Slot machine

How corrupt officials sold flight rights for personal gain

Slot machine

Murky goings-on in Beijing

Late last month Liu Yajun, a civil aviation director for the southern and central regions of the country, threw himself in front of a high-speed train in Guangzhou. Early press coverage was that Liu was a victim of depression and overwork. There was no evidence he’d been involved in corruption, a source told the Shanghai Daily.

But what started out as an individual tragedy soon became much bigger news. It turns out that an investigation into suspected corruption surrounding flight slots had been underway for a while, with a slew of senior officials under suspicion. The civil aviation department’s northern China director, the chief at Beijing’s airport and China Southern Airlines head engineer were all implicated.

Police then picked up Kuang Xin, the director of civil aviation affairs at the NDRC, the state’s leading planning agency, the China Youth Daily reported.

By now, the media knew it was on to a big story. And they sensed that they had a green light to report it. “They’re toppling like dominoes” was the rather gleeful headline in the China Business News.

The trigger for the latest round of arrests, says the Global Times, was a National Audit Office investigation that suggested that more than Rmb1 billion ($147 million) in revenues were missing from airline accounts. They suspect that the money was used to bribe CAAC officials to secure priority flight times.

Landing slots can become very valuable assets. Continental Airlines paid $209 million for four pairs of slots at hyper-congested Heathrow three years ago, for example, and other airlines have been known to fly empty “ghost” flights just to keep hold of key departure and arrival times.

At the centre of the mess is CAAC director Huang Dengke, who oversaw the allocation of slots at airports in the cities of Beijing and Tianjin, as well as in the provinces of Hebei, Shanxi and Inner Mongolia.

The scam worked like this: Huang would be approached by one of a small group of brokers, who then charged airlines either a one-time commission or a rate based on passenger seats for getting the slots they wanted. Their fee could be as high as Rmb50 million.

According to Caixin, negotiations were not especially covert, with time slots evolving into tradable items with clear prices. That led to pretty open horse-trading. At one CAAC meeting, the president of an airport in southern China wanted to improve his city’s connectivity to the capital. “I hear a time slot is Rmb3 million in Beijing. How about I give Rmb6 million, and you give me two,” he asked.

Although the airlines weren’t happy to have to pay up, most of them still did so, classifying the expenditures as “public relations fees”. For smaller operators it was one of the only ways to get a decent departure time. But even the largest carriers seem to have been drawn into the malfeasance. Like China Southern: which then made little effort to disguise the practice, recording “air rights coordination fees” on its books, says Caixin.

Foreign airlines seem not to have been involved, although they may have suffered from being excluded from the slot club. For instance, American Airlines applied repeatedly for new slots for a Chicago flight from Beijing. You can have a take-off time, it was told. But it has to be at either 2am or 4am.

Independent cargo airlines were active participants, mind you. Apparently freight-forwarding bosses chartering flights into Russia and Eastern Europe were among the most favoured operators. Once they began to face more competition from international cargo carriers in the wake of China’s WTO accession in 2001, getting the best slots became crucial. So they turned to local aviation officials for help.

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