Rumors of a merger of China’s top three carriers were laid to rest this week when Air China announced it would raise up to RMB12 billion to strengthen its core operations and China Eastern Airlines announced it received a US$450 million investment from Delta Air Lines. However, the industry continues to speculate the carriers may consolidate their air cargo operations.
China Southern Cargo
Air China raises RMB12 billion to boost operations
Air China announced earlier it would issue 994.2 million shares in a private offering for up to 10 investors at no less than RMB12.07 per share.
Air China plans to use RMB7.45 billion of the funds raised to make down payments on an order for 15 plane B787, and the rest of the funds will be used for direct sales ecommerce, outfitting onboard Wi-Fi on its planes and for cash flow.
Air China estimated its net profit attributable to shareholders of listed company was around RMB3.8 billion to RMB4 billion, up 701%-743% y-o-y.
China Eastern bolsters “Trans-Pacific” links
China Eastern Airlines signed an agreement on July 27 for the sale of 466 million of its H shares for US$450 million to Delta Air Lines. Delta will hold a 3.55% stake in China Eastern after the sale, making it the largest single overseas shareholder of the Chinese carrier.
An industry observer said the US carrier’s investment would help China Eastern better understand the American aviation market and paves the way for its planned “Trans-Pacific push”. China Eastern has made its Trans-Pacific air routes the focus of its international air route development and will use the all new Boeing 777 series to fly from the Shanghai-North America routes.
However, the observer also said that competition for China-North America air routes is particularly fierce and Air China still holds a major lead in the market over China Eastern.
Merger of major carriers unfavorable for the Chinese aviation market
Sources from within the three major carriers said that Air China and China Eastern are expanding in their own ways and have no intention of merging.
Jianming Cai, a transportation industry researcher at China Investment Consulting, said it isn’t necessary for the three main carriers to merge, and a merger will adversely affect the price regulation by market and they command leading market shares and will become a de facto monopoly after a merger.
He said a merger among the three major carriers will hinder diversified development and thus will be a serious blow to the aviation industry in China. “On the other hand the three major carriers don’t have a large market share in air cargo, so a merger in this field won’t create a monopoly and will be beneficial to the consolidation of resources for the carriers,” he said.(Translation by David)
