China's Guangzhou Baiyun International Airport, now pursuing a $2.16 billion expansion, is considering taking on foreign investors to help bankroll its rapid growth while beefing up management and service standards.

Its controlling firm is now pondering selling up to a maximum allowable 49 percent of the airport to overseas buyers, joining a small but growing group of Chinese airports that have either launched discussions with potential investors or are gearing up to do so.

We're considering introducing strategic partners, said Chen Xiaoning, Vice President at Guangzhou Airport Management Corp., which owns the Guangzhou Baiyun International Airport. We will make a decision based on our funding need and our management needs.

We do have certain financial pressures, but what is more important is that we would like to find partners that could create a win-win situation, Chen said.

Chen said Baiyun airport was still loss making, like many newly expanded airports around the world, but he hoped the situation would improve by 2010. He expected 2006 passenger traffic to grow 15 percent to 27 million passengers and cargo handling volume to rise 19 percent to 0.8 million tonnes.

China's fast-growing air traffic, as its increasingly wealthy populace takes to the skies, has attracted several foreign investors. The booming southern city of Guangzhou kicked off its multi-billion dollar expansion in 2004 to cater to projected future demand for travel and cargo.

German airport operator Fraport A.G. agreed to buy a 25 percent stake in Ningbo's Lishe airport last year, and the company said in February that it was in talks to buy up to 49 percent of Xian's Xianyang International Airport.

Denmark's Copenhagen Airports took a 20 percent stake in Hainan's Meiland Airport <0357.HK> in 2002, and the Hong Kong Airport Authority also bought 35 percent of Hangzhou's airport in 2005.

NAMING NO NAMES

Chen would not identify potential investors but said Fraport had helped them with staff management and the exploration of new international routes.

Baiyun airport spent 19.6 billion yuan building the first phase of a new terminal at Huadu, about 30 kilometers from Guangzhou, the capital of the affluent southern province of Guangdong, which borders Hong Kong.

Less than two years after moving to the new airport, the company has already started construction of its second phase, which would cost about 17.3 billion yuan and bring a third runway, a cargo terminal and other facilities.

The expansion would boost cargo-handling capacity to nearly 2 million tonnes a year by 2010, more than tripling the 0.67 million tonnes it handled in 2005.

Chen said FedEx Corp. would contribute up to 0.8 million tonnes of the cargo volume a year when its new China hub opened in 2008. FedEx plans to move its Asia-Pacific center to China from the Philippines by building a US$150 million hub in the airport.

Under the expansion plan, the airport's passenger handling capacity would also rise to 38 million passengers a year, compared with 23.4 million in 2005. Its Shanghai-listed unit, Guangzhou Baiyun International Airport <600004.SS>, made a net profit of 251 million yuan in 2005. The listed arm operates passenger, landing, storage and other services at the Baiyun airport.

Although there are five major airports in the Pearl River Delta region including Hong Kong and Macau, Chen said he would not worry too much about competition.

The biggest challenge for us will be ourselves, and that's how we lift management and service standards, he said.

(US$1=HK$7.8=8.06 yuan)

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