Shares of China Southern Airlines Co (中國南方航空) advanced to their highest level in almost three months after Asia’s biggest carrier said it is in talks to sell a stake to American Airlines Group Inc.
The negotiations are over “a possible major strategic cooperation with American Airlines, involving among others, proposed issue of shares of the company and other business cooperation,” China Southern said in an exchange filing on Sunday.
The stock, which resumed trading yesterday, rose 5.3 percent in Hong Kong to HK$5.74, its highest intraday level since Jan. 4.
Trading in the Guangzhou-based operator has been suspended since Thursday after Bloomberg News reported that Fort Worth, Texas-based American would likely make an investment of about US$200 million in China Southern’s Hong Kong-listed shares through a private placement.
American would nominate an observer without voting rights to the company’s board, according to people familiar with the matter.
The companies have not reached a binding or definitive agreement, and the cooperation might not proceed, China Southern said in its statement.
For American, a deal would strengthen its presence in the Chinese market after rival Delta Air Lines Inc acquired a minority stake in China Eastern Airlines Corp (中國東方航空) in 2015.
China Southern would be the last of the nation’s top three airlines to bring in a non-Chinese strategic investor. Cathay Pacific Airways Ltd (國泰航空), which is based in Hong Kong, owns about 18 percent of flag carrier Air China Ltd (中國國際航空).
“All big US carriers will be making deals of one kind or another with major airlines all over Asia and certainly within China,” former American chairman Robert Crandall said yesterday. “These things are going to grow and because of the network nature of the airline industry, everybody is going to play and everybody needs to play.”
An agreement would help boost the expansion plans of China Southern, which indicated in January that it was considering bringing in strategic investors.
The carrier has been adding routes to Australia, New Zealand and countries in Southeast Asia as it competes with China Eastern and Air China. A tie-up would increase China Southern’s visibility in the US, said Will Horton, a senior analyst at the CAPA Centre for Aviation in Hong Kong.
“China Southern may be the largest airline in Asia, but it’s relatively unknown in the US,” Horton said. “US consumer mind-set changes if American is putting cash in: China Southern isn’t just another airline or partner, it’s a carrier American believes in.”
Separately, shares of China Southern are to remain suspended in Shanghai until further notice, the carrier said.
China Southern and its subsidiaries have ordered more than US$15 billion of new aircraft from Boeing Co and Airbus Group SE since 2015 as more people fly in the world’s most populous nation.
The International Air Transport Association predicts China is to surpass the US to become the world’s biggest air travel market in terms of passengers by 2024.
Any stake sale by China Southern might be part of the government’s efforts to diversify ownership of state-controlled enterprises. Authorities in Beijing have urged firms in industries including power, energy, defense and aviation to take measures this year to broaden ownership.
China Southern, Delta and China Eastern are members of the SkyTeam global airline alliance. American is in the competing Oneworld group, which does not have a China-based partner.
Such alliances make it easier for passengers to fly around the world by combining schedules through one carrier and allowing travelers to accrue and use frequent-flier miles across airlines.
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