US sanctions hit SIA-China ambitions

John Burton
Financial Times
20 Aug 06

Singapore Airlines’ efforts to gain greater access to China’s aviation market through a new cargo joint venture suffered a setback at the weekend, after the US imposed sanctions on its Chinese partner for allegedly supplying missile parts to Iran.

The new airline, Great Wall Airlines (GWL), which started business in May, has suspended operations. It is 49 per cent owned by Singapore Airlines (SIA) and Temasek Holdings, the Singapore state investment company that controls SIA, with the rest held by China Great Wall Industry, which provides missile launch services. It was the first big investment by SIA in China.

The Chinese cargo carrier began operations shortly before the US decided to impose sanctions on Great Wall and its subsidiaries.

The carrier is now trying to appeal against the decision with the US, since the sanctions ‘have nothing to do with operations of GWL’ said SIA. GWL operates two Boeing 747 aircraft, which rely on technical support from the US.

The US alleged that Great Wall and three other Chinese companies had supplied the missile parts to Iran, calling for a freeze of any assets under US jurisdiction. China denied the allegation.

SIA, which is the world’s third largest air cargo operator, viewed GWL as a way to expand existing services with China by handling its exports to the US and Europe.

Several other international carriers, including Germany’s Lufthansa, have recently set up similar air cargo joint ventures in China.

The GWL deal is the second troublesome foreign investment that Temasek has made this year, following its takeover of Shin Corp, the Thai telecommunications group, which triggered a political crisis in Thailand.

Thai regulators are examining whether Temasek breached foreign ownership limits by using proxy companies to gain control.

Thai officials have suggested that Advanced Info Services, the mobile operator that is Shin Corp’s main asset, could have problems in being granted an allocation of new mobile phone numbers if the government determines that it is majority-owned by Temasek.

A possible curb on access to new phone numbers could hurt the future growth of AIS, which has 52 per cent of the local market, since the current supply of phone numbers is dwindling.

The uncertainty over Shin Corp has led to a sharp fall in its share price after a Temasek-led consortium bought the group from the family of Thaksin Shinawatra, the Thai prime minister.