U.S. Markets open in 7 hrs 51 mins

China clips Air China's wings after descent scare

By Brenda Goh

By Brenda Goh

SHANGHAI (Reuters) - China's aviation regulator will reduce Air China's Boeing 737 flights by 10 percent and cancel licenses of the pilot and co-pilot involved in an emergency descent last week, in a move analysts say could push the airline to cut some routes.

The Civil Aviation Administration of China (CAAC) will also launch a safety crackdown on the Chinese flag carrier for three months and fine the airline 50,000 yuan ($7,460), China Central Television (CCTV) said on its WeChat account.

The cuts to the carrier's 737 flights amount to 5,400 hours a month, it said. The CAAC also suspended the licenses of other staff involved in the emergency incident that was linked to a co-pilot smoking in the cockpit, CCTV added.

The airline and the CAAC did not respond to Reuters' requests for comment on Wednesday.

Air China <601111.SS> <0753.HK> shares fell as much as 1.4 percent in Hong Kong in response to the safety crackdown, before recovering slightly, against a flat Hang Seng index <.HSI>. The stock is down nearly 40 percent in Shanghai so far this year, amid a falling yuan and higher oil prices.

BOCOM International analyst Geoffrey Cheng said the crackdown would likely have an impact on Air China's flight schedules, especially as it enters peak travel season, but could also prompt the airline to cut poorly performing routes.

"It could have pros and cons," he said.

A Chinese aviation professor, who spoke on condition of anonymity as he was not permitted to speak to media, said the cuts appeared to only apply to Boeing <BA.N> 737 planes stationed at Air China's Beijing headquarters.

"For a big company like Air China they can move some 737s to their companies in southwest China or Zhejiang ... which could lessen Air China's losses," he said.

Air China has several branch offices in places such as Inner Mongolia and Shanghai as well as number of subsidiary airlines.

It operated 269 Boeing 737s out of its 655-strong fleet at the end of December, according to its full-year report issued in March. It has 311 Airbus <AIR.PA> 320 and 321 jets.


CAAC PUNISHMENTS

Chinese airlines have a good safety record in general, but passengers have, on occasion, accused pilots of smoking during flights. Few such incidents have been confirmed, however.

In the incident involving Air China's Boeing 737, the plane was flying to the Chinese city of Dalian from Hong Kong on July 10 when it dropped to 10,000 feet (3,048 m), with oxygen masks deployed, before climbing again.

Preliminary investigation by the regulator showed the co-pilot was smoking an e-cigarette and as smoke diffused into the passenger cabin, relevant air conditioning components were wrongly shut off, resulting in insufficient oxygen.

The CAAC often punishes airlines or aviation staff if it finds them guilty of violations.

Last year, CAAC fined Gulf airline Emirates [EMIRA.UL] 29,000 yuan for two safety violations in Chinese airspace and barred it from expanding its operations in China for six months.

In 2015, the regulator ordered Beijing-based Okay Airways to cut its flights by 20 percent and fined it 500,000 yuan for overworking its pilots.


(Reporting by Brenda Goh and Beijing Monitoring Desk; Editing by Stephen Coates and Himani Sarkar)