(Yicai Global) April 20 -- Eastern Air Logistics Co., under the umbrella of China Eastern Airlines Co. [SSE:600115; HK:0670; NYSE:CEA], has introduced a reform plan for mixed-ownership through introduction of outside investors and employee shareholders.
Per the replenishment project Shanghai United Assets and Equity Exchange announced yesterday, Eastern Aviation Industry Investment Co., which holds 100 percent of equity in Eastern Air Logistics, will yield its absolute controlling interest and reduce its stake to 45 percent. Non-state-owned strategic investors and financial investors will hold 45 percent of equity, with the remaining 10 percent going to key employees.
"Optimization of state-owned equity has been common in recent years, but for equity held by state-owned shareholders to drop from 100 percent to below 50 percent in one go is rarely seen," Lin Zhijie, a civil aviation insider, told Yicai Global. Also, the introduction of core employees as shareholders also marks a first in state-owned airlines. This will serve as a pilot example for mixed-ownership reform of other central enterprises.
This mixed-ownership reform method of Eastern Air Logistics may have an impact on the entire air cargo market, Li Jin, a chief researcher with the Institute of Chinese Enterprises told Yicai Global.
Per the Shanghai United Assets and Equity Exchange plan, Eastern Air Logistics will introduce three non-state-owned strategic investors, including one investor from third-party logistics (3PL) holding 25 percent, one investor from logistics and real estate with 10 percent, one investor from the express delivery sector holding 5 percent, and one financial investor with 5 percent.
All personnel participating in the mixed-ownership reform are required to change their status state-owned enterprise employees. They must terminate their labor contracts with Eastern Airlines and then sign new market-oriented ones with Eastern Air Logistics.
Key employees of Eastern Air Logistics cover senior- and middle-management personnel and core business professionals, with the first batch no more than 150 people. By setting up an employee-owned platform, they will own 10 percent of the shares of Eastern Air Logistics with share prices in line with those of strategic and financial investors.
Upon consummation of the mixed-ownership reform, Eastern Air Logistics will also institute a professional management system and establish a mechanism for employee selection, appraisal, reward, punishment and dismissal, and make the remuneration comprehensively market-oriented so that employees' incomes are tied in with the enterprise's long term development.
Eastern Air Logistics' mixed-ownership reform may redress the difficulties of cargo profitability, Li Jin believes. Mixed-ownership reform will usher in a more market-oriented mechanism, a more flexible management system, and more efficient decision-making.
"Mixed-ownership reform must also improve the business environment to raise societal confidence in participating using its capital," Xiang Anbo, director of the Research Office for State-Owned Enterprises of the Enterprises Institute of the Development Research Center of the State Council told Yicai Global. Optimization of the equity structure is designed to render it more attractive to societal investors by guaranteeing they have a voice by preventing one big shareholder from predominating.
Formed in 2012, Eastern Air Logistics is a service provider and integrated air freight ground-service provider established by integrating cargo fleets, ground transportation, warehousing and the other businesses of China Eastern Airlines, and is positioned as a high-end provider of logistical solutions.