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Chinese airline East Star bankrupt, media reports say

East Star Airlines Co (東星航空), a cash-strapped private regional carrier, has become the first Chinese airline to go bankrupt, state media reported yesterday.

The company’s debt totalled more than 1 billion yuan (US$145 million) at the end of last year, against assets of just 629.6 million yuan, the People’s Daily said.

The Intermediate People’s Court in Wuhan, where East Star is based, announced the bankruptcy in a statement on Thursday, the newspaper said.

The court also rejected a restructuring plan submitted by the carrier’s parent East Star Group (東星集團) and investment firm ChinaEquity (信中利投資), which had promised to inject between 200 million yuan and 300 million yuan into East Star, Xinhua news agency said on Thursday.

The court said the plan “was infeasible and failed to meet the conditions for a legal restructuring,” arguing that ChinaEquity had failed to explain where it would get the money from, the agency said.

East Star, which operated more than 20 regional routes early last year, was hit by cash flow problems in the second half of last year as travel demand slumped amid the economic crisis.

It was ordered to stop flights by the nation’s aviation regulators in March this year because of a failure to pay plane rental fees, after it rebuffed a takeover offer from flag carrier Air China (中國國際航空).

The country’s small number of private airlines have been especially vulnerable to the economic downturn as their passenger base is relatively small and they do not have the same access to funding as state-owned competitors.
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