"With the slump in the civil aviation industry, China National Aviation Fuel Holding Company (CNAF) is facing a huge bad debt risk. We are already owed 14 billion yuan (US$2.05 billion) by airlines in overdue fuel fees," said Wang Yi, CNAF deputy manager on December 18.

Wang Yi said CNAF has to settle its purchases of fuel from vendors within 7-days and airlines have 15 days to settle their purchases from CNAF – which normally amount to around 7 billion yuan per payment cycle. But airline operators have been delaying payments for up to 50 days. If the economic situation deteriorates, the chain of payments between CNAF, the banks, and the airlines will break, and the supply of aviation fuel will collapse. This reflects the fact that the entire aviation business is in financial trouble.

Wang Yi cited the suspension of OK Air owing tens of millions to CNAF as an example of the company's problems. He said CNAF is taking legal action to recover the debt.

OK Air was grounded on December 3 by the General Administration of Civil Aviation of China (CAAC), but CNAF is demanding OK pay its debts. Wang said CNAF faced a dilemma on the grounding; on the one hand while OK was flying, its debts to CNAF were mounting by 1 million yuan a day, but suspension means CNAF may never be paid for past supplies to the airline. "The suspension of each small aviation company will add to our existing bad debts," added Wang.

CNAC has expanded rapidly since its establishment, but growth in the first 10 months this year slumped to 8.8 percent and prospects are uncertain. "It's having a serious impact on us aviation fuel company. Other related businesses such as logistics and our Singapore listed company, are also facing a slowdown and reductions in revenue," Wang Yi said. "The unclear economic prospects for next year will put more small and middle sized aviation companies in danger, and we will consequently face more bad debts."

(China.org.cn by Maverick Chen, December 19, 2008)