China Airlines to suffer crash's financial blow

TAIPEI, Taiwan -- China Airlines will suffer a heavy financial cost from the crash of Flight CI 611 over the weekend, analysts say.

The island's flagship carrier said on Monday it was fully insured against claims stemming from loss of life and property in Saturday's disaster.

But the carrier's long-term picture is certainly gloomier, experts say, with its spotty safety record once again brought into focus. The accident has dented its reform efforts, they said on Monday.

"A crash is bad news for any airline, so it will impact on China Airlines, and that's inevitable," one airline-industry analyst told CNN. "The question is how much."

Damage for airline greater with time

The financial damage will likely be greater the longer that uncertainty surrounding what caused the crash continues.

The discovery of the two "black boxes" from the plane on Monday will likely help paint a much clearer picture of what happened.

All 225 aboard are feared dead, after the plane broke up in mid-air. There were no distress signals, after the plane vanished just after 3 p.m. Saturday local time (story on crash).

It was the Taiwan carrier's fourth fatal disaster since 1994.

"Obviously for relatives, they [China Airlines] need to be out there," the analyst said. "There's also the public relations aspect and the brand aspect."

Few airlines become known as "dangerous airlines," he said. But there is that risk, greater the longer the airline fails to clear up what caused the crash.

"The brand aspect is really the big one, as long as there is uncertainty, it will certainly hurt China Airlines," the analyst, who did want to be identified, said.

Insured up to $20 million

The carrier said in a statement to the Taiwan Stock Exchange the plane was insured for US$20 million.

Still, its stock plummeted the daily 7 percent limit in Taipei trade, to T$15.20. Stock in rival Eva Airlines rose the daily 7 percent limit on the Taiwan's exchange, to T$13.45 (full market roundup).

China Airlines insurance is covered by nine local insurers, including Fubon Insurance, the flagship of Fubon Financial Holding, and Union Insurance.

China Airlines vice president James Chang said Sunday the crash was likely to force it to cut its 2002 financial forecast because of slowing business and a higher cost of insurance.

Chang said the carrier was due to review premiums with insurers in August, which is sure to result in higher insurance costs for China Airlines from the fourth quarter.

Before the disaster, China Airlines had forecast a pretax profit of T$1.4 billion ($40.7 million) in 2002, compared with T$1.64 billion recorded in 2001.

Dent to efforts at reform

China Airlines' 2001 net profit fell 39 percent from the 2000 level and was its worst performance since 1998.

Analysts say the crash comes at a bad time for China Airlines. Current management has worked hard to modernize the airline and improve its image.

"They've done quite a good job, actually, in turning around that airline and giving them a much better focus on customer service," one investment-bank analyst told CNN. "And then unfortunately this has happened."

Reuters contributed to this report.