Shares in China Eastern Airlines (CEA) and Singapore Airlines (SIA) were suspended at the end of last month amid reports that Singapore would soon buy up to a quarter of the loss-making, Shanghai-based carrier for nearly US$1 billion.
Although at press time, no official announcement about the purchase had been made, analysts said that a deal would bolster access to booming eastern China for Singapore Airlines, and beef up China Eastern’s balance sheet to help it compete with rivals such as a newly forged alliance between Air China and Cathay Pacific Airways.
China Eastern’s Hong Kong shares gained 60 percent in three weeks prior to the suspension amid speculation it was close to unveiling a deal with the Singaporean carrier. A deal would satisfy the dual objectives of giving SIA a 25 percent stake, while maintaining Chinese state control at over 50 percent, Merrill Lynch said.
China Eastern (CEA), the smallest of the country’s three main carriers, would sell 2.05 billion Hong Kongtraded shares to Singapore Air, while the state would buy 1.3 billion new A shares, the influential Beijing-based Caijing magazine reported earlier last month. China Eastern posted a loss of CNY2.78 billion yuan (US$363.3 million) in 2006. Rivals Air China and China Southern Airlines were both profitable.