Reports of a possible cash injection by the local government saw Shanghai Airlines' shares rising by 7.26 percent yesterday even as the airline denied any such plans.

Media reports had earlier said the company was likely to get funds from the Shanghai Municipal Government.

However, in a statement to the Shanghai Stock Exchange, the carrier denied the reports.

Media reports had earlier said smaller carriers, like Shanghai Airlines, would be bailed out by their majority shareholders, the local governments.

Hainan Airlines, China's fourth largest carrier, was expected to get a cash injection from the Hainan provincial government, said a Beijing News report quoting Hainan Airlines President Chen Feng.

The report forced Hainan Airlines to suspend trading in its shares yesterday to clarify media reports.

Li Lei, an analyst with CITIC Securities said it is only natural for local governments to step in to bail out the carriers facing recession blues.

Hainan Airlines reported a loss of 260 million yuan in the third quarter, while Shanghai Airlines posted a net loss of 437.44 million yuan.

Xu Junmin, board secretary of Shanghai Airlines said high fuel prices have hit profits. "Although the National Development and Reform Commission lowered jet fuel prices by 570 yuan to 7,750 yuan per ton since October, domestic price is still 3,000 yuan above than that of international market," said Xu.

(China Daily December 9, 2008)