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Carriers begin talks to merge

China Eastern Airlines yesterday said it plans to merge with smaller rival Shanghai Airlines.

"Starting June 8, China Eastern and Shanghai Airlines officially began their restructuring procedures," Liu Jiangbo, a China Eastern spokesman told Xinhua new agency late yesterday.

He would not provide further details.

Shanghai Airlines Vice President Feng Xin was quoted by a yesterday report of Bloomberg News as saying: "We just got approval from the government" on June 6.

Shares of the two Shanghai-based carriers were suspended from trading yesterday.

"China Eastern Airlines and its parent group are preparing for an important merger which can further reduce the company's debt-to-asset ratio," the country's third-largest carrier by fleet said in a statement to the Shanghai Stock Exchange yesterday.

The airline said it will consult authorities about the merger plan and as there were still uncertainties regarding the matter it suspended its shares from trading yesterday.

It said it will release a progress report once a week.

Shanghai Airlines, the country's fifth-biggest by fleet, also said in a statement that it is involved in a potential merger and suspended its share trading yesterday.

Both carriers didn't say when trading of their shares will resume.

Xinhua also quoted sources as saying that the merger between the two has entered a practical process.

They may cooperate in a joint venture or Shanghai Airlines will be a wholly controlled subsidiary of China Eastern, Xinhua said yesterday.

Reports about the merger of the two state-owned carriers have been circulating for months. The speculation intensified after the parent of China Eastern secured a 7-billion-yuan (US$1.02 billion) cash injection from the central government, and Shanghai Airlines got 1-billion-yuan financial aid from its shareholder.

China Eastern owns 33 percent share of the Shanghai market, and Shanghai Airlines owns about 20 percent.

In 2007, China Eastern planned to sell a 24-percent stake to Singapore Airlines and Temasek Holdings, Singapore's state-linked investment firm, for US$923 million but the deal was blocked by China National Aviation Corp, parent of flagship carrier Air China.


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