Juneyao to Sell US$150m Stake to Foreign Allies

Juneyao Airlines, a privately owned mainland airline, plans to raise US$150 million by offering 20 per cent to 25 per cent of its aviation business to overseas strategic investors.

"We hope to tie up with foreign investors who can bring in management expertise as well as help us expand our fleet and upgrade technologies," chief executive Bryan Huang Hui told the South China Morning Post. "Juneyao is aiming to set up a sound management system to benefit from China's sizzling economy."

Last month, Juneyao hired Citigroup as its financial adviser for the share sale.

A deal was expected to be in place before the year-end, making Juneyao the first mainland private airline to bring in overseas capital and funds, Mr Huang said. The share sale will be a prelude to a likely initial public offering on an overseas stock market late next year or early in 2009.

The share sale had attracted keen attention from the financial and business community, with interest already shown by some private equity funds and hedge funds, Mr Huang said.

The former China president of BearingPoint, a global technology and management consultancy, said Juneyao would take a global perspective as it seeks to be distinct from domestic rivals.

"We are eyeing a model that fits China," he said. "Juneyao Airlines will focus on offering premium services to cater for mainland passengers, particularly the business travellers."

Juneyao Airlines made its maiden flight in September last year and now has four planes, compared with low-cost carrier Okay with six. The group aims to expand its fleet to 67 planes by 2010 - with Juneyao Airlines flying 30 aircraft and Okay the remaining 37, including 20 for passenger flights and 17 for cargo.

In June, Juneyao Airlines ordered six Airbus A320 planes. The company expected a profit of about 25 million yuan for this year, Mr Huang said.

At a time when mainland airlines are profiting from rising demand and yuan appreciation, Juneyao said it would chase efficiency, low cost and profitability rather than scale.

"The mainland airlines have reasons to smile in the business-friendly era," said Deng Hongmei, an aviation analyst at Everbright Securities. "The aviation market is quite segmented. The private companies also have their own edge because they don't compete directly with big names."

Mainland airlines returned to the black in this year's first half as they raked in combined net earnings of 1.54 billion yuan, compared with 2.39 billion yuan in losses for the same period last year, the General Administration of Civil Aviation of China said early this month.

Growing affluence spurred demand for air travel and the rising yuan helped the mainland airlines to cut dollar-denominated debts.

Juneyao Group rose to national prominence as its dairy products hit the market in early 1990s. The company today has its core businesses in aviation and retail.

After the death of its founder Wang Junyao in November 2004, his brother Wang Junjin took the helm of the company and became the chairman.

The older of Wang Junyao's two younger brothers brushed aside concerns about the adverse effects of the founder's death and guided the company to become a conglomerate with a focus on aviation business.

Mr Huang, who was invited by Wang Junjin to manage the Juneyao Group in late 2005, described the 39-year-old chairman as "an entrepreneur with ambition, boldness and perspective".