China Eastern eyes investor after SIA deal expires

Hong Kong, Singapore: China Eastern Airlines said it will not give up its search for a strategic investor after the expiry of a deal to sell a stake to Singapore Airlines Ltd, as it seeks international management expertise to counter stiff competition and high fuel costs.

China Eastern's shareholders rejected the $920 million offer for a 24 per cent stake by Singapore Airlines and its major shareholder, Temasek Holdings, in January.

Many shareholders at the time argued the HK$3.80 a share bid was too cheap, but a 75 per cent slide in the Chinese carrier's share price since then has spurred talk that a deal might be resurrected.

A source with direct knowledge of the situation told Reuters in Shanghai that a deal with Singapore Airlines - the world's largest airline by market value - could still be struck.

"The agreement has expired but it is not dead," said the source, who declined to be identified because of the sensitivity of the matter.

"China Eastern has no other alternative partner to Singapore Air," the source said, adding that the two sides might renew their deal if market sentiment improved.

Any deal with Singapore Airlines or another carrier could help China Eastern fight off rival Air China, the country's largest airline, which is angling to become China's "supercarrier."

"The company will persist in the direction of introducing strategic investors and will continue to develop opportunities of business cooperation with strategic investors of world renown," China Eastern Airlines Director Luo Zhuping said in a statement late Sunday.

Wave of mergers

A wave of mergers has hit the global airline industry as global recession and surging oil prices eat into revenue, with Delta Air Lines and Northwest planning to form the world's largest airline, and Spain's Iberia in talks to merge with British Airways.

China Eastern's Hong Kong-traded H shares fell below the HK$3.80 offer level in late March. They ended down nearly eight per cent HK$1.97 yesterday, having fallen almost 75 per cent so fall this year, compared with a 21 per cent slide on Hang Seng Index.

China Eastern is particularly keen on joining with Singapore Airlines, Asia's most profitable airline, known for quality service and solid corporate governance.

The source said a recent move by the Chinese government to broker a merger between China Eastern and domestic carrier Shanghai Airlines would not be an obstacle to a deal with Singapore Airlines.

But some analysts said there was potential for non-Asian carriers to now seek a piece of China Eastern.