the red carpet treatment by the city council upon their start up in 2004. Pharmaceuticals, the hi-tech industry, boot and shoe factories are major employers. Rudders for the Boeing 787 Dreamliner are made here and shipped to Seattle.

The airport, named Shuangliu International, ranks at sixth place in all of China for passengers and cargo. In 2004 passenger traffic stood at 11.5 million and cargo at 0.21 million tons. The figures jumped to 18.5 million with cargo at 0.35 million in just four years.

Sixteen carriers fly from or into the airport serving 89 domestic destinations. Regional and international airlines fly to seven neighboring Asian countries. The only direct intercontinental flight is a nonstop tri-weekly service with a KLM B777 to Amsterdam. The airport has but one runway, and flight numbers are restricted to 500 per day, with operating hours from 6:00 a.m. through to 2:00 a.m.

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