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Airlines may resume talks after Olympics

By Jin Jing (China Daily)
Updated: 2008-07-30 09:43

Workers perform maintenance checks on a China Eastern Airlines plane at Shanghai Hongqiao International Airport. [Agencies]

China Eastern Airlines will continue its talks on share sale to Singapore Airlines to improve its financial conditions in the dull aviation market.

Luo Zhuping, board secretary of China Eastern, told China Daily yesterday that the company would continue discussions regarding the share sale deal with Singapore Airlines after the Olympics in August.

"We will discuss this issue after the Olympics, and all things will become clear then," said Luo.

He added that the asset liability ratio of China Eastern is at a dangerous level of 95 percent, the highest among China's three largest carriers. "Introducing Singapore Airlines can help us improve financial status and enhance the service quality," said Luo.

In January, China Eastern's proposal to sell a 24 percent stake to Singapore Airlines and Temasek at HK$3.8 per share was rejected by its shareholders. The agreement will expire on August 9, but Luo said: "It can be prolonged, theoretically".

But Xia Fulu, an analyst at Industrial Securities, said Singapore Airlines is expected to ask for a lower price for the possible deal because of the current lower stock price of China Eastern and the heavily squeezed profit margin of carriers in the gloomy aviation market.

H shares of China Eastern have fallen to HK$2.5 yesterday, as record-shattering oil prices have swung many Chinese airlines into the red in the first half.

Meanwhile, Singapore Airlines also reported profits in the three months ended June 30 dropped 15.4 percent compared with the same period last year because of the escalating fuel costs.

China Eastern has cut some international flights and used fuel oil futures serving as a hedging tool for the company against being exposed to price fluctuation.

But Luo said "the company had received negative monthly growth of market demand from April to June, which used to be the busiest season for the aviation market."

Luo added that the market demand growth in January was over 10 percent, but quickly slid to 3 percent in February and 2 percent in March.

"Injecting capital, no matter by merger or other ways, can help us tide over the difficult time," he said.

China Eastern and Shanghai Airlines denied the talks on a possible merger last week, responding to media reports that State asset regulators were considering combining the two. "We have not considered the merger with Shanghai Airlines, and have not talked about this with other domestic carriers," said Luo.

"Merging with domestic carriers is just a resource synergy, but our urgent task at the moment is to improve the services by introducing the world's leading management experience," Luo added.

A shares of China Eastern tumbled 1.4 percent to close at 7.72 yuan yesterday.