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Crisis forces airline to look at stake sale

China Eastern Airlines plans to sell part of its stake in Happy Airlines to Aviation Industry Corp of China as it tries to battle a fallout from the financial crisis.

"China Eastern is in talks with Aviation Industry Corp of China about the stake sale, and AVIC is highly supportive of the plan as it understands our situation," said Li Jiang, a spokesman of the Shanghai-based carrier.

A source told Shanghai Daily that China Eastern may sell a 30-percent stake in Happy Airlines to AVIC.

The Xi'an-based regional carrier was set up in March last year by the two companies with a registered capital of 1 billion yuan (US$146.3 million), with China Eastern holding 40 percent.

The stake sale is part of China Eastern's 256 new measures to battle the economic crisis. The country's third-largest carrier is also talking with the Yunnan provincial government about transferring its stake in its Yunnan branch.

China Eastern said earlier its fair-value losses on hedging deals totaled 6.2 billion yuan as of December and warned it will post a "significant" loss in last year's earnings.

Fuel prices, which tumbled 70 percent in less than six months, have hit many carriers which, anticipating a continued rise, had hedged their fuel contracts. Another step the carrier has taken amid the crisis is to cut executives' salaries by as much as 30 percent starting next month.

The parent of China Eastern has got a 7-billion-yuan cash injection from the Chinese government. The Shanghai-listed carrier will raise 5.56 billion yuan by issuing 1.4 billion yuan-denominated A shares to its parent and another 1.44 billion yuan by issuing H shares.


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