Stories take flight

Hainan Airlines founder Chen Feng is not your average CEO. Chen is also a Buddhist scholar, a former government bureaucrat and master storyteller whose tale-telling skills impressed Chinese bank managers and US tycoon George Soros enough to raise the money he needed to build his air empire.

But in Chen's mind, the most attractive tale is the development of his corporation - Hainan Airlines.

This May, when the China's fourth largest airline service celebrated its 15th anniversary, Chen re-narrated the legend of Hainan Airlines' skyrocketing growth.

"Can you believe? We spent only 15 years to make Hainan Airlines an airline service giant with startup capital of merely 10 million yuan. Now our company's total assets are more than 10 billion yuan, with annual revenue of close to 30 billion yuan," says the chairman.

"And this year, I am confident that our revenue will hit 36 billion yuan."

While 80 percent of China's airline market has been occupied by the top three State-owned airline services, Chen is proud that Hainan Airlines occupies fourth place with a 9 percent market share as a private enterprise based in China's southernmost island of Hainan.

"Our history is not as long as other big airlines. However, we are proud to be the first joint stock air-transport company, the first foreign joint venture carrier and the first enterprise to manage airports in China," says the 55-year-old.

"More importantly, as a carrier, we have a safety record of zero accidents during the past 15 years in China's aviation industry."

Chinese airlines are expanding as rising incomes and trade growth spur demand for leisure and business travel. The country's air passenger traffic is likely to grow 7.3 percent annually until 2023, faster than the global average of 5.2 percent over the same period, aircraft maker Boeing forecasts.

Chen is full of confidence about the next five years.

"We expect our annual revenue will reach 80 to 100 billion yuan after five years and become one of the world's top 500 enterprises as an international airline brand," he says.

Hainan Airlines' history has put Chen in the spotlight as a valued leader in China's aviation industry.

However, as a chairman with a government background before he established Hainan Airlines, Chen downplays his status as either a former official or red hot entrepreneur.

"I am only a common man working for an enterprise. Hainan Airlines' success is owed to our whole group, including all the staff. In this group, I have two roles: one is the carpenter to put up the stage for heroes from all circles to show off their talents," says Chen.

"The other role is a plain stage director, only supporting the players when they lose their balance," he adds.

Miracle producer

In the early 1980s, Chen was working in the Civil Aviation Administration of China, the country's civil aviation regulator.

In 1993, the Hainan provincial government asked Chen to start an airline service on the island.

However, the government only provided Chen with about 10 million yuan, a sum that could only buy a single wing of an airplane.

"Establishing a company was not so difficult. What daunted me more is that we needed a big fortune to buy airplanes," Chen recalls.

So he went to banks for loans.

"I learnt storytelling - a Chinese folk style from Tianqiao - from a storyteller master in Beijing when I was 13. So I tried to persuade the bank by using my storytelling talent."

He recalls that he gave an example for the banks: an air ticket from Hainan to Beijing costs 1,000 yuan. If the plane transports 150 passengers, a return flight will earn 300,000 yuan.

If the plane flies between Hainan and Beijing twice a day, adding a return fly to Guangzhou, the net profit during the day is 450,000 yuan.

Chen Feng

A bank in Shanghai was interested in Chen's simple story and granted Hainan Airlines the first loan to buy a plane.

Chen then went to another bank, telling his story and using the previous plane as collateral to buy a new one. The two planes were then used as collateral by Chen to buy more planes to build his fleet.

In 1995, Hainan Airlines encountered its first crisis - a continually rising assets-liabilities ratio. Chen had to find a new financing vehicle to save his undertaking.

"I heard that in the US, the fund could be raised by issuing stocks. Wearing a suit, with tie and with a bag in hand, I flew to New York," Chen recalls.

On Wall Street, Chen repeated Hainan Airlines' story vividly and although his English pronunciation was poor, he attracted the interest of US tycoon George Soros.

"A senior assistant of Soros asked me, where is you company located? I found Hainan Island as a dot on their English map. I asked him if they knew Vietnam. When they nodded, I told them we neighbor Vietnam, where we helped local people fight against the United States," Chen says.

"After I said, 'the Chinese people are not as afraid of death as Americans', the whole room burst into laughter."

Two weeks later, Soros, through American Aviation, which is a subsidiary of his Quantum Fund (a leading hedge fund), invested $25 million in Hainan Airlines, buying 14.8 percent of the stock, and becoming the biggest shareholder in Hainan Airlines, and also the first one to invest in China's aviation industry.

"The miracle and legend of Hainan Airlines was enough to make Wall Street investors believe that the executives with Hainan Airlines were exceedingly capable," says Chen.

"Our international operation was also a key factor in interesting Soros because we hired the world's leading accounting firm to audit our financial affairs. And we've since as well taken the biggest US law firm as our attorney service."

Ten years later, in 2005, satisfied with Hainan Airlines' development and confident about its future, Soros expanded his investment, pouring another $25 million into the carrier.

"Soros' investment clearly shows that Hainan Airlines' performance is outstanding, on a par with international airlines, and it also reflects the fact that Soros would not exercise an option to trade his 14.8 percent stake on the Shanghai Stock Exchange," says Chen.

Chen then used the investment to reorganize Hainan Airlines and build a new brand, Grand China Air, by merging Hainan Airlines with smaller carriers, Xinhua Airlines Co, Changan Airlines Co and Shanxi Airlines Co.

"I am building a world class carrier brand, targeting Singapore Airlines, Hong Kong Cathay Pacific Airways and German Lufthansa AG," he says.

Last November, Grand China Air was officially established, under a new parent company called Grand China Airlines Holding Co. The company is jointly held by the Hainan provincial government with a 48.6 percent stake, George Soros with 18.6 percent and Hainan Airlines group with 32.8 percent.

Chen's air empire on Hainan now includes Grand China Air operating domestic and international flights; Grand China Express specializing in regional flights; Deer Jet, managing commercial airlines, Yangtze River Express for cargo business as well as related businesses in tourism, hotels, logistics, commercial listed companies and airport management.

Chen is also reportedly the last student of renowned Chinese Buddhist scholar Nan Huaijin as well as a scholar of Chinese traditional cultures and Confucianism. In his spare time, Chen reads Buddhist literature and writes down what he has learned using Chinese calligraphy.

(China Daily 09/08/2008 page12)