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China Eastern gets cash boost

CHINA Eastern Airlines yesterday won approval from shareholders to raise 7 billion yuan (US$1.02 billion) in a stock sale, following the announcement of a similar, 1-billion-yuan cash injection proposed for Shanghai Airlines.

The balance-sheet improvements created by the investments would pave the way for a possible merger between the two Shanghai-based carriers, analysts said.

Under the latest move, China Eastern, the country's third-largest carrier, will issue 1.44 billion Shanghai-listed shares at 3.87 yuan apiece and 1.44 billion Hong Kong shares at 1 yuan each and sell them to its state-run parent.

The cash injections are part of a larger industry effort to shore up the country's ailing airlines. The funds are provided by the airlines' sate-owned parent firms, which pump the money into the carriers through stock purchases.

In addition to the two Shanghai airlines, China Southern Airlines received a 3-billion-yuan financial infusion.

The cash support and other measures including increased spending on aviation infrastructure are needed because the country's airlines reported only single-digit growth in traffic last year for the first time in five years. Industry consolidation is also on the agenda.

"A merger between the two (Shanghai) carriers may happen after the domestic aviation market recovers, as the key task for the carriers is to cut losses," said Li Lei, an analyst at China Securities Co Ltd.

China Eastern Chairman Liu Shaoyong said yesterday that his attitude toward a potential merger between his firm and Shanghai Air has not changed.

He said on February 3 that the two carriers had not discussed a stakes swap but had begun to share resources, and China Eastern was keeping an open attitude toward potential investors.

"The market is filled with speculation that the city government will promote a merger between the two local carriers," said Tao Wei, an analyst at China International Capital Co.

She said that the two carriers' most urgent task prior to such a move is enhancing efficiency.


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