The Civil Aviation Administration of China (CAAC) announced recently that the management rights of 93 airports would be transferred to provincial governments before the end of this year.

The exercise will involve 40 billion yuan (US$4.82 billion) in assets and 50,000 employees, according to a senior official with the CAAC.

With the approval of the State Council, China's cabinet, all provincial-level management bureaux will be removed from the CAAC's jurisdiction before the end of the year. The only exceptions are Beijing Capital International Airport and airports in West China's Tibet Autonomous Region.

"Next year will witness a merger-and-acquisition wave in the aviation industry," said Peng Zhigang, aviation analyst with Southwest Securities.

According to Peng, about 90 percent of the domestic airports are losing money; and local governments are unable to provide more subsidies. "Many airports in the red will become acquisition targets of big airport groups or aviation companies," Peng added.

Moreover, transferring the management rights to local governments will make it easier for them to conduct mergers and acquisitions since they need only to co-ordinate among themselves, said Zou Silin, a researcher with the macro-economic research institute of the National Development and Planning Commission.

"Local governments will make the airports more like enterprises and they will be more active in improving efficiency," he said.

Some airports and aviation companies have already set out on the acquisition path.

On September 16, Hong Kong-listed Beijing Capital International Airport paid 240 million yuan (US$29 million) to become the second biggest shareholder of Shenyang Xiantao Airport.

It has also showed interest in airports in cities such as Chengdu, Dalian, Qingdao and Xi'an.

Xiamen International Airport is also a pioneer -- it became the biggest shareholder of Fuzhou Changle Airport earlier this year. Changle Airport has been making heavy losses since it started operations in the late 1990s. Last year, it was 100 million yuan (US$12 million) in the red.

Haikou-based Meilan Airport, also Hong Kong listed, said earlier this year that it already had picked acquisition targets among domestic airports, but didn't name any.

Accompanying the acquisition wave will be increasing investment from private and overseas investors, analysts say.

A Singapore-based airport investment company has expressed keen interest in Chinese airports and has inspected several airports, according to Jinan-based Fortune Times newspaper.

Domestic private investors are also in the running.

Two private firms have entered the civil aviation sector: one is in Guangdong, which holds a 10-percent stake in a subsidiary of Baiyun Airport; while another is in Chengdu which holds 1 percent of Sichuan Airlines.

Sha Hongjiang, director of the CAAC's policy and regulation department, revealed that regulations governing private investment in civil aviation are being drafted.

The regulations are expected to grant private firms long-anticipated treatment similar to that enjoyed by foreign investors.

Foreign investors can currently hold up to 49 percent in domestic aviation companies and airports.

(China Daily October 9, 2003)