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Who Cleared These Airlines For Takeoff?


International Business

WHO CLEARED THESE AIRLINES FOR TAKEOFF?

It was the worst day in China's aviation history. On June 6, a China Northwest Airlines plane crashed after takeoff from the city of Xian, killing all 160 on board. On the same day, a lone hijacker commandeered a China Southern Airlines plane to Taiwan, the 12th hijacking in the past year.

With such a dismal safety record, China is a leading contender for the title of the most dangerous place in the world to fly. Also in the running are India and Russia. The record is so frightening that the U.S. has intervened, sensing an opportunity to improve safety standards--and promote American exports to boot.

The air-safety mess is partially a result of the end of government-run air monopolies (table). China now has about 40 airlines. Several new air taxis have begun challenging India's domestic carrier. In the former Soviet Union, Aeroflot has been hacked into 200 smaller companies. Many of the airlines are too new to have developed a good track record for maintenance or safety.

China's biggest problem is a shortage of pilots. Passenger air travel is expected to grow 20% annually until the year 2000. To keep up with demand, the country needs 600 new pilots a year. But China can turn out less than half that number. Once a pilot is on the job, the workload is excruciating. Although Chinese regulations set the limit at 100 hours of flight time a month to avoid pilot fatigue, pilots average an astounding 280 hours.

In Russia, fuel shortages and flight cutbacks mean pilots are often grounded. As a result, their skills get rusty. "Many pilots aren't flying for a month or more," says Valentin Presnyakov, vice-president of the Russian pilots union. At least 200 people have died in Russian plane crashes this year. On May 18, pilots struck to protest poor safety. They threaten another strike this month.

Compared with China and Russia, India had a late start in deregulation. In March, India paved the way for private-sector shuttles to become full-fledged airlines. The same month, a private carrier's Boeing 737 slammed into a jet on the runway in New Delhi, killing eight people. The government suspended another carrier days later, citing four safety violations in a year.

The Clinton Administration wants more done to promote safety. The FAA opened an office in Beijing in January and is increasing the U.S. presence in East Asia and Russia. Meanwhile, American motives are not totally pure: The Clintonites want countries to adopt U.S. safety standards--and then buy U.S. equipment. Says one Administration official: "If you can control standards, you can control trade." Next month, the Commerce Dept. will brief 100 U.S. aerospace companies, including Boeing Co., McDonnell Douglas Corp., airport designers, engine makers, and producers of air-traffic-control equipment on how to snag Chinese contracts.

"REALLY TRYING." Beijing has made some gestures toward cleaning up its act. Last year, it denied requests to start 12 new airlines. China has also dropped its ban on foreign ownership of airlines and airports. By allowing foreigners to own minority stakes and help launch new carriers, the Chinese hope to improve service. "They are really trying from the top down," says Stephen Miller, managing director of Trinity Aviation, an aircraft leasing and consulting company in Hong Kong.

Despite the potential safety problems, foreign investment banks have been slugging it out for the right to underwrite listings of two Chinese airlines that plan to list on foreign stock exchanges this year. Goldman Sachs is the lead underwriter for China Southern Airlines, and Morgan Stanley is underwriting China Eastern Airlines. The Chinese and Russians are also enlisting help to improve staff and facilities. In February, Northwest Airlines Inc. signed a contract to train 250 Chinese pilots. Boeing provides training for Chinese pilots and air-traffic controllers. And in Russia, Pratt & Whitney has a joint-venture deal to develop jet engines.

The foreigners are in for the long term. With huge land masses, the giants of the emerging markets have few alternatives to developing their aviation industries. As bad as air travel is in China, other forms of transportation are no better. The trains are overcrowded and accident-prone. Poor road conditions make travel by car and bus hazardous. "What's worse than flying?" asks Eckes. "Everything else." For the developing world's frequent fliers, that's cold comfort.

TABLE: WHERE FLYING IS HAZARDOUS

CHINA

Monopoly carrier replaced by 40 air-lines. As air travel grows 20% a year, pilots are badly overworked. Security is lax, with 12 planes hijacked to Taiwan in the past year.

INDIA

Several new airlines are challenging the old state-run monopoly carrier. As accidents increase, international safety groups have urged passengers to avoid Indian airlines.

RUSSIA

Aeroflot broken up, with about 200 airlines taking its place. Governmental chaos makes regulation difficult. Air and ground crews often operate without necessary training or spare parts.

DATA: BUSINESS WEEKJoyce Barnathan in Hong Kong, with Peter Galuszka in Moscow and Christina Del Valle in Washington


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