The driver of Air China’s potential merger with China Southern is an expected announcement by cash-strapped China Eastern, the third member of China’s ‘big three’ major carriers, that it will sell a strategic stake to Singapore Airlines, giving the Chinese carrier a much-needed cash injection and access to international airline management expertise.

Meanwhile, a tie-up with China Southern would enhance Air China's domestic network, and generate more feeder traffic for international flights that account for about half of its sales, according to Bloomberg News. The merger would enlarge Air China’s fleet, which trails those of key overseas rivals, and give it more room to negotiate new international routes – and revenue streams. Air China and China Southern had a total fleet of 516 planes at the end of 2006.

The global trend in airline consolidation is not new to China, though its emerging market-based reality is – the formation of China’s ‘big three airlines’ was the result of a state-engineered consolidation at the beginning of the millennium, when several smaller airlines were forcibly restructured to create three large airlines strategically based in China’s largest commercial cities: Air China, based in Beijing; China Eastern, in Shanghai; and China Southern, in Guangzhou.

Meanwhile, China Eastern, China’s third-largest carrier, presaged its expected stake sale announcement – which may occur this weekend – by reporting that it had significantly trimmed first-half-year losses. The Shanghai-based airline's net loss for January-June was RMB383.9m, down from an RMB1.7 billion loss in the same 2006 period.

Last update : Thursday, 30 August 2007

Keywords : Air China, Merger, China Southern Airlines, Aviation Market

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