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August 28, 2009

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Debt-laden airline goes bankrupt

EAST Star Airlines, the debt-laden private airline based in Wuhan, central China's Hubei Province, was officially made bankrupt after its restructuring application was rejected yesterday.

The Wuhan Intermediate People's Court said the plan submitted by the East Star Group and ChinaEquity was unfeasible and failed to meet the conditions for a legal restructuring.

ChinaEquity, an investment company founded in 1999 in Beijing, had promised to invest 200 million to 300 million yuan (US$29 million to US$44 million) for the restructuring plan.

But it did not specify the source of the funding, failed to provide certificates and documents, and lacked measures to protect creditors, the court said.

The court said East Star Airlines had no operating income last year, while ChinaEquity recorded 470,000 yuan in its main business income last year.

The East Star Group and ChinaEquity agreed to the restructuring plan earlier this month. The court heard the plan on Tuesday.

East Star was founded in May 2005, making it China's fourth private carrier after Okay Airways, United Eagle Airlines and Spring Airlines. It flew more than 20 domestic passenger routes between key cities with a fleet of nine aircraft and held about 10 percent of the market in Wuhan.

The airline, with a registered capital of 80 million yuan, was jointly owned by a tourist agency, a tourist investment company and a real estate firm, which all belonged to the East Star Group.

On March 13, the airline rejected a government-initiated take-over by the parent group of Air China.

Its operations were suspended by the industry regulator on March 15, due to prolonged financial and management problems.

East Star Airlines last month said its total debt surpassed 752 million yuan.


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