UK: China: BLG China Aerospace Briefing

Last Updated: 22 October 2004

Aviation Safety

CO-OPERATION ARRANGEMENT ON AIRCRAFT ACCIDENT INVESTIGATION AND SEARCH AND RESCUE

In Hong Kong

Under Annex 12 to the Convention on International Civil Aviation, Contracting States are obliged to provide search-and-rescue services within their designated search-and-rescue region.

In April 2004, the Hong Kong CAD signed a Co-operation Arrangement on Aircraft Accident Investigation and Search and Rescue with the CAAC with a view to establishing procedures to facilitate joint search-and-rescue operations as well as improved coordination and communications.

Assistance from the Mainland will be sought for the purpose of search-and-rescue and salvage of the wreckage should an aircraft accident or serious incident occur in the Hong Kong Flight Information Region, which covers an area of 276,000 square kilometers extending over the South China Sea. Both Hong Kong and the Mainland will also be responsible for ensuring that an investigation into an accident or serious incident is organised quickly and shall act as a "Rescue Co-ordination Centre" according to the location of accident/serious incident and the aircraft state/place of registry as stated in the Cooperation Arrangement. The PLA generally deploy Z9 helicopters, whereas the Government Flying Service of Hong Kong deploy Eurocopter Super Puma AS332 L2 helicopters and a Jetstream J41 aircraft for search and rescue missions.

ACCIDENTS

In China

On the 18th May a Azerbaijan Il-76 cargo aircraft crashed near a farm about 10 kilometers from the Urumqi International Airport located in the Xinjiang Uygur Autonomous Region killing all seven crew members. Nobody on the ground was hurt in the accident. The aircraft was operating on a chartered flight from Taiyuan, Shanxi Province, to Baku in Azerbaijan via Urumqi. On 31st May the General Administration of Civil Aviation of China ("CAAC") banned all chartered cargo aircraft from the Commonwealth of Independent States (CIS) from landing at Tianjin, Shijiazhuang, Taiyuan and Hohhot in the north of China.

An Air China Boeing 737 was hijacked on the 16th of July while enroute from Beijing to Changsha in Central China. The aircraft made an emergency landing at Zhengzhou airport in Central China’s Henan Province, where Yang Jinsong was arrested by local police. None of the 108 passengers were hurt.

DEPLOYMENT OF ARMED MARSHALLS

China will deploy its first batch of 1,400 air marshals on passenger flights from the October 1 national day holiday. The marshals will be recruited from existing airline security guards. China first considered deploying air marshals after the September 11, 2001. China has seen a number of hijack attempts, most recently when a mentally ill man threatened to spray acid over passengers on an Air China aircraft unless he was flown to South Korea. In February 2003 another Air China flight was disrupted when a man demanding to be taken to Taiwan started a fire using fuel hidden in a drinks can. He was subdued by onboard security personnel and the plane landed safely, however, not all in-flight sabotage attempts have ended so peacefully. In May 2002, a cancer patient started a fire on an aircraft in an apparent suicide attempt so that his family could cash in on his flight insurance, causing the aircraft to plunge into the sea, killing all 103 passengers and nine crew.

In Taiwan

Premier Yu has appointed Dr. Kay Yong, the former Managing Director of the Aviation Safety Council ("ASC"), Taiwan, as the Council’s third-term Chairman. Dr. Yong’s appointment became effective from May 25, 2004 and he succeeded Dr. Victor Liu who had been the Chairman since year 2000.

The ASC has concluded that Taiwan’s China Airlines failed properly to maintain a Boeing 747-200 that crashed into the sea in 2002 killing all 225 people on board. The ASC found 29 cases of delayed or overdue inspections. The inspections were supposed to prevent corrosion or deterioration of parts. The ASC has declined, however, to say if any such failures caused the jet to break apart in mid-air. A preliminary report has been sent to relevant parties and a final report is expected at the end of October. According to reports from the Civil Aeronautics a fine of NT$1.8 million (US$53,475) was to be imposed on China Airlines.

TAIWAN AVIATION OCCURRENCE INVESTIGATION ACT

In the March 2004 edition of China Aerospace Briefing we reported that the Taiwanese Cabinet was considering implementation of a new aircraft accident investigation law. In May, the Legislative Yuan passed the ASC Aviation Occurrence Investigation Act. The new act separates the ASC from the Civil Aeronautics Administration and gives the ASC an independent legal status to investigate occurrences with impartiality and objectivity.

Although, no English version of the Act will be available for some time, we have obtained an unofficial translation from the ASC. The Act comprises five Chapters.

Chapter 1 sets out the scope of the Act. It defines aircraft occurrences to include an occurrence associated with the operation of an aircraft which takes place between the time any person boards the aircraft with the intention of flight until such time as all such persons have disembarked, in which a person is fatally or seriously injured, the aircraft sustains substantial damage or missing, or is completely inaccessible; and an occurrence where fatal or serious injuries or substantial damage nearly occurred. It also confirms, as one would expect, that the Investigator-in-Charge will produce a report in accordance with the format designated by Annex 13 to the Convention on International Civil Aviation which contains factual information, analysis, conclusions, and safety recommendations reviewed and approved under the Act. Owners and operators of aircraft that experience an occurrence are required to notify the ASC of the occurrence within 2 hours if the occurrence takes place in Taiwan or 24 hours if the occurrence takes place outside Taiwan. The same Chapter states that the sole objective of the ASC’s investigation is to prevent recurrence of similar aviation occurrences, not to apportion blame or liability; and that the authorities concerned shall not impede upon the ASC’s investigation.

Chapter 2 sets out the requirements of an aviation occurrence investigation; immediate forwarding of a notification of an occurrence to the accident investigation authorities of the State of Registry, the State of the Operator, the State of Design, the State of Manufacture, and the state having suffered fatalities or serious injuries to its citizens; and assembling an investigation task force with representatives from the Civil Aeronautics Administration, the owner of the aircraft and the operator of the aircraft to participate in the investigation. Emphasis is placed on preserving the integrity of the occurrence site and clearance may only take place with the approval of the Investigatorin- Charge. The ASC is empowered to request assistance from any authority and the owner and operator and such assistance cannot be refused unreasonably.

Chapter 3 sets out what steps need to be taken in preparing an investigation report, reviewing it and publication. The ASC is required to send a copy of the draft report to all authorities and organizations concerned which participated in the investigation, and invite their comments on the report within sixty days. The ASC may amend the draft according to the comments received and submit it to a Board for review. The aircraft occurrence investigation report will be published after being reviewed, revised, and approved by the Board. The report must then be sent to the States of Occurrence, Design, Manufacture and the State(s) whose citizens have been killed or seriously injured. Thereafter, the authorities involved have to submit a report to the Executive Yuan within ninety days after receipt of the aircraft occurrence investigation report containing detailed implementation plans responding to the recommendations accepted, or providing detailed reasons for not accepting those recommendations.

Chapter 4 sets out a number of penalties for failing to comply with the Act. Failure to notify the ASC of an occurrence results in a fine of between NT$500,000 to NT$2.5 million (up to US$66,844). The owner or operator of the aircraft shall be subject to a fine from NT$600,000 to NT$3 million (up to US$89,126) if, they fail to provide assistance without reasonable grounds; or avoid, obstruct, or refuse to provide assistance to the ASC. They will also be subjected to fines of between NT$500,000 to NT$2.5 million if they fail to provide relevant data to the ASC. A person who refuses to pay the penalties imposed under the Act within a given period of time will be subject to a mandatory injunction.

Chapter 5 contains some Supplemental Provisions, including giving an investigator-in-charge the right to refuse to give an opinion on the investigation and report in a court.

Airports

In Hong Kong

Hong Kong has commenced legal procedures for privatizing the Airport Authority. The Airport Authority, which is valued at HKD$37 billion (USD$4.75 billion), recently agreed to return HKD$6 billion (USD$770 million) in equity to the government in cash in the fiscal year ending March 2005. The government contributed more than HKD$36 billion (USD$4.62 billion) in equity to fund construction of the airport.

The Airport Authority is offering up to a 50 per cent rebate on landing fees to airlines that operate flights to a new destination over the next two years to fend off threats from Guangzhou, Bangkok and Singapore. The 50 per cent rebate begins on September 8 and a 25 per cent discount will be offered for the second year. Chek Lap Kok airport charges about US$3,690 (HK$28,782) to land a Boeing 747-400. It charges the third-highest landing fees among 11 leading Asian airports, according to a report by the International Air Transport Association.

China

On 13th August Guangzhou opened the new Baiyun International Airport. The airport can handle more than 25 million passengers and 1 million tonnes of cargo a year. Phase one of the construction, which cost 19.8 billion yuan (US$2,399,127,589), comprises a domestic and and an international passenger terminal, two runways, the world’s third largest air cargo terminal and Asia’s biggest maintenance hangar. Construction of phase two, comprising a third runway and an international terminal, will begin this year. When completed in 2010, the airport will have five runways and be able to handle 80 million passengers and 2.5 million tonnes of cargo. In June, the CAAC announced the completion of the transfer of ownership and management of 90 airports, with the transfer of four airports in Northwest China’s Gansu Province.

The CAAC has announced plans to open Shanghai’s Pudong and Hongqiao airports to all domestic airlines in 2005. Yang Yuanyuan, the CAAC Minister was reported as stating that the plan is meant as a test policy intended to promote Shanghai as a permier air hub. This plan reverses a policy implemented two years ago which prevented "disorderly" competition at Beijing, Shanghai and Guangzhou.

Beijing Capital International Airport Company (BCIA), which manages Beijing airport, has announced plans for a 19.04 billion yuan expansion of facilities to meet demand for the 2008 Olympic Games. The work will almost double the handling capacity of the airport to 60 million passengers a year, 1.8 million tonnes of cargo throughput and 500,000 aircraft movements. Capital Airport Holding Company, together with its subsidiaries will be responsible for funding 15.04 billion yuan of the total project cost. The balance of four billion yuan will be met by the CAAC and the Planning and Reform Commission.

A new 10 billion yuan airport is to be constructed at Kunming, Yunnan province. Phase One construction, to commence in 2007/8, will involve the development of two runways and a passenger terminal.

Hainan Airlines has purchased the Three Gorges Airport. The airline already has majority shareholdings in two airports on Hainan Island and at Weifang in Shandong province.

Airlines

In Hong Kong

In June, Helicopters Hong Kong announced plans to launch a schedule passenger airline, operating services from Hong Kong to midsized cities in Southern China.

CR Airways, owned by businessman Robert Yip, has inaugurated charter flights between Hong Kong and Danang, Vietnam and they have filed a licensing application with the Air Transport Licensing Authority to operate regular scheduled services.

Cathay Pacific Airways has launched daily non-stop flights to New York with A340- 600 equipment.

Cambodian carrier President Airlines has reinstated services to Hong Kong after a suspension caused by the SARS-induced downturn. President is operating three weekly flights from its Phnom Penh base using Boeing 737-200s. It started the operation in March 2003, but suspended the service due to low demand.

Valuair has commenced services from Singapore and Hong Kong using A321 equipment.

Media reports suggest that China National Aviation Corp Group (CNACC) may revise its planned spin-off of Air China to boost the valuation of the listing and avoid violating Hong Kong listing rules. Air China already has approval from the China Securities Regulatory Commission for an overseas listing. CNACC’s listing sponsors Merrill Lynch and China International Capital Corp have recommended that the listing vehicle be set up as a holding company, which would contain stakes in Air China and in Hong Kong-listed China National Aviation Co (CNAC). This would enable the listing to fulfil the requirement that the spin-off unit and the group company do not compete with each other noting that two group affiliates – Air China and Dragonair, which is 43 per cent owned by CNAC – overlapped on routes in China. Air China had a net asset value of four billion yuan to 4.5 billion yuan as of late last year. Market sources had indicated that Air China hoped to raise up to US$500 million by the end of this year. CNAC has a market capitalisation of HK$3.97 billion.

In China

Air China has paid more than 500 million yuan ($60 million) for a 22.8% stake in Shandong Airlines and more than 40% of holding company Shandong Aviation Group. Shandong Airlines is based in the northeast Chinese city of Jinan and is one of the few remaining "independent" carriers. It operates to nearly 50 Chinese destinations with a fleet consisting of Boeing 737-300s, Bombardier CRJ-200s, CRJ-700s and Saab 340Bs. It also has code-share relationships with Air China and China Southern Airlines. In a separate development Shandong Airlines has launched its first international service to Singapore via Shenzhen.

Air China has launched a Tibetan subsidiary with a capital injection of US$6 million. Based on Lhasa, Tibet’s capital, Tibetan airlines will fly 13 routes operating two Boeing 757-200s and five Airbus A319s.

Hainan Airlines Co, China’s fourth largest carrier, announced in July that it plans to establish a new airline company, Shilin Airlines, in Southwest China's Yunnan Province. Hainan is to invest 2.93 million yuan (US$353,000) and provide three Fairchild Dornier aircraft valued at about 374.14 million yuan (US$45.08 million) to the new company. Hainan Airlines’ affiliate, Shanxi Airlines Co, will invest 47.07 million yuan (US$5.67 million) and provide a Boeing and a Dash-8 aircraft for the new company, while Yunnan Shilin Tourism Aviation Co will invest 1 million yuan (US$120,000).

Hainan Airlines has confirmed that it is interested in acquiring loss-making Malev Hungarian Airlines. In July, the Hungarian government announced its decision to sell its 99.9 per cent in the state airline and wants to close a deal before the end of the year. Malev has debts of 36.2 billion Hungarian florints (US$179 million)), of which 33 billion florints is covered by state guarantees. Its new owner will have to assume responsibility for the debt. In August, Malev and Hainan Airlines jointly launched a direct service between Budapest and Beijing under an agreement signed in June.

Shanghai Airlines Co announced in July that it had agreed to take over China United Airlines at a cost of 70 million yuan (US$8.4 million). Formerly owned by the Chinese Airforce, the carrier has been operating passenger flights since 1986.

In June the CAAC gave tentative approval for the establishment of two new privately owned passenger airlines. They are Aokai Airlines and Spring and Autumn Airlines. Aokai Airlines is being set up by Xinjiang Zhongjing Qili Investment, Aokai Investment Development and Beijing Qili Investment. Spring and Autumn Airline is being set up by Shanghai Spring International Travel Service and Shanghai Spring Charter Flight Service. Both carriers aim to be fully operational by 2005. earlier this year, the CAAC approved the establishment of privately owned Eagle United Airlines, which is based in Chengdu and is owned by E & Net Communications. CAAC regulations require that any new private airline must operate at least three aircraft and have a registered capital of at least 80 million yuan (US$ million).

In an unprecedented move for local carriers Shenzhen Airlines announced in July that it had formulated new conditions under which it will compensate passengers in cash for inconvenience caused. According to the new policy, ticket holders who are unable to take a flight because of overbooking, will be will reimbursed 30 percent of the airfare. If a passenger's luggage does not arrive at the destination on the same day as the passenger, he or she will be paid 100 yuan (US$12) for the inconvenience. If the airline is responsible for delays of four to eight hours, passengers will be compensated as much as 30 percent of the fare. If the delay is more than eight hours, the passenger will be repaid the full fare, the policy says. For cargo transport, if a delay is within 24 hours, half the freight charges will be returned to the consignor. If the delay is more than 24 hours, no freight will be payable. The policy also states that Shenzhen Airlines will pay varying rates of compensation for accidental death or serious injury, depending on each passenger’s frequent flyer status. 1.07 million yuan (US$129,201) will be paid to KingClub gold card holders, 870,000 yuan (US$105,050) for silver card holders and 570,000 yuan (US$68,826) for ordinary passengers. This compensation is being offered in addition to other insurance a passenger buys. Other airlines are expected to draw up similar policies.

In Macau

Thai AirAsia has commenced daily return Bangkok Macau Bangkok services.

Australian no-frills airline Virgin Blue is in negotiations with Air Macau, Stanley Ho’s SDTM Group and China National Aviation Corporation to launch a new China-focused low cost carrier operating point to point routes from Macau into and out of mainland cities.

Aircraft Purchases

Hong Kong

Dragonair has taken delivery of an Airbus A300B4 freighter on wet lease from US cargo airline Express Net. The aircraft is being used on flights to Shanghai, Osaka and Nanjing. The carrier has also taken delivery of two Airbus A320s, increasing its fleet to 26 aircraft. Finally, it has announced teh purchase of five B747-400s from Singapore Airlines.

In April Cathay Pacific Airways ordered six A330s and two B777ERs. In June it announced plans to increase its fleet from 86 to 100 aircraft. In August it announced that Cathay it was buying seven used Boeing 747-400s and leasing another to bring its fleet to 103 aircraft. Four of the eight aircraft – to be delivered between now and 2006 – will be converted into freighters and serve the Europe and North America routes.

In China

China Southern Airlines Co Ltd has agreed to buy 15 Airbus A320 and 6 Airbus A319 aircraft. The aircraft, powered by CFM International’s CFM56-5 engines, are due to be delivered in the first quarter of 2005.

In June, China Eastern ordered 20 Airbus A330-300s.

Xiamen Airlines Co. is spending 2.5 billion yuan (US$300) in order to acquire seven Boeing aircraft this year. They include two 757 aircraft and five 737 aircraft. Meanwhile, the carrier has also signed a letter of intent with a unit of state-owned aircraft maker China Aviation Industry Corp I (AVIC I) for six ARJ21s.

Traffic Rights

In Hong Kong

Germany and Hong Kong have signed an extension to their air services agreement raising the number of all-freight flights for both sides from 10 to 12 per week. They plan further bilateral talks in June.

Russia and Hong Kong signed a bilateral air services agreement in February that provides for an increase in weekly Hong Kong-Russia passenger and cargo frequencies from 14 to 32. It also allows Hong Kong carriers a 30% increase in overflights over Russia on routes to Europe and North America and permits code sharing between Hong Kong and Russian carriers on the Hong Kong-Moscow route.

Hong Kong and Spain have signed a liberal air services agreement allowing unlimited passenger and cargo services between the two countries, including code-sharing.

In April Australia and Hong Kong signed a liberal air services agreement, providing for a doubling of capacity over two years, unlimited access to Australian airports, an undisclosed number of fifth freedom rights for Australian carriers via Hong Kong to Europe and extensive codesharing.

Cathay Pacific Airways awaits EU Commission approval for flights between New York and London, while Virgin Atlantic and Qantas await EU approval for flights between Australia and the UK via Hong Kong.

In China

The CAAC has extended its Hainan Island open skies policy to allow foreign airlines to operate up to seven flights a week via the island to any point on the mainland except for Beijing, Guangzhou and Shanghai.

China and Thailand have agreed to allow unrestricted operations between their two countries. The agreement covers both passenger and cargo services.

The British and Chinese governments agreed on a revised bilateral agreement in February that raises weekly services between China and the UK from 10 to 15 flights. British carriers can operate to four new points (not disclosed) in China, in addition to Beijing and Shanghai, and Chinese carriers will also be allowed to serve additional destinations in the UK.

Air services between China and the United States will largely expand thanks to a landmark aviation agreement concluded in July. The agreement will increase by nearly five-fold the number of weekly flights between the two countries – from the current limit of 54 weekly round-trip flights to 249 weekly round-trip flights at the end of a sixyear phase-in period. The agreement also allows services between additional cities, eliminating restrictions on destinations and permitting unlimited code-sharing between US and Chinese airlines on any US-China route. It provides unlimited rights to any US carrier that wishes to operate to certain western and northeastern Chinese provinces in greater need of international services. Five additional airlines from each country are permitted to serve the US-China market.

General Aviation

In Hong Kong

Metrojet, part of the Kadoorie family’s Hong Kong Aviation Group, has launched a fixed-price membership scheme for individuals and corporate charter customers in an attempt to boost business jet travel. Called Insignia, the programme offers a fixed-zone pricing scheme for more than 50 Asia destinations.

In China

The Beijing Government has started construction of a 900 square meter heliport in Chaoyang Park, close to the city’s central business district. The move aims to better prepare authorities rescue operations during emergencies such as earthquakes, explosions and major fires.

Pianjin city in northern China plans to develop a general aviation centre, including an assembly plant for inexpensive GA aircraft manufactured in Europe and the United States, and a flight training school.

In Taiwan

Taiwan may authorise single-engine instrument flight rules (SEIFR) for commercial flights to a group of islands.

The move is significant as even GA single engine operations are banned in Taiwan.

Manufacturing

In China

Airbus and AVIC I have signed an agreement for the supply of nose-landing gear for the A380. The work is to be carried out by Shenyang Aircraft Corporation.

Smiths Aerospace has opened a components manufacturing facility in the Suzhou Export Processing Zone in Jiangsu Province.

The first two regional jets made in China were delivered in June to China Southern Airlines in Harbin, capital of Northeast China's Heilongjiang Province. The two jets are part of an order of six ERJ145 planes that China Southern agreed to purchase earlier this year. The remainder of the jets will be delivered before the end of January next year. The 50-seat ERJ145 turbofan regional jet was produced by Harbin Embraer Aircraft Industry Company Ltd, a joint venture between Brazilian aircraft manufacturer Embraer and two subsidiaries of China Aviation Industry Corporation II (AVIC II). The joint venture, which involves an equity investment of US$25 million, is 51 per cent owned by Embraer.

Maintenance

In Hong Kong

Lufthansa Technik has opened an office in Hong Kong.

A surge in the number of cargo aircraft operating into Hong Kong helped Hong Kong Aircraft Engineering (HAECO) post a 22 per cent rise in net profit to HK$232 million in the first half of this year. This compared with HK$190 million reported last year.

In China

Air China and Lufthansa have renewed their 60:40 Beijing based joint venture, AMECO, for another 25 years.

Boeing has awarded TAECO a contract to convert 13 B747-400 passenger aircraft to freighters. Customers include Cathay Pacific Airways, Dragonair, Nippon Cargo and Korean air. Meanwhile TAECO has commenced construction of a new US$42 million fourth hangar.

Freight

In Hong Kong

In July Dragonair announced that it will operate freighter services to Frankfurt in Germany and London Stansted. Dragonair also flies six times a week to Amsterdam in the Netherlands and Manchester in the UK.

DHL Express has opened a US$100- million dedicated central Asia hub in Hong Kong. In August, DHL will launch a dedicated intra-Asia freighter network when it takes delivery of the first of six Airbus aircraft it bought with Cathay Pacific at a cost of US$400 million in 2002. Revenue from its mainland express business has jumped 50 per cent to 60 per cent this year; full-year sales billed in China for moving international express products was US$300 million last year.

Asia Airfreight Terminal ("AAT") has announced plans to construct a 117,500 extension to its cargo terminal. Meanwhile Singapore Airport Terminal services has increased its shareholding in AAT by purchasing the Changi International Airport Services 24.5% shareholding.

Volga Dnepr subsidiary AirBridge Cargo announced plans in May to commence three times weekly Moscow-Novosibirsk Hong Kong services from November 2004.

Hong Kong Air Cargo Industry Services Limited (HACIS) has extended its SuperLink China Direct chartered truck service to 57 destinations in the Pearl River Delta Region (PRD). The service offers enhanced airport-to-door connectivity including HACTL’s one-stop-shop service that includes cargo handling at Super Terminal 1 in Hong Kong, simplified customs clearance at ST1 prior to truck departure, and direct delivery from ST1 to PRD destinations for freight forwarders and their customers. Hacis also offers a reciprocal southbound trucking service back to Hong Kong.

In China

The CAAC has announced plans to reform China’s cargo market by encouraging airlines to develop joint ventures or solely funded freight ventures and ease restrictions on the import of freighter aircraft and granting of new routes. China has four domestic cargo airlines including Air China Cargo Co, China Cargo Airlines, Yangtze River Express and China Postal Airlines and the CAAC intends to designate six airports as cargo hubs by 2010.

TPG NV, owner of global express operator TNT, is invest EUR200 million over the next two years in expanding its limited operations in China. Plans include construction of a logistics base in Shenyang, Liaoning Province.

Lufthansa Cargo AG and Shenzhen Airlines have agreed to form a joint venture cargo airline. The deal will see Lufthansa expand its presence in the booming South China market, and follows an earlier agreement to establish an international airfreight terminal at Shenzhen Airport.

In Macau

Air Macau has launched three times weekly Nanjing-Macau-Taipei freighter services with Airbus A300B4F equipment. Meanwhile, Russia’s Vim Airlines has recently signed an agreement with Macau Airport to operate cargo services to Russia.

Regulatory Update

In Hong Kong

The Hong Kong Government has published an Airport Authority (Amendment) Bill 2004, which amends the Airport Authority Ordinance to provide for the return of HK$6 billion to the government as part of its privatisation plans.

The Hong Kong Government is accelerating the process by which the Montreal Convention 1999 will be implemented in Hong Kong, following Macau’s decision to implement it. Mainland China has yet to implement it. The Hong Kong Government will produce a draft bill towards the end of this year and conduct a period of public consultation before presenting the bill to LEGCO.

REFORMS TO TICKET PRICING AND OPERATION OF LIGHT AIRCRAFT

In China

Reforms in the pricing of airline tickets that will increase market influence on price fluctuations were announced by the the National Development and Reform Commission (NDRC) and the CAAC in May. Airlines are now able to determine ticket prices based upon the official price of US$0.09 per person per kilometer, with the two government ministries regulating price fluctuations, which will be limited to 25% above or 45% below the official price. Short air routes are be able to fluctuate freely without government regulation.

In June, new aircraft guidelines took effect which will simplify procedures for the operation of small aircraft in Beijing. Special approval is no longer needed for operating light aircraft weighing no more than 116 kilograms, although all such aircraft need to be registered.

CAAC DIRECTION ON FULFILLING COMMITMENTS TO PASSENGERS

In July the CAAC issued a direction, stating that airlines would face heavy punishment, and even lose the right to fly particular air routes, if they could not fulfill their contract commitments to passengers and shoulder their responsibility for flight delays. Other punishable violations include low punctuality rates, unreasonable changes to boarding times and delaying flights without any remedial measures. There are no laws or regulations governing the problem, and therefore full implementation of the CAAC direction is likely to prove difficult.

AIR NAVIGATION REGULATION

In Macau

The Macau SAR Government has implemented a new Air Navigation Regulation with provisions dealing with requirements such as the registration and marking of aircraft, the airworthiness of aircraft and equipment, aircraft crew and licensing, operations, air traffic control, aerodrome licensing and the issue of air operators’ certificates.

DRAFT AIR CARRIER LIABILITY REGULATION INCORPORATES MONTREAL CONVENTION 1999

Macau has also drafted a new regulation (Executive Regulation 11/2004) governing the liability of air carriers to passengers, cargo interests and third parties. Most significantly, the draft regulation contains provisions similar to those found in the Montreal Convention 1999. In other words, carriers are strictly liable without exclusion or limitation for passenger injury and death where damages do not exceed Mop1,000,000 (US$128,783). For damages exceeding this amount, liability will be limited if the carrier can prove that the damage was not due to its negligence, or damage due solely to third party negligence. Carriers are required to make advanced payments of Mop 150,000 (US$19,308) in the event of passenger injury or death, which are to be taken into consideration when final compensation is paid. A carrier’s liability in respect of losses arising from delayed carriage of a passenger is limited to Mop40,000 (US$5,161) per passenger.

The minimum insurance requirement for carriers is Mop2,500,000 (US$321,812) per passenger. The limits of liability in respect of destruction, loss or damage to baggage are Mop10,000 (US$1,287) and, for cargo, Mop170 (US$21.88) per kg.

The draft regulation also sets out prescribed limits of liability in respect of third party loss or damage as follows:

  1. Mop15,000,000 for aircraft with maximum take off weight not exceeding 2,000 kg;
  2. Mop45,000,000 for aircraft with maximum take off weight over 2,000 kg but not exceeding 6,000 kg;
  3. Mop120,000,000 for aircraft with maximum take off weight over 6,000 kg but not exceeding 25,000 kg;
  4. Mop500,000,000 for aircraft with maximum take off weight over 25,000 kg but not exceeding 100,000 kg;
  5. Mop900,000,000 for aircraft with maximum take off weight over 100,000 kg.

As may be evident to some readers, the limits, expressed in Macau Patacas, are lower than the current US dollar equivalents of the SDR limits expressed in MC99.

In Taiwan

The Civil Aeronautics Administration of Taiwan is seeking to persuade further mergers among the country’s loss-making domestic airlines, five years after an initial wave of consolidation. Far Eastern Air Transport, Mandarin Airlines, TransAsia Airways and UNI Airways have been losing money on domestic routes for years and competition is expected to increase after a high-speed railway between Taipei and Kaohsiung opens in 2005. In 1999 Mandarin Airlines acquired Formosa Airlines and was taken over by China Airlines. In 1998 Taiwan's second-largest international operator, EVA Air, oversaw the first domestic mergers when it brought together three associate carriers, namely UNI Airways, Great China Airlines and Taiwan Airlines.

Legal Developments

NEW ARBITRATION RULES OF THE BEIJING ARBITRATION COMMISSION

In China

The Beijing Arbitration Commission ("BAC"), which hears both domestic and foreign disputes, has introduced new rules aimed at giving parties to an arbitration greater freedom in deciding which rules to apply, which arbitrators to appoint and where the arbitration should take place. The new BAC Rules have also set higher standards of professional conduct for arbitrators including a requirement that they sign a document ensuring an independent and impartial award, and a requirement that they disclose in writing any circumstance that may affect this.

The BAC has also made various amendments to its Rules to accelerate the timing of proceedings. These include allowing the consolidation of cases on the same subject matter, a novel feature under Chinese arbitration law and practice; authorising the presiding arbitrator only to decide matters of a procedural nature without interference from the other arbitrators; and, raising the Summary Procedure ceiling to RMB1 million.

The Rules have also been amended to place the BAC in a more competitive position than CIETAC. In foreign related arbitration, for example, defences have to be served within 45 days of a notice of arbitration having been received, as opposed to 60 days in relation to CIETAC proceedings. Also, arbitration awards in BAC proceedings have to be published within six months, as compared with nine months in CIETAC proceedings.

It is too early to determine what impact these new Rules will have on arbitration practice in China but we will monitor the position.

SUPREME COURT INTERPRETATIONS ON PERSONAL INJURY COMPENSATION

In May China’s Supreme People’s Court issued a series of judicial interpretations on personal injury compensation. Judicial Interpretations issued by the Supreme People’s Court are an authoritative source of law in the People’s Republic of China. They have the same legal effect as statutory instruments promulgated by the National People’s Congress and the State Council and they are legally binding on all lower courts.

The judicial interpretations give official recognition to several new types of personal injury cases and give lower courts a legal basis to allow such claims to proceed. So, for example, banks and hotels are now held legally responsible for personal injuries and deaths that arise as a result of third parties gaining entrance to such premises because of poor security measures. An important development, involves the method for calculating compensation for relatives of victims.

Compensation was previously calculated by multiplying by 10 the average urban expenditure. The new compensation figure is calculated by multiplying by 20 the average per capita urban disposable income.

China’s courts are graded into four levels, the Supreme People’s Court, higher people’s courts, intermediate people’s courts, and people’s courts at the grassroots level. In June Xiao Yang, president of its Supreme People’s Court, announced a new program to train all the judges of the people’s courts at the district or county level within three years. Nearly 80 percent of China’s judges preside over 10,392 grass root court rooms. According to recent statistics issued by the Supreme People’s Court, Chinese courts at the grassroots level have adjudicated some 20.8 million cases since June 2000 and only 12 percent of cases have been the subject of an appeal.

AWARDS

In the People’s Republic of China, not all court decisions or cases are published and available to the public. In fact, the large majority remain unavailable, although the system of justice has become more transparent in recent years with the publishing of more legal materials.

The Pudong New Area People’s Court has ordered China Eastern Airlines to pay RMB15,425 (US$1,858) and US$437 in compensation to Hong Kong born Ko Shu To after Ko was denied entry into the United States due to visa irregularities. The court took the view that China Eastern Airlines should have primary responsibility for informing passengers what visas requirements exist in relation to international carriage since it will be in a better position to obtain such information.

In what is being reported as China’s highest personal injury award to date, the Chengdu Intermediate People’s Court awarded 2.9 million yuan (US$350,156) to a 13-year old girl, paralyzed as a result of a karting accident at an amusement park in Chengdu, Sichuan Province. The court ordered the manufacturer and the operator to pay 2.07 million yuan and 885,790 yuan respectively.

NEW RULES PUNISHING LAW FIRMS AND LAWYERS FOR ILLEGAL ACTS

In March, the Ministry of Justice issued far reaching rules that, if enforced, will radically alter the manner in which many lawyers in China operate. The Rules on Punishing Illegal Acts Committed by Law Firms and Lawyers ("the Rules") supersede the Rules on Punishing Illegal Acts Committed by Lawyers issued in on 31 January 1997 by the Ministry of Justice.

Among the new illegal acts that the Rules subject to punishment are: practicing concurrently in a law firm and in another organization whilst providing legal services; representing parties that have conflicts of interests; failing to issue receipts upon collection of fees; violating judicial procedures; carrying out activities which are unrelated to the entrusted legal matter and which exceed the scope of the authority delegated by the client; meeting with judges, prosecutors or arbitrators in violation of relevant regulations; and representing clients in criminal or civil litigation within two years after having served as a judge or prosecutor; and permitting or tolerating lawyers of a law firm to engage in such acts as the purchase of commodities, tourist trips, reimbursement of expenses, house refurbishment or provision of means of transportation and communication in favour of judges, prosecutors and arbitrators in charge of a case; These illegal acts complement 10 illegal acts listed in article 44 of the PRC Lawyers Law.

The penalties that may be imposed on lawyers and law firms include formal and public warnings, confiscation of illicit gains (in certain cases confiscation may be accompanied by fines), suspensions of practice and cancellation of practice certificates; and criminal penalties including imprisonment.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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