Chinese Airlines Lure Pilots With Double the Pay of U.S. Captains; Carriers Boost Salaries to Hire Seasoned Crews, Causing Shortage Across Asia

August 23, 2013, 6:54 p.m. ET

Chinese Airlines Lure Pilots With Double the Pay of U.S. Captains

Carriers Boost Salaries to Hire Seasoned Crews, Causing Shortage Across Asia

JEFFREY NG

HONG KONG—China is snapping up the world’s supply of senior pilots, contributing to a global shortage and creating headwinds for Asia’s fast-expanding airlines. China is among the world’s fastest-growing air-travel markets, with domestic passenger traffic second only to the U.S., with the market expanding 14.7% in June compared with a year earlier, according to the International Air Transport Association. The rising middle class in China means millions more people are taking to the skies. Beijing plans soon to allow even more growth in its tightly controlled sector by encouraging the development of budget airlines, which are already booming across Asia.Chinese carriers have more than 800 commercial airliners on order, on top of 2,088 now flying. Each plane requires about six two-person flight crews, creating demand for thousands of new pilots. Chinese airlines lack sufficient locally trained candidates.

The shortage illustrates an endemic problem in China’s rapidly expanding economy, where the development of infrastructure and professional skills hasn’t kept pace with surging demand. The country also struggles to retain expatriate talent amid worsening pollution concerns and rising consumer prices.

China isn’t alone in its need. Boeing Co. BA +0.32% estimates that the broader Asian-Pacific region will require 185,600 new pilots between 2012 and 2031, accounting for 40% of global pilot demand. The region today has 56,000 pilots, or roughly 26% of the global total, according to Boeing.

Chinese airlines are wooing experienced foreign pilots by upping the pay for captains. Some carriers are advertising annual salaries and benefits of up to $270,000, or roughly double the average wage of a U.S. airline captain.

“You’ve got a shrinking supply [of experienced pilots], so the answer is to increase pay,” said Mark East, managing director at New Zealand-based Rishworth Aviation, the largest airline-pilot recruiting firm in Asia, with 600 contract pilots in the region. He said Chinese airlines have raised their pay offers to foreign pilots by up to 30% in the past 18 months to cope with the growing shortage.

Chinese airlines account for more than 60% of the recruitment postings for captains on the careers website of Flightglobal, an industry publication.

While China is training more local crews, pilots still need roughly a decade of experience before they can be promoted to captain. The air-travel boom has outpaced that maturation. Today, nearly all Chinese airlines employ foreign crews. Americans represent the largest proportion.

Chinese carriers started hiring foreign pilots in 2003. They now account for roughly 6% of the commercial-pilot workforce, with 1,778 foreign-pilot licenses issued as of last year, according to China’s aviation regulator.

Among the Chinese airlines offering top salaries are Hainan Airlines Co.,600221.SH 0.00% which is promoting net annual packages of up to $270,000, and Shenzhen Airlines Co., with packages valued at up to $231,600, according to the Flightglobal listings.

These salaries are on par with what the most senior captains at premium airlines make and well above world standards. Average captain’s pay at a major U.S. airline is $135,000, according to the U.S. Bureau of Labor Statistics.

Rich Chinese compensation comes with heavy work loads, however. Paul Schneider, an Australian who worked as a Boeing 737 captain with a major Chinese airline in 2010 and 2011, said the duty times for foreign pilots in China were among the longest he’s ever seen, particularly for those working short domestic flights.

China’s appetite for senior pilots is hurting many smaller Asian upstarts, which too are eager to expand but must compete for crews.

“We are the ones feeling the pinch of the pilot shortage…the smaller carriers are in a battle to attract quality pilots,” said David Wilmot, acting director of flight operations at Jet Asia Airways Co., a Thailand-based charter airline with six Boeing 767s that employs mostly foreign pilots.

Mr. Wilmot says the exorbitant salaries some of the Chinese airlines are willing to pay are “just putting us out of the market” for pilots. Many airlines in Southeast Asia pay expat captains around half of some of the Chinese carriers’ best recent offers.

Worsening the captain shortage: aging veterans, particularly in the U.S. “There is a tsunami of retirement which is now under way in the airline industry,” said John Bent, a consultant to the International Air Transport Association, a global industry group. “We’ve got potentially the first big pilot supply problem” in years, he said.

The improving U.S. airline market is further aggravating Asia’s problems because overseas American pilots are heading home, Asian airline executives say. Hiring foreign pilots was much easier three years ago, they say, but the supply has recently flattened out.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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