China Eastern, Shanghai Airlines set up working team for merger

(Xinhua)
Updated: 2009-06-10 22:52

SHANGHAI - China Eastern Airlines, a leading carrier in the country, had set up a joint working team with rival Shanghai Airlines to oversee their tie-up affairs, a spokesman for the company said Wednesday.

Liu Shaoyong, general manger of the China Eastern Air Holding Company and board chairman of the China Eastern Airlines Corporation Limited, will act as head of the joint leading team for restructuring work, said Liu Jiangbo, spokesman for the company.

"China Eastern and Shanghai Airlines officially began restructuring procedures on June 8, and the joint working team will be mainly in charge of related issues," he said.

No further details were provided.

Reports about the merger of the two state-owned carriers have been circulating for months.

China Eastern, which is listed in both Shanghai and Hong Kong, issued an announcement late Monday, saying that trading in shares of the company was suspended as of June 8, because it is engaged in an "significant restructuring plan" and an arrangement for "further reducing asset-liability ratio."

But meanwhile, the company said in the announcement that there are still "uncertainties for related matters," because the company needs policy consultation and argumentation.

Its smaller rival Shanghai Airlines, whose shares are traded in Shanghai, also issued an announcement late Monday, almost the same as that of China Eastern.

Currently, China Eastern reports a registered capital of 2.6 billion yuan (US$382.4 million) with 220 aircraft, while Shanghai Airlines has a registered capital of 521 million yuan (US$76.6 million) with 70 aircraft.

Against the backdrop of global economic slowdown, China Eastern posted a loss of 13.9 billion yuan (US$2 billion) last year while Shanghai Airlines reported a loss of 1.25 billion yuan (US$183.8 million).

Analysts believe the merger would give the new group a 50 percent market share in Shanghai, where the two carriers headquarter in, and help the combined carrier to be more competitive over its major rivals, Air China and China Southern Airlines.

"After restructuring, the new carrier will help optimize the industry's competitive landscape and combat the economic slowdown jointly with other rivals," said industry analyst Ma Xiaoli of the Beijing-based Citic Securities.

"For instance, they can reduce competition through coordination in terms of expanding air route network while enhancing control of ticket prices," he said.