Source: Bloomberg News Author: Irene Shen, Tian Ying 12/12/2007
Subject Concerned: Opinion Airlines
Air China Ltd.'s parent may vote against Singapore Airlines Ltd.'s purchase of a stake in China Eastern Airlines Corp., potentially threatening the deal.
The decision "depends on whether cooperation between the two airlines will bring benefits to minority shareholders," Air China Chairman Li Jiaxiang told reporters in Beijing on Dec. 12. Singapore Airlines won't raise its offer, even if there is a counter-bid, Chief Executive Officer Chew Choon Seng said at the same event.
Air China's parent holds about 10 percent of China Eastern's minority shares and opposition from one-third of minority stockholders would block the Singapore deal in a vote set for Jan. 8. The company and Cathay Pacific Airways Ltd. previously considered making a counter-offer for the stake to add a hub in Shanghai, China's commercial capital, to their existing operations in Beijing and Hong Kong.
An Air China "vote against the deal would greatly complicate the procedure next month," said Du Jianping, an analyst at Bank of China International in Beijing. What happens next "largely depends on the ambition of Air China's leadership."
China Eastern, the country's third-biggest carrier by fleet size, fell 4.5 percent to close at HK$7.48 in Hong Kong trading. Air China, the second-biggest, dropped 6 percent to close at HK$10.60. Singapore Airlines fell 1.1 percent to close at S$18.10 in Singapore.
China Eastern's Company Secretary Luo Zhuping was unable to comment as he was in a meeting with shareholders about the stake sale, he said by phone.
Ceiling Price
Singapore Airlines won't raise its offer as "nothing is a must-have," CEO Chew said.
"We have already put the ceiling price on the table," he added. "We have enough organic capacity in our own operations" without China Eastern.
Air China's Li, previously an air force general, has said he wants to turn his company, the world's largest airline by market value, into a "super carrier."
"China Eastern's Singapore stake sale is an obstacle for Air China's grand merger plan," said Li Lei, an analyst at China Securities Co. "If the deal happens, its will postpone China's aviation integration for years."
Share-Swaps
Air China has also held talks with other carriers, including China Eastern's city-rival Shanghai Airlines Co., about potential share-swaps and cooperation, Li said at an event to mark the carrier's entry into the Star Alliance.
"Some carriers are too worried about being acquired," he said. "We should learn from European carriers that a share-swap can be a win-win situation."
Air China is also interested in eventually buying stakes in European and North American carriers Li said, adding it didn't have any specific plans at present.
Singapore Airlines and parent Temasek Holdings Pte agreed to buy a 24 percent stake in China Eastern for HK$7.16 billion (US$918 million) in September, after more than a year of talks. China Eastern's parent company will also invest HK$4.2 billion to maintain its majority under the deal. The three will all buy new Hong Kong shares at HK$3.80 apiece, a 51 percent discount to Dec. 11's closing price. China Eastern Air Holding Co., the parent, will be unable to vote at the Jan. 8 meeting in Shanghai.
Counter-Offer
China National Aviation Holding Co., Air China's parent, won't make a counter-offer for the China Eastern stake before Dec. 24, according to a Sep. 24 Hong Kong stock exchange statement, which didn't say why the original offer plan was scrapped.
Air China's parent holds 12.1 percent of China Eastern's Hong Kong-listed stock, according to a Nov. 30 filing. The company is also listed in Shanghai. Air China and Cathay Pacific hold stakes of about 17.5 percent in each other.
China Eastern, Air China and China Southern Airlines Co., the nation's biggest carrier, are all ultimately controlled by the State-owned Assets Supervision and Administration Commission, or SASAC, an arm of the State Council, China's cabinet.