Korean Air aggressively advances into China’s Air Cargo Market

Korean Air inked a contract in Beijing on Tuesday with Sinotrans Air Transportation Development Co. Ltd. (“Sinotrans Air”) – a specialized subsidiary of Sinotrans Ltd., one of China’s biggest logistics companies – in an agreement to form a cargo joint venture company in China.

Sinotrans Ltd. is specialized in cargo forwarding for air, sea and ground transportation and is one of the largest in China with 16 subsidiaries. Established by the Chinese government, Sinotrans Air is a strong company with a comprehensive network within China.

The revealed details of the contract show the total capital of the joint venture company to be US$65 million, with Sinotrans Air and Korean Air each contributing 51% (US$33.15 mil) and 25% (US$16.25 mil) of the amount respectively. Two Korean investor companies also participate in the joint venture – Hana Capital contributing 13% (US$8.45 mil) and Shinhan Capital contributing 11% (US$7.15 mil). The contract term is 30 years, and the joint venture will operate in Chinese domestic, international airfreight transportation and related businesses. Also, in order to exercise management rights and to retain controlling powers, Korean Air will send people from its organization to act as the CEO and CFO of the joint venture.

The cargo joint venture company established according to this contract will start operation in China during the second half of next year with three freighters, eyeing its goal to become China’s top cargo carrier.

China’s logistics market is the fastest developing market in the world, growing at a rate of nearly 30% each year. China’s airfreight market is also expected to continue its growth until the year 2020 with infinite potential. This contract signing is significant in that Korean Air has secured a firm foundation for long-term growth through the establishment of this joint venture.

At the signing ceremony in Beijing, Korean Air Chairman & CEO Yang-Ho Cho said “In addition to the fact that this contract brings China’s largest logistics company and the world’s top commercial cargo carrier together, the combination of the two companies’ extensive networks will generate tremendous synergy effects. Using this joint venture as momentum, Korean Air will aggressively push forward to bolster our top position in the world cargo industry by actively advancing into the Chinese logistics market which will soon become the world’s greatest.”

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