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Air Canada signs Air China joint venture; says unrelated to Taipei relisting

Air Canada says it is a coincidence that it completed a long-planned joint venture with Air China weeks after it acceded to demands from the Chinese government to label Taipei part of China, rather than Taiwan.

The joint venture marks the first between a Chinese and a North American airline and will involve the two carriers sharing more than $1-billion in revenue on flight itineraries between Canada and China. It was completed Wednesday after roughly four years of negotiation.

But a signing ceremony with champagne held in Beijing Wednesday came little more than three weeks after Air Canada changed the way it refers to Taipei on its website, following letters sent to foreign airlines by Chinese authorities demanding the modification.

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Related: Air Canada bows to China, upsets Taiwan over Taipei relisting

Air Canada’s kowtowing to China sends a dangerous signal

Air Canada chief executive Calin Rovinescu dismissed the timing, saying the Taiwan issue “totally had nothing to do with it at all, whatsoever. We’ve been working on this joint venture since 2014, and one’s got nothing to do with the other.”

Asked whether the joint venture could have happened without Air Canada changing its Taiwan terminology, he said: “I don’t know. … Today is not a day for discussions on Taipei.”

Taiwan is a self-governing territory that Beijing considers a rogue state.

Air Canada is not alone in altering its designating of Taipei, but the controversy – which included a demand from Taiwan that the airline make a “speedy correction” – has underscored the political difficulties that can arise for foreign companies as they seek to expand business with China.

The pursuit of a joint venture was “certainly part of the context in which management at Air Canada made the decision” to adopt Beijing’s language, said J. Michael Cole, a former Canadian intelligence worker who is a senior non-resident fellow with the University of Nottingham. He lives in Taipei.

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“That’s all part of China’s M.O.: refuse us and potentially lucrative deals could well be compromised.”

Had Air Canada not agreed to Beijing’s terms on Taiwan, “without a doubt this deal would not be taking place” argued Christopher Balding, a professor of economics at Peking University.

Still, neither he nor Mr. Cole criticized Air Canada for making what they termed a rational decision. “It’s one one of the problems that a lot of businesses around the world are having to confront: if I go along with what Beijing wants, I’m going to make good money,” said Prof. Balding.

Air Canada said it had not received any pushback from the Canadian government for its decision, nor lost any bookings to Taiwan. The airline has said it abides by local requirements.

Air Canada and Air China jointly operate as many as 52 flights a week between their two home countries, and Mr. Rovinescu called the partnership between the two carriers a “landmark event.“

“Our new joint venture will further drive our participation in the Chinese aviation market. It’s a tremendous opportunity, because this market is expected to become the world’s largest by 2022,” he said.

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Over the last five years, Air Canada’s capacity to China has grown on average by 12.5 per cent a year. The number of Chinese visitors to Canada rose by 23 per cent last year.

Air Canada declined to provide details on the value of the partnership, “but it’s in billions, not in millions,” said John MacLeod, the airline’s vice-president of global sales and alliance.

In May, the two airlines expanded a code-share agreement to include 564 daily connecting flights. In the past, Air Canada would have been unable, for example, to sell a ticket to Guangzhou, while Air China would have been unable to sell a ticket to Quebec City.

The joint venture includes no cash or equity, but the two airlines are looking to expand their partnership, Mr. MacLeod said. The deal also provides additional conveniences in mutual lounge access.

What’s not likely to expand is the number of flagship carrier flights between Canada and China. “The only thing we can do is to change to larger planes,” said Pang Haiping, managing director for international affairs and co-operation at Air China.

Air Canada currently has only one other joint venture, a transatlantic partnership with Lufthansa and United Airlines.

Air China currently has joint ventures with Lufthansa, which it completed in 2016, and Air New Zealand, which it signed in 2017. Mr. Pang credited those agreements with giving Air China a chance to “see up close the culture and management style of first-class global airlines.”

It’s “hard to accurately evaluate” what change those deals have made in filling seats, although they have “to a certain extent, improved sales,” Mr. Pang said.

Such deals have, however, raised antitrust concerns.

Mr. MacLeod dismissed the possibility that the joint venture could allow the two flagship carriers to raise prices.

“We have to respond to the competition, and this is an immensely competitive market,” he said.

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