China Eastern Airlines wants more details on Air China proposal

21.01.2008 (12:07) | Internaitional Herald Tribune

The China Eastern Airlines group said it could not respond to a proposal for a partnership with the flag carrier Air China because the proposal was incomplete and lacked legal validity.

In a brief statement quoted by the official Shanghai Securities News on Monday, the parent of China Eastern Airlines said the proposal lacked details and did not carry the authorization of Air China's board.

The issue was important for stock market investors, so the Air China group needed to make a formal, complete proposal, the China Eastern Airlines group said.

The parent of Air China, China National Aviation Corporation, on Friday proposed a "strategic partnership" that it said could give China Eastern Airlines a cash injection of $1.9 billion and involve a broad tie-up between the two airlines' operations.

China National suggested that it and the China Eastern group buy a placement of 2.98 billion new Hong Kong-listed H-shares in China Eastern, while the airlines would consolidate their cargo operations and cooperate in areas like sharing flights, frequent flyer programs, maintenance and ground service.

The proposal was made 10 days after minority shareholders in China Eastern, the third-biggest Chinese carrier, rejected a $920 million plan for Singapore Airlines and the Singapore investment agency Temasek to buy 24 percent of China Eastern.

When shareholders voted, China National had already said it would offer to pay at least 5 Hong Kong dollars, or 64 U.S. cents, per share for a major stake in China Eastern, making the Singaporean offer of 3.80 dollars per share unattractive.

But after the vote, China Eastern's chairman, Li Fenghua, insisted he would not consider Air China as a strategic investor, saying an alliance with the flag carrier would not benefit his airline and he would continue pursuing the Singaporean tie-up.

Singapore Airlines has responded ambiguously, saying it will not walk away from its deal but also that it will not get into a bidding war.

China National had also suggested that regardless of whether or when its equity investment went ahead, Beijing-based Air China help Shanghai-based China Eastern form an "operations hub" in Shanghai to strengthen the use of its route network and other resources.

The two airlines would consolidate their cargo operations in a joint venture, and cooperate in areas such as sharing flights, frequent flier programs, maintenance and ground service.

"We believe fully carrying out this proposal would bring concrete cooperative benefits to both sides, while benefiting shareholders, the companies, employees and society," China National Aviation was quoted as saying earlier by the Shanghai Securities News.

The alliance would help to make Shanghai and Beijing major air transport hubs in northeast Asia, while boosting the airlines' competitiveness in global markets, China National added.

China Eastern's shares were suspended from trading Monday morning in Hong Kong. They closed at 6.73 dollars on Friday.

Air China's shares continued to trade, sliding 10.9 percent to 8.80 dollars.

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