China Eastern Airlines Corp (中國東方航空) will combine with Shanghai Airlines Co (上海航空) after joint losses of 16.5 billion yuan (US$2.4 billion) last year prompted the government to bail out the two state-controlled carriers.
“We just got approval from the government” on Saturday, Shanghai Airlines vice president Feng Xin (馮昕) said late on Sunday by phone from Kuala Lumpur.
The combined group would have 306 planes and more than 600 routes, giving it a 50 percent share of air travel in China’s financial capital.
“It shows that the government wants to improve the performance of state-owned companies through consolidation,” said Kelvin Lau (劉健恆), an analyst at Daiwa Institute of Research Ltd in Hong Kong.
And, “since they have accepted money from the government there is no other choice for them” except to follow the government’s plans, he said.
Both carriers halted their shares from trading yesterday, pending announcements. China Eastern is listed in Shanghai and Hong Kong. Shanghai Airlines is only listed in Shanghai.
China Eastern’s parent will get 17 percent of Shanghai Air as the first step in plan to merge the two carriers, Dow Jones said, citing an unidentified person familiar with the situation.
Jinjiang International Holdings Co (錦江國際) will transfer shares to China Eastern Air Holding Co (中國東方航空集團), the Wall Street Journal reported on its Web site. The final size of China Eastern Air Holding’s stake in Shanghai Air is yet to be determined, the report said.
Shanghai-based China Eastern board secretary Luo Zhuping (羅祝平) said yesterday that talks were open and terms had not been settled.
Shanghai Air was left independent in 2002, when China last consolidated airlines industrywide. Travel is now dominated by the big three carriers — China Southern Airlines Co (中國南方航空), Air China Ltd (中國國際航空) and China Eastern.
Terms of the Shanghai Air-China Eastern deal weren’t immediately available. Shanghai Air has a 15 percent share of air travel in the city, while China Eastern has 35 percent, Feng said.
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