Cablegate: Hong Kong's Airport Authority Investing in China's

VZCZCXRO7822
RR RUEHCN RUEHGH RUEHVC
DE RUEHHK #1973/01 2960540
ZNR UUUUU ZZH
R 230540Z OCT 09
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC 8804
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RULSDMK/DEPT OF TRANSPORTATION WASHDC

UNCLAS SECTION 01 OF 02 HONG KONG 001973

SENSITIVE
SIPDIS

STATE FOR EAP/CM
STATE ALSO FOR EAP/EEB
BEIJING FOR TSA EICKHOFF AND FAA POWER

E.O. 12958: N/A
TAGS: EAIR ECON ECIN HK
SUBJECT: HONG KONG'S AIRPORT AUTHORITY INVESTING IN CHINA'S
AIRPORTS

1. (SBU) SUMMARY: On October 12, the government-owned Airport
Authority of Hong Kong (AAHK) entered into a twenty-year
contract with the Shanghai Airport Authority (SAA) to
co-manage Shanghai's Hongqiao Airport. This USD 14.6 million
joint venture deepens cooperation between the two aviation
authorities and adds to AAHK's portfolio of Mainland airport
investments that include the Zhuhai Airport, Hangzhou
Xiaoshan International, ad-hoc projects with Beijing Capital
International, cooperation with nearby Shenzhen
International, and its training services to Mainland airports
at the AAHK Airport Management Academy. END SUMMARY

2. (SBU) On October 12, the Airport Authority of Hong Kong
(AAHK) announced the establishment of the Shanghai Hong Kong
Airport Management Co., Ltd., a joint venture with the
Shanghai Airport Authority (SAA) for the management of
Shanghai's Hongqiao Airport. AAHK will invest USD 7.2
million for a 49% equity interest in this USD 14.6 million
joint venture while SAA will acquire the remaining 51%.
SAA's Executive Vice President Li Derun suggested to Shanghai
press that SAA was considering the possibility of inviting
AAHK to become a strategic investor in SAA, which also
manages Shanghai's Pudong International Airport.

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Expansion Beyond Neighboring Pearl River Delta
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3. (SBU) AAHK's recent Shanghai investment adds to its
growing Mainland portfolio. AAHK has managed nearby Zhuhai
Airport with the Zhuhai Municipal People's Government since
2006. It coordinated airport activities and upgrades for the
Zhuhai-hosted 7th China International Aviation and Aerospace
Exhibition in 2008. AAHK also holds a 35% interest in
Hangzhou Xiaoshan International Airport, the Mainland's
fastest growing passenger airport, with 8% growth in 2008.
In Beijing, AAHK shared expertise and conducted training for
Beijing Capital International Airport's third terminal in
2007, and provided on-site support during the terminal's
opening in 2008 and throughout the Olympics and Paralympics.

4. (SBU) AAHK's Airport Management Academy caters to Mainland
airports and civil aviation bodies, providing training to
over 3,600 participants since 2002. AAHK is also
collaborating closely with its sole shareholder, the Hong
Kong Special Administrative Region Government (HKSARG), in
the planning of major infrastructure projects linking Hong
Kong to the Mainland, including the Hong Kong-Zhuhai-Macau
Bridge and a high-speed rail link between Hong Kong and
Shenzhen. The HKSARG has decided to locate the Bridge's Hong
Kong border crossing next to the Hong Kong International
Airport (HKIA), while the rail link will connect HKIA with
Shenzhen and its airport.

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Investments in China Paying Off
-------------------------------

5. (SBU) For its financial year ended March 31, AAHK declared
a dividend of Hong Kong Dollar (HKD) 2.2 billion (USD 283
million). This is a 10% increase over 2008 and includes a
profit of HKD 193 million (USD 24.8 million) from its
Hangzhou Xiaoshan International venture. Its Zhuhai Airport
operation broke even for the first time in 13 years.

--------------------------------------------- ---
Economic Blow Softened but Throughput Still Down
--------------------------------------------- ---

6. (SBU) AAHK has offered incentives to airlines operating at
HKIA to mitigate the effects of the global financial crisis.
On October 16, the HKSARG announced that an existing
incentive arrangement will be extended until December 2010 --
airlines flying between Hong Kong and a new destination will
receive a 75% landing charge rebate between January to June
and a 25% rebate from July to December.

7. (U) Total air traffic movements at the AAHK-managed HKIA
slowed by 8% in September to 22,570. Passenger throughput
for the month declined 3.5% compared to September 2008, to
3.5 million, and remains down 6.6% for the year with a total
of 34.2 million passengers from January to September 2009.
On a 12-month basis, passenger throughput is down 6%
year-on-year, to 46.2 million. Air cargo throughput dropped
4.3% in September, to 304,000 tons. On a 12-month basis,

HONG KONG 00001973 002 OF 002

total air cargo volume is down by 16% to 3.2 million tons,
with continued double digit declines primarily in exports and
transshipments to Europe, North America, Taiwan and Japan.

MARUT

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