Hainan Airlines Plans Expansion and Name Change

UNCLAS GUANGZHOU 032163

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EAP/CM AND INR/B
USDOC FOR 4410/ITA/MAC/MCQUEEN
USPACOM FOR FPA

E.O. 12958: N/A
TAGS: EAIR ECON ETRD CH
SUBJECT: Hainan Airlines Plans Expansion and Name Change

(U) This cable is sensitive but unclassified and may contain
business sensitive information. Not for internet distribution.
Please handle accordingly.


1. (SBU) SUMMARY: Hainan Airlines (HNA) Chairman Chen Feng told
the Consul General that HNA plans to begin direct cargo flights to
Boston in early 2007, followed by passenger flights later that
year. Chen also said that HNA will change its name to "Grand
China Air," and will invest an additional USD 2 billion in
operating capital. This represents a significant opportunity for
U.S. aircraft manufacturers and service companies, but Chen
clearly wants to be wooed with frequent senior-level visits to
HNA. Chen's management practices promote a service-oriented
corporate culture that blends service industry best-practices with
Eastern philosophy. END SUMMARY.


2. (SBU) HNA plans to begin direct cargo flights from Beijing or
Shanghai to Boston in early 2007. Direct passenger flights along
the same route would likely follow in mid to late 2007. Chen
noted that flights to the United States are almost always fully
booked, but lack similar return capacity; he said that routes need
at least 40% return capacity in order to earn a profit.


3. (SBU) Chen discussed his plans to rename Hainan airlines "Grand
China Air." With additional operating capital of USD 2 billion,
the airline would expand its domestic and international services
and establish itself as more than just a southern China regional
airline.


4. (SBU) HNA is the biggest buyer of aircraft in China, according
to Chen. The creation of Grand China Air and expansion of
services would be a significant opportunity for U.S. aircraft
manufacturers and service companies. But to fully take advantage
of this commercial opportunity, U.S. aircraft manufacturing
representatives must - likely as a sign of respect but also to
show that they are in the market for the long run in terms of
service - increase the frequency of their senior representatives'
visits to South China. Chen lamented that senior Boeing officials
had not visited HNA for 10 years. While HNA will continue to
balance aircraft purchases between Airbus and Boeing, Chen clearly
prefers a balance in favor of Boeing.


6. (SBU) Chen stated that HNA currently flies 600 routes with
approximately 3200 flights per week. His management philosophy
centers on a service-oriented corporate culture that blends
industry best-practices with Eastern philosophy. HNA's 30,000
employees are required to learn the company's philosophy. HNA's
managers must even submit their personal thoughts (hand-written)
about the company philosophy each month. Chen compared his
company to a school where the employees learn how to spend their
lives.


7. (SBU) BIO NOTES: Chen is a Tibetan Buddhist and speaks English
well. He is a self-taught English speaker, who recognized the
value of the language as a young employee with China's civil
aviation administration. Chen is an open, friendly, and animated
interlocutor, preferring a casual, rapid fire, and at times
startlingly frank, exchange of opinions. During his initial
meeting with the Consul General, Chen dressed in unadorned
traditional white Buddhist clothing. Chen's wife, son, and
grandson live in the United States, where he owns a home. His son
works as an investment banker for the Soros Group in New York.

GOLDBERG