China’s local government debt woes ground ambitions of regional airlines as overdue subsidies mount up

While China’s aviation market is one of the fastest growing in the world, a series of lawsuits against local governments and local-government backed entities this year over millions of yuan worth of overdue subsidies have dampened the ambitions of its regional airlines. Domestic tourism has been a bright spot for China’s economy this year, but smaller regional airlines have yet to benefit, while they are also facing increasing competition from the sprawling high-speed railway network. “The importance of regional aviation cannot be neglected as it connects communities across various city pairs, but with rapid growth of high-speed railway across China, this does pose a threat to regional airlines,” said Mayur Patel, head of Asia at OAG Aviation. However, as with any regional domestic carrier’s viability, it requires government subsidies to remain economical and the impact it has on local communities.” And while subsidies in aviation are not uncommon, in China, local governments are much more active, including airline ownership. Regional carrier Joy Air has filed three lawsuits since the start of the year against three local governments – two concerning overdue subsidies – according to filings with the People’s Court of Weicheng district in the city of Xianyang, Shaanxi province, on March 15. Joy Air claimed Tianshui Maijishan Airport had not met its contractual obligations to pay 3.14m yuan (US$433,000) in subsidies for flying a route between Xian and Tianshui, a city in China’s northwestern Gansu province, between 2016 and 2018. The two parties had signed an agreement in March 2016 that Joy Air would initiate the route, with the airport assuming the obligation to pay for the operating expenses.<br/>