2009-06-09 05:36:04 -
SHANGHAI (AP) - China Eastern Airlines is considering merging with smaller rival Shanghai Airlines, reports said Tuesday, as regulators push ahead with plans to revamp the troubled industry.
Trading of shares in both carriers remained suspended for a second day.
China Eastern, one of the country's three big state-owned carriers, has gotten hundreds of millions of dollars in government aid as it struggles through the economic slowdown. Rumors that it might tie up with Shanghai Airlines or another competitor have been circulating for months.
A spokesman for Shanghai-based China Eastern declined to comment on reports Monday that the two airlines were discussing a merger. But the official Xinhua News Agency later cited a spokesman, Liu Jiangbo, as saying that the two carriers had begun «restructuring procedures.
China Eastern issued a statement to the Hong Kong Stock Exchange late Monday saying it was in the midst of «planning matters in connection with the material restructuring» of the company and to reducing its debts.
The carrier will consult relevant government departments, but «uncertainties remain,» it said.
China Eastern's statement said that its shares would remain suspended in Hong Kong and Shanghai for now but that the company would provide weekly updates.
Wang Wanlong, a Shanghai Airlines spokesman would not comment when asked Monday about the talks.
«I know nothing,» Wang said.
Reports by Hong Kong's South China Morning Post and other newspapers said China's civil aviation administration had ordered the two airlines to merge.
The government is pushing for consolidation in many industries, hoping to build up conglomerates able to compete in global markets.
Still, deciding the ownership structure of the newly merged carrier could be a problem. China Eastern's main owner is the central government, while Shanghai Airlines' controlling shareholder is the local government in Shanghai.
«They surely are discussing a merger, but which side will get control? That's the key issue,» said Qian Qimin, analyst at Shenyin Wanguo Securities in Shanghai.
Like many carriers, both carriers reported losses last year and were already facing troubles before the worst repercussions of the global financial crisis hit China's economy.
Merging the two carriers would reportedly give them more than half the local market, which is also shared with China Airlines, China Southern Airlines and other regional carriers.
Shanghai, the country's financial capital, is a key market and the city's plan to host the 2010 World Expo next year is seen as an opportunity for the carriers to boost their profile and business.
China Eastern has so far obtained 7 billion yuan (about $1 billion) in government bailouts, with more to come, while Shanghai Airlines has gotten 1 billion yuan ($147 million).
The government appears determined to engineer a turnaround for China Eastern, which failed in an earlier attempt to enter an alliance with Singapore Airlines.
Late last year, regulators put aviation industry veteran Liu Shaoyong in charge of revitalizing the company.
China Eastern announced last week that it plans to form a joint-venture airline with the government of southwestern China's Yunnan province, a prime tourism destination.
A consolidation with Shanghai Airlines might give the two airlines an edge through streamlining, but it was unclear if that would be enough to improve China Eastern's competitiveness _ a key aim of the failed equity sale to Singapore Airlines.
«It's clear this is meant to ease the intense competition, but don't think it would work,» Qian said. «In a shrinking market, you have to improve service.
China Eastern's Shanghai-traded shares rose 1.1 percent on Friday to 5.33 yuan. They have risen 29 percent so far this year. Shanghai Airlines' shares rose 4.4 percent on Friday to 5.92 yuan. Its shares are up 35 percent so far this year.
Associated Press researcher Ji Chen contributed to this report.
