Plato Capital exploring low-cost airline in China

An AirAsia airplane is seen at the Garuda Maintenance Facility AeroAsia, in Tangerang, Indonesia, on Sept 20, 2017.
An AirAsia airplane is seen at the Garuda Maintenance Facility AeroAsia, in Tangerang, Indonesia, on Sept 20, 2017. PHOTO: REUTERS

A local investment firm is teaming up with budget carrier AirAsia and other investors to look at starting a low-cost airline in China.

The airline, AirAsia (China), aims to capitalise on one of the fastest-growing air-travel markets in the world and one where low-cost travel is at an early stage. It would also be the first foreign-owned budget carrier in China.

Local company Plato Capital is teaming up with Malaysia-listed AirAsia, China's state-owned Everbright Financial Investment and private equity firm Oxley Capital to pursue the venture.

Catalist-listed Plato has entered into a non-legally binding term sheet to discuss definitive agreements for the proposed airline. The term sheet is valid for 12 months from yesterday.

AirAsia chief executive Tony Fernandes has a 6.33 per cent stake in Plato Capital. Plato's non-independent non-executive chairman, Mr Lim Kian Onn, is also a director of AirAsia X, the long-haul sister company of AirAsia.

AirAsia said in May that it was in talks with the China Everbright Group and the Henan government to explore a low-cost airline.

The joint venture company will be incorporated in Henan's capital city of Zhengzhou in Central China and have its operating base there.

CHINA MARKET SET TO BE NO.1

China is set to overtake the US to become the world's largest aviation market by 2024, as more people take to the skies domestically and internationally.

PLATO CAPITAL

The Zhengzhou Airport Economy Zone was approved by the Chinese government in 2013 to be a pilot for development of China's aviation economy.

Zhengzhou has plans to develop an "aerotropolis" - an industrial, commercial and logistics zone five times the size of Manhattan, with the airport at its heart and strong local government support, Plato said.

The joint venture will also invest in the development of a low-cost carrier terminal, an aviation academy for pilots, engineers and crew training, plus a maintenance, repair and overhaul provider in the city.

Since late 2013, the Civil Aviation Administration of China has encouraged budget airlines.

AirAsia (China) will have plenty of competition to rule China's skies. Spring Air is the country's first and largest budget carrier. Others include China United, 9 Air, Jiangxi Air, Ruili Airlines and Urumqi Air. West Air and Lucky Air belong to the HNA group.

Budget airlines account for around 9 per cent to 10 per cent of China's airline market - far lower than the 56 per cent penetration rate in South-east Asia, Plato said.

Plato Capital said in a statement: "China is set to overtake the US to become the world's largest aviation market by 2024, as more people take to the skies domestically and internationally... In the past five years, China passenger traffic has been growing at a remarkable rate of more than 10 per cent annually."

Plato Capital shares are thinly traded and last changed hands at 11.2 cents on Sept 11. AirAsia shares rose 12 Malaysian cents or 3.52 per cent to RM3.53 yesterday.

A version of this article appeared in the print edition of The Straits Times on September 26, 2017, with the headline 'Plato Capital exploring low-cost airline in China'. Print Edition | Subscribe