Today, in place of that single national carrier, there are about 40 airlinesin China, including 22 major ones, out of which 10 are affiliated to CAAC,while 12 more are under local authorities or various government departments.The rest are small regional carriers. Together, these airlines serve a totalof 135 domestic and 64 international destinations.

State-owned, Beijing-based Air China, directly under CAAC, is the largestairline, and operates both domestic and international services. It isfollowed by China Southern of Guangzhou, China Eastern, China Southwest andChina Northern, to form the top five.

However, the Asian financial crisis took its toll last year. According tostatistics, China's airlines had together achieved 8.67 billion tonne-KM,carried 56.3 million passengers and 1.247 tonnes of freight and mail during1997. These had represented an average growth rate of 19.3 per cent, 17.9per cent and 16.8 per cent, respectively.

By contrast, in 1998, the passenger growth was only 2.2 per cent, to 57.55million, though cargo traffic had grown by an impressive 12.4 per cent to1.4 million tonnes. The average overall load factor for passengers and cargohad plummeted to a sickly 53.3 per cent.

Faced with excess capacity, China's airlines had started undercutting faresfuriously - rather similar to what happened recently in India. That forcedthe airlines into the red. The losses of CAAC airlines alone had amounted toUS$ 290 million. Overall, the carnage was terrible. It was the first suchindustry-wide loss in 20 years. Only four small airlines made any profitlast year.

The recovery, however, has been rapid. Government swung into action to setlower limits on fares, cut down on freebees and the like (Our own airlineshave so much in common). Government also curbed excessive travel agencycommissions. Most importantly, they offered relief through tax cuts.

For their part, the airlines also rapidly cut costs and restructured. AirChina dropped several loss-making routes, and retired some old,uneconomical, Soviet-era aircraft. Improved traffic and rising yields thisyear have undoubtedly helped. Nowhere is there any mention of staff layoffs,though. China is already worried about its unemployment figures.

Yet, the rapidity of their reaction was commendable. They seem to havelearnt their lessons, and could be more market-responsive in the future.There is nothing socialistic about the business sense or the corporateculture of these carriers. They might as well have belonged to South Koreaor Taiwan. Importantly, while some old aircraft have been phased out toreduce excess capacity, there have been no mass cancellations of orders. Onthe other hand, some deliveries have been deferred. For example, Air Chinarecently took delivery of the first of their 11 B737-300s on order, to addto their current fleet of 60 aircraft. Earlier this year, China Southwestreceived the last of their three A340s on order, while China Northwestreleased an A320. That shows the worst is over.

Government, still firmly in control, takes quick decisions and gives a handwhenever there are problems - unlike the way things work in India. On theother hand, socialistic hangovers persist. Orient Aviation, published by theAssociation of Asia-Pacific Airlines, recently mentioned "three talks".

These are discussion meetings each afternoon to exhort executives intoaction. They are also threatened with dismissal should their airlines losemoney - not the best way to achieve profitability.

The earlier fractionation which had led to the setting up of multipleairlines, has been replaced by the urge to merge - with a helping hand fromthe government. The two largest carriers, Air China and China Southern, arein talks to come together. The other large carriers may try to form groupsof their own, to ultimately form about a half dozen large groups.

Government encourages foreign equity holdings in Chinese airlines. Foreigninvestors have a 32.2 per cent stake in the China Eastern Group, and 34.8per cent in the China Southern Group.

What of the future? Airbus Industrie projections for China's commercialaircraft fleet show that by end 1997, they had a total of 425 jets of over70 seats. (India's airlines have a total of 105 aircraft today). All but 137of these are likely to be retired by the year 2017. Thus, China's airlineswill need to buy 288 new aircraft to replace the old ones, apart fromanother 1,093 aircraft to meet traffic growth. That means a total of 1,381new aircraft, worth a total of $130 billion.

Of the total, the forecast expects 711 aircraft to be in the 70-175 seatcategory, while the remaining 670 will be wide-body aircraft. Interestingly,that total will include 163 aircraft of over 400 seats. The forecast furtherstates that while China's Airliner fleet currently accounts for about 5 percent of global capacity, that should double to 10 per cent by 2017.

Airbus Industrie's global market forecast for 1999 states that China'sdomestic airline operations alone in 1998 had accounted for 1.78 per cent ofthe global revenue passenger-KM. It is expected to grow at an average of 8.4per cent during 1999-2018.

All that does not mean that it will be roses, roses, all the way. "China isan economic crisis waiting to happen unless the government lets loss-makingstate enterprises die, and reform the banks", says says Nicholas Lardy, aleading financial authority. The alternative, of mass unemployment formillions, is equally worrisome. He even said that the 1998 economic growthwas several points below the official 7.8 per cent figure. Clearly, theimpact of a crisis on the Chinese airlines could be harsh. Should China beforced to devalue the yuan - long anticipated by some economists - thatcould also hit the major airlines hard. A very large part of their debt isdenominated in US dollars and Japanese yen. A sharp and sudden increase intheir already heavy debts could hurt them badly.

A more immediate threat could be the Y2K problem, which could even spreadacross borders. That problem could mainly affect the computerised groundequipment, like air traffic control systems, which would, in turn, affectthe airlines.

In any case, after decades of almost carefree existence, China's airlinesare now able to cope with adversity. With the right steps, they could evenemerge from any such crises stronger than before.