Tue 27 Aug 2013
Filed under: Business / Trade,News,Regional
Myanmar’s fledgling airline industry got a boost as the parent of All Nippon Airways said it would invest in a small Yangon-based carrier, reflecting growing interest in the Southeast Asian country’s booming tourism market despite a rash of mishaps in the past year.
ANA Holdings Inc. said Tuesday it would buy a 49% stake in Asian Wings Airways Ltd., the first investment by a foreign airline since Myanmar began an economic and political overhaul in 2011 following decades of military rule.
While the $25 million investment is small for ANA, the company is nonetheless taking a risky bet in an industry sullied by safety concerns and the involvement of individuals on a U.S. sanctions list.
Myanmar’s aviation industry is struggling to keep up with a surge in demand, having established itself as an exciting destination for investment and travel after years of isolation. The country welcomed more than a million tourists last year, up 30% from 2011, making it the fastest-growing travel market in Southeast Asia.
Myanmar’s government hopes to attract three million foreign visitors by 2015 and 7.48 million by 2020, targets that experts say likely will strain the country’s limited transportation and tourism sectors.
Myanmar has seven domestic airlines, and has recently approved the creation of four more. But many of the carriers operate small, aging aircraft that provide service that is far below international standards. The country has around 40 passenger planes, of which just 10 are single-aisle jets and the rest mostly small propeller planes, according to the Sydney-based CAPA Centre for Aviation.
“There’s a lot of interest in the Myanmar airline market,” said Brendan Sobie, a CAPA analyst. He said the industry is highly fragmented, paving the way for a possible shake-up as the sector matures.
“As the market consolidates, if an airline can get investments from a large foreign carrier, it may make it more secure” against other competitors, Mr. Sobie said.
All Nippon, Japan’s biggest airline by fleet size, joins other premium carriers chasing growth in travel to Myanmar. Companies including Singapore Airlines Ltd., Thai Airways International and Chinese carriers have boosted their number flights to the country.
All Nippon flies three times a week between Tokyo and Yangon and said it planned to upgrade to a daily flight next month using bigger aircraft. The Asian Wings investment is ANA’s first under a strategy to seek growth outside Japan by buying stakes in other Asian airlines.
Myanmar airlines have been under scrutiny for a spate of accidents.
An Air Bagan Fokker 100 jet carrying 71 people crash-landed in December on a road, killing two people and injuring 11 others. In June a Chinese-made Xian MA 60 turboprop plane operated by Myanma Airways carrying 60 passengers skidded off the runway at a regional airport and was damaged, though no one was injured. Weeks earlier, a similar Myanma Airways aircraft overshot another runway, injuring two people.
The possibles ties of some airline owners to the former military government also limits potential foreign investments in the sector.
Air Bagan has been a target of U.S. Treasury Department sanctions. The airline is owned by Myanmar tycoon Tay Za, who is considered a crony of the former military junta. Mr. Tay Za and his businesses are prohibited from dealing with U.S. companies and citizens. Another airline, Air KBZ, owned by Aung Ko Win, was a target of European and Australian sanctions until this April, when they lifted most sanctions against Myanmar.
The reputation of Myanmar businesspeople is changing, though—at least within the country. Opposition leader Aung San Suu Kyi has encouraged foreign companies to work with Myanmar businesspeople if they are serious about changing their business reputations.
Asian Wings began operation in January 2011 and has a fleet of one Airbus jet and two turboprops. Lwin Moe owns 60% of the airline and Than Oo owns 40%, according to ANA, though little information is available on the shareholders.
“We concluded that there was no problem in investing after we checked details of the company, including the board and shareholders,” said Toshiaki Nonaka, the ANA executive who was responsible for negotiating the deal.
The investment plan comes just weeks after Japan trade minister Toshimitsu Motegi visited Myanmar, reiterating Tokyo’s commitment to Myanmar and pushing for more Japanese investment in the Southeast Asian country.
Japan has embarked on large-scale projects in Myanmar, such as the Thilawa Special Economic Zone near the city of Yangon. Mitsubishi Corp. this month said a consortium it leads will help renovate and operate the Mandalay International Airport, located in the country’s northern economic hub.