China Eastern tweaks bellyhold cargo deal with China Cargo

China Eastern Airlines has adjusted its bellyhold freight business deal with sister carrier China Cargo Airlines, in light of changing market conditions following the coronavirus outbreak.

The SkyTeam carrier states that the adjustments come amid falling demand for passenger transport, as well as its recent foray into the “unconventional method” of using passenger aircraft to carry cargo.

“As a means of temporarily enhancing air cargo transport capacity under extraordinary circumstances, [China Eastern] is required to further clarify the business scope and pricing methods under unconventional circumstances such as ‘passenger-to-cargo conversion’,” China Eastern states.

“The company and China Cargo Airlines have negotiated and agreed to adjust and optimise the [business deal’s] scope, pricing methods and settlement methods without altering, amongst others, the business entities, rights and obligations, and business procedures of both parties,” adds the carrier.

Under the previous contract, China Cargo will pay the China Eastern group a contractual fee. China Cargo will also get an annual reimbursement for its operating costs.

While the broad mechanics of payment will not see much change, the latest round of adjustments will clearly define pricing methods under “unconventional circumstances” — including transporting freight in passenger aircraft.

“Under unconventional circumstances, the transportation service fee is based on the actual operating revenue passenger aircraft’s cargo transport, and determined by taking into account the actual operating cost and reasonable profit margin,” China Eastern states.

The original proposal will therefore be tweaked to an “exclusive operation proposal for passenger aircraft cargo business”, which will see China Cargo have “exclusive operation to independently operate and manage the company’s passenger aircraft cargo business,” China Eastern discloses.

The two carriers first entered the multi-year partnership in March 2018, to allow China Eastern to focus on its passenger transportation business, while the freight business also requires heavy investment and has a long return period.

The deal will also further eliminate any competition between the two companies, the carrier said then. China Cargo is 83% owned by Eastern Logistics, which in turn is owned by China Eastern controlling shareholder CEA Holding.

CIrium fleets data shows China Cargo to operate a fleet of eight freighters, comprising two Boeing 747-400ERFs, as well as six 777Fs.

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