Caledonian Far East Airways - CFEA
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Personally, I came across Caledonian Far East Airways when researching The History of British Caledonian, and I was pleased to be able to include this part of BCal's history within the book. It was an important element and had it taken off to the original extent intended by all involved it would have set up a new international airline based in Hong Kong.
I am very pleased to say that I have had some superb help and information from BCal staff who were very much involved in CFEA and their input is very much appreciated; thank you. It has made this page the most definitive account of Caledonian Far East Airways available.
Alastair Pugh - BCal Exec Vice Chairman and Chairman of CFEA
Leonard Bebchick - BCal Group Director and Chief Counsel representing CFEA
Frank Skilbeck - General Manager and a Director of CFEA
Ranald-Noel Paton - General Manager - Far East
Roy Marshall - Airport Manager Hong Kong
The book stopped at CFEA's withdrawal of its license applications, but it is now possible to further detail CFEA's operation from the outset up to that point in greater detail and also the wrangling's after 1985; combining all the information gathered.
For many years airlines in BCal’s lineage had flown to Hong Kong but these were charter or trooping flights, scheduled services had always been over the horizon. With the arrival of the DC10 into the fleet; aircraft were now available that could reach Hong Kong initially with a single tech-stop enroute in Dubai.
The application to service Hong Kong was made in July 1979; with three DC10’s in service, but these things take time. In December 1979 BCal won approval from the authorities in Hong Kong for their new services. (Four DC10’s now in service). But approval had to be gained from the British Civil Aviation Authority before a license could be granted. Laker’s application to serve HKG had been refused, but they would object.
On 18 March 1980 BCal finally received approval from the CAA and a license for the route was granted. A service start date of 1st August was being promoted and would be met. The BCal service would fly via Dubai, and would be in direct competition with Cathay Pacific (from LGW) and British Airways (from LHR).
BCal’s sixth DC10, G-BHDI: Robert The Bruce -The Scottish Warrior; had arrived on 21st July 1980 and within a few days she was readied for the inaugural flight to Hong Kong. She departed for Dubai with Captain John Ryder in command and Captain Goff Bowles commanded the Dubai to Hong Kong leg.
Alastair Pugh flew on the inaugural service and then dots the eye of the Lion Rampant on the arrival in Kai Tak; borrowing from a tradition used in dragon dances. Adding the eye brings the subject to life.
Hong Kong was a remote station on the BCal network at the time and needed local ground handling. The team were confronted with two choices of Handling Agent at Kai Tak Airport: Cathay Pacific Airways and Jardines. Neither were ideal as both were competitive; Cathay Pacific obviously while Jardines handled British Airways. There was a small company, Far East Airways, which had rights to handle business, Air Force and other irregular movements. To self-handle was not allowed.
The decision was taken, quite rightly at the time, to go with Cathay Pacific. Jardines offered both Catering and Passenger/Freight handling but were curiously unenthusiastic about their bid. Cathay, on the other hand, were proactive, professional and entirely positive, assuring us of course of their complete neutrality. In addition Cathay reciprocally contracted their handling requirements at Gatwick to BCAL.
BCAL engineering needs at Kai Tak were met by HAECO, Hong Kong Engineering Company which was a subsidiary of Swire Pacific; Cathay’s Group Owners. So we started flying and from the very beginning Cathay's handling performance, under the scrutiny of BCAL's Airport Manager Roy Marshall, arguably the best Airport Manager in the business. Having started with three frequencies a week, operations increased to four a week and then after a short while to daily. It was without doubt a highly successful story, possibly too successful in the light of what was about to happen.
Over time, BCal suspected that Cathay staff were intercepting their premium passengers on arrival and persuading some of them to endorse their return tickets over to Cathay Pacific.
BCAL's Hong Kong office was responsible for the airline's commercial operations and the performance of the network of area GSAs in Bangkok, Kuala Lumpur, Singapore, Djakarta, Taipei, Seoul, Tokyo, Manila, Sydney and Auckland. All these GSAs were on normal commission arrangements plus over-riding performance related commission, and their output was important, especially in group and ship's crew traffic. At some point late in 1982, I received reports from our GSA in Djakarta, also supported by Manila and Taipei, that Cathay's sales people had drawn their attention to the amount of passenger traffic they were putting onto BCAL in Hong Kong. They were then told to desist or lose their over-riding commission payments from Cathay. In a normal competitive environment this of itself was not unusual, but how were Cathay aware of this?
Coincidently, KF Ho the BCAL Finance Manager in Hong Kong had come to me to say it was inconvenient that our Airport Office were not able to provide all the ticket coupons from the previous night's flight until late the following morning. Roy Marshall then said it was because Cathay would not provide them until 1000hrs at which point I asked the obvious question; why? Roy Marshall, not slow at stealth activity when needed, reported back after a few days. He said that Cathay were photo-copying all ticket coupons to analyse their source. It was clear what they were up to, contractually ultra vires and unacceptable. Instead of causing a row or threatening litigation (as others would have done!) we put our minds together to think of how to outwit them.
The decision was made; we must replace the ground handling arrangements at Hong Kong. To make a switch, BCAL only had two alternatives: Jardine Airways, ruled unsuitable because Jardines were British Airways’ handling agent; and Far East Airways a small, independent agency owned by the Carrian Group.
Far East Airways had been at Kai Tak since the Korean War, owned by an American of certain renown who had recently sold the business and Roy Marshall knew the FEA people well. FEA had been bought by the Carrian Group, a major and rapidly growing Property Company headed by Mr George Tan Soon-gin, a colourful and somewhat controversial Singaporean engineer and financier. His purchase of FEA had been an incidental matter to him as it had been part of another business transaction.
Far East Airways’ clients at that time included Cargolux, Royal Nepal Airlines, World Airways, Royal Air Force and the US Navy and Contracting Department in Wanchai, Hong Kong Island. We then discovered that FEA, in addition to its military and non-standard handling rights, held Third Party grandfather rights under an old but valid Licence, authorised by the Airport Authority. FEA was therefore potentially entitled to handle BCAL at Kai Tak, a matter unknown to Cathay or Jardines.
The plan emerged that BCAL should purchase FEA from the Carrian Group. Hong Kong’s Civil Aviation Department supported BCAL’s attempt to buy Far East Airways from the Carrian Group to retain a choice of three agencies at Kai Tak. Its only stipulation was “Far East Airways” must continue to form a title part of the ‘”new” agency’s name.
Thus BCal would re-name FEA to Caledonian Far East Airways and give notice to Cathay simultaneously appointing CFEA as BCal’s Kai Tak handling agent. The advantages were obvious: greater professional and commercial integrity and hugely improved brand recognition as well as our own lounge at Kai Tak.
The proposal was put to Head Office and the BCAL Board. The go-ahead was given in spite of the anticipated loss of Cathay handling work at Gatwick. BCal met with George Tan and as thought Far East Airways was not important to him and he agreed to the deal; BCal acquired the entire share capital of FEA in 1983.
This caused an enormous rumpus with Cathay, which as expected in a moment of red mist cancelled its contract at Gatwick with BCAL. Jardines of course were upset at the break up of what they saw as a cosy little Airport duopoly. BCAL’s Traffic office at Gatwick was tremendously helpful and the introduction of CFEA's service was an instant success.
BCal were only just in time, not long after acquiring FEA in 1983 the Carrian Group collapsed, and it was at the time, the largest bankruptcy in Hong Kong’s history. But to become competitive and achieve financial stability, CFEA had to grow its handling portfolio. Two courses of action were set in train by the CFEA board.
Firstly, to strive for more airlines to offer ground handling services and focusing on the PR of China where a number of carriers were being spun out from under the C.A.A.C umbrella. CFEA directors travelled to China to establish contacts and build on the business it continued with its traditional business and also started to handle Continental's Air Micronesia services as well as those of Air Nepal.
Secondly, to work towards converting CFEA into a regional airline, based in Kai Tak and serving expanding markets in China, East Asia and Southeast Asia to feed traffic onto BCAL’s Hong Kong-London services.
Preparations were set in motion to apply for licensing authority from the Hong Kong Department of Civil Aviation. To aide this, CFEA was incorporated in Hong Kong in August 1985.
Cathay Pacific, a privately owned airline, strenuously resisted this tentative opposition from CFEA. Another airline, recent start-up, Dragonair was also in the mix and was looking to apply for licenses. Initially they did not have an Air Operators Certificate, though they did have money behind them. (Cathay would eventually buy in to Dragonair to achieve effective control).
But to start an airline, any airline, takes money. Being a Hong Kong based carrier it was important that the money came from the local businesses and banks so the majority share holding was in Hong Kong. BCal’s Alastair Pugh (CFEA Chairman) and Ranald Noel-Paton (who was then General Manager - Far East) walked around Central Hong Kong talking to Ranald and Frank Skilbeck's contacts and in a couple of days we secured start-up offers of about US$30 million recalls Alastair. East Asia Warburg were one of the investors, as well as CFEA's financial advisors; they were jointly owned by Bank of East Asia and Warburgs.
Alastair recalls, “We used two very well-known aviation consultants, Stephen Wheatcroft and Rigas Doganis, to help plan a route structure which included services to Cebu in the Philippines, Kota Kinabalu in Malaysia and several routes into China. Some of the route proposals paralleled those operated by Cathay Pacific and would have been in competition with them.
CFEA made applications to the Licensing Authority to serve six cities in China and a further twelve destinations in South-east Asia amid stringent opposition from the Swire Group, owners of Cathay Pacific.
A hearing start date was set, 2nd December 1985, and Leonard Bebchick, BCAL's Washington based US lawyer, flew out to conduct the hearing of the applications on CFEA's behalf.
However, a few days before the hearing the HK Government published an edict, their single airline designation policy. Sir John Brembridge, Hong Kong's Financial Secretary, announced the new policy which prohibited two Hong Kong based airlines from competing on the same route(s).
This tore a huge hole in CFEA's aspirations as Cathay Pacific had recently announced they would be resuming services on routes they held licences for - but had not operated for some 5 years. These were routes that CFEA had planned to fly as no one else was.
Cathay Pacific at that time had a monopoly out of Hong Kong, and at the time one newspaper - The Asian Wall Street Journal (9th Dec 85) - suggested Cathay might be better renamed Air Brembridge in recognition of the protectionist policies displayed by the local Government's Sir John Brembridge.
Cathay planned to resume long abandoned services to Nagoya (Japan) and Kaohsuing (Taiwan) for which they still held licences. They also entered into agreement with Royal Brunei to jointly operated to Bandar Seri Begawan. All three were key to the financial stability of CFEA's operation and Cathay said that it was "coincidental" that these plans were announced.
Similarly, Cathay's plan to float 25% of their privately held share capital on the local Hong Kong exchange so they could claim local ownership was also given to be a coincidence and all this just before the local Air Transport Licence Authority hearings.
On the 29th November the CFEA board made their decision to withdraw their licence applications, the odds being too heavily stacked against them with the "pre-emptive moves by Cathay, the change in licensing rules and political uncertainties in China" all a factor.
Though CFEA passed the news to the Licensing Authority over the interveening weekend, it came as a shock to those at the hearing on Monday 2nd December. When Leonard Bebchick went to read the CFEA statement of withdrawal which set out CFEA's reasons, Cathay and Dragonair both objected immediately; even though the Chairman, Mr Justice Ross Penlington, heading the panel had agreed to it being read.
Ross Penlington, a New Zealander, moved to Hong Kong as Crown counsel in 1964 and became a Hong Kong district court judge in 1977 and a High Court judge there in 1980. He was also a devoted aviator. He was a long term member of the HKAAF (Hong Kong Auxiliary Air Force) and Wing Commander Penlington was their Commanding Officer. He was Chairman of the HK ATLA (Air Transport Licensing Authority) and presided over those great Licensing applications of the late '70s and early '80s which involved BCAL, Cathay, BA, Laker .....this was the era of the HK 'air wars'. He was ruthlessly professional and dispassionate and it was generally recognised in the industry that his judgements were entirely fair and wise.
Cathay and Dragonair read the statement and withdrew their objections citing it as a fair statement, the time had passed and the Panel moved on and the statement was not read at the hearing. It was, however, read and handed out to the press at a hastily conveened press conference at the local Hilton Hotel. You can read the full Statement here (click the link to open the statement)
CFEA was the result of five years of studies into setting up a regional airline based in Hong Kong. If the routes were approved they planned to start with 737-200s on their services.
|CFEA Operations Team
||CFEA ViP Lounge at Kai Tak with Jane & Sandra
||CFEA Passenger Services Team
With plans to start a regional airline thwarted, CFEA concentrated on growing its ground handling portfolio of airlines beginning with a new, Hong Kong-based airline called Dragonair or to use its full name Hong Kong Dragon Airlines. Dragonair acquired two Boeing 737-200 aircraft and outlined a marketing plan that started with charter flights (Kota Kinabalu in East Malaysia being the first) before applying for scheduled services.
By now, Dragonair had entered into a ground handling agreement with CFEA whose own future began to look much brighter against Dragonair’s extensive plans to grow its fleet of B737’s and fly to a wide range of destinations in China.
CFEA’s aspirations to build its “neutral, third force” ground handling agency at Kai Tak turned into a nightmare in 1987 when BCAL were bought by rival British Airways. During a visit to Hong Kong by British Airways’ CEO Sir Colin Marshall, CFEA’s General Manager asked him if British Airways was intent on retaining CFEA or would the company entertain an attempt at a management buyout.
The concept of a management buyout came from CFEA’s general manager and BCAL financial director in Hong Kong anxious to maintain the status quo among ground handling companies at Kai Tak and ensure continued employment for the staff. Sir Colin Marshall said he had no objections to a management buyout attempt which should be coordinated via British Airways’ general manager in Hong Kong. Until matters were concluded, Frank Skilbeck was offered a one-year contract by British Airways to continue managing CFEA.
At a meeting with British Airways’ general manager, CFEA management was able to obtain assurance that a management buyout would be entertained against certain criteria which had to be met in a specified timescale. CFEA managers were given first refusal to buy the company but had to submit a letter agreeing “..Not to reveal to anyone without the prior permission of British Airways now or in the future the price at which British Airways is prepared to sell the company”; that was in May 1988.
CFEA’s portfolio of airlines offered written support to sign new ground handling agreements if CFEA management achieved a successful buyout. From this CFEA management put together a business plan and obtain financial support from the branch of an Australian bank in Hong Kong. British Airways gave the management 72 hours to raise finance.
CFEA management met all the conditions set down by British Airways Hong Kong for a management buyout but only 27 hours after the meeting, British Airways’ general manager called CFEA’s general manager to say they had received “a better and sounder offer from another party” and went on to say “the management buy-out is off. Sorry”. British Airways had sold CFEA to Jardine Airways.
CFEA’s general manager sought legal advice and contested British Airways decision on the basis of breach of contract. After a protracted exchange of correspondence between lawyers appointed by CFEA’s general manager (at personal expense) and British Airways’ solicitors in Hong Kong...and after having a QC in London read over the case, CFEA managers abandoned attempts to buy the company. The case was ongoing from May 1988 to July 1989 and it was clear that a larger war chest than CFEA managers could provide would be needed to take the case to Hong Kong’s Supreme Court.
Jardine Airways appointed a new general manager from within Jardine Airways’ to manage CFEA and, for a time, kept the appearance of CFEA operating on an independent basis until CFEA customer airlines could be contacted and asked to accept the new reality. The new management moved quickly to ensure the outgoing CFEA general manager left Kai Tak at the earliest opportunity by denying him access to CFEA offices (locks changed), retrieving his company car, and giving him one week to move himself and family out of company accommodation.
The management buyout was unsuccessful in maintaining the status quo of three, separate handling agents at Kai Tak but at least CFEA employees were given the opportunity to remain gainfully employed for which everyone was grateful.
My thanks go to
Alastair Pugh, Leonard Bebchick, Frank Skilbeck, Ranald-Noel Paton and Roy Marshall for their help and co-operation with this feature