WILL NEW CHINA AIRLINES CHAIRMAN CHANGE THE

C O N F I D E N T I A L TAIPEI 002361 SIPDIS SENSITIVE SIPDIS STATE PASS USTR, STATE FOR EAP/TC,USTR FOR STRATFORD AND KATZ, TREASURY FOR OASIA/TTYANG, COMMERCE FOR 4431/ITA/MAC/AP/OPB/TAIWAN E.O. 12958: DECL: 10/17/2017 TAGS: ECON EAIR ETRD PINR PREL TW JA SUBJECT: WILL NEW CHINA AIRLINES CHAIRMAN CHANGE THE COMPANY? REF: TAIPEI 02138 Classified By: AIT Economic Section Chief Hanscom Smith, Reasons 1.4 (b /d) ¶1. (SBU) Summary. China Airlines (CAL) President Ringo Chao was appointed Chairman of the Board on October 2, possibly because of the August 20 CAL airplane fire (reftel). Chao replaced CAL's Executive Vice President in charge of maintenance (a protg of Chao's predecessor) but has not made other senior management changes. AIT contacts are unsure whether or not Chao has the experience to implement significant changes in CAL's rigid corporate management structure. End Summary. OUT WITH THE OLD, IN WITH THE NEW ¶2. (C) On October 2, the Board of Directors of China Airlines (CAL) voted unanimously to replace Chairman Philip Wei (Hsing-Hsiung) with CAL President Ringo Chao (Kuo-Shui). Chao was appointed President of CAL in 2005, and at 51 is the youngest Chairman in CAL history. WHAT ACTUAL IMPACT ON CAL OPERATIONS? ¶3. (C) AIT contacts tell us that it is uncertain whether, as chairman, Chao will be able to make significant changes to the way CAL operates. On October 16, Dr. Chen Lee-in of the Chung-Hua Institution for Economic Research (CIER) told econoff the CAL Chairman's position requires political, not necessarily managerial, skill. She asserted that CAL remains profitable only because of its significant air cargo business and a ticket price structure that charges Taiwan passengers more than international passengers. In her view, CAL management practices are not likely to change under Ringo Chao. AN UNUSUAL PATH TO THE CHAIRMANSHIP ¶4. (C) Chao's rapid rise in the airline industry is generally considered by AIT's industry sources to be due to his friendship with former EVA Airways Chairman Chen Shen-chi (son-in-law of Evergreen Group Chairman Chang Jung-fa),who promoted Chao to be EVA regional representative in San Francisco and Bangkok in the 1990s. After Chen fell into disfavor with his father-in-law and left EVA in 1999, Chao left the airline industry, only to return in June 2005 as president of Mandarin Airlines, a CAL subsidiary. Three months later he was appointed president of CAL. COMMENT ¶5. (C) Now that Chao is Chairman and President of CAL, the extent of his control over management decision-making is the subject of intense speculation among industry observers. The prevailing view among AIT contacts is that Chao's ability to manage a major airline is unproven. End Comment. BIOGRAPHIC INFORMATION ¶6. (U) Ringo Chao (Kuo-Shui) was born in 1956. He received a Bachelor's Degree in English from the Chinese Cultural University. He is pursuing an Executive MBA at Taiwan's National Chengchi University. Chao is married, although his wife and children reside in the U.S. WANG