Xiamen XGMA awaits approval to join aviation conglomerate AVIC

People visit the stand of Xiamen XGMA Machinery Co Ltd during the China International Trade Fair for Construction Machinery, Building Material Machines, Construction Vehicles and Equipment in Shanghai, Nov 23, 2010. [Photo/IC]

Aviation Industry Corporation of China (AVIC) is awaiting regulatory approval to take control of loss-making Xiamen XGMA Machinery Co Ltd, giving the firm a chance to diversify into the aviation industry amid a sustained downturn in China's construction machinery market.

The move, coming less than four months after Zoomlion Heavy Industry Science and Technology Co Ltd bought control of a domestic farm machinery builder, highlights challenges facing Chinese machinery makers due to a supply glut.

In October, Zoomlion issued its third profit warning in 18 months. Rivals such as Sany Heavy Industry Co Ltd and XCMG Construction Machinery Co are also feeling the pinch. Xiamen XGMA, a much smaller player, slipped into a 590 million yuan ($95.94 million) net loss for the year.

In a stock exchange filing, Xiamen XGMA said it would be joining AVIC's sprawling family after its previous state parent handed over its 54 percent stake in the firm to two subsidiaries of AVIC for free.

The State-owned Assets Supervision and Administration Commission of the State Council (SASAC) and Xiamen's own parent, the local SASAC of Xiamen, are the brokers of the deal, it said, adding the transaction still needs government approval.

AVIC Heavy Machinery Co Ltd, a listed vehicle of the Chinese aviation group also issued a statement, saying the proposed restructuring should turn Xiamen city into a manufacturing base which would include aviation maintenance, special vehicles and construction machinery.

Executives from the companies could not be reached for comments immediately. But Li Jia, an analyst with Changjian Securities Co Ltd, said he was not surprised by the deal.

"Xiamen XGMA is not the first one to do so and may not be the last one. Other companies may follow suit because near-term market turnaround is unlikely," Li said.