The state-owned parent of China Eastern Airlines Co won 3-billion-yuan (US$437 million) cash injection from the central government which is trying to shield domestic airlines from a global financial turmoil.

China Eastern, the country's third largest carrier, plans to raise 2.35 billion yuan by issuing A shares to its parent to replenish working capital. The Shanghai-based carrier will sell 652 million shares to China Eastern Airlines Group at 3.60 yuan each, the company said in a statement to the Shanghai Stock Exchange yesterday. It will also issue 652 million H shares to China Eastern International Holding Ltd, which is wholly owned by the group, at 1 yuan apiece.

The share sales are expected to raise the parent's stake from 59.67 percent to 68.19 percent.

"The raised funds will reduce China Eastern's asset-liability ratio, increase the size of net assets, enhance the carrier's anti-risk ability and ease its pressure from operational capital," the statement said.

China Eastern has an asset-liability ratio of 98.49 percent and the fund injection can cut the ratio by 3.77 percentage points.

The proposal is still awaiting approval from its shareholders and the China Securities Regulatory Commission.

Meanwhile, China Southern Airlines Co, the country's largest carrier by fleet size, said yesterday in a statement that it would issue 721 million shares to China Southern Airlines Group at 3.16 yuan apiece to raise 2.28 billion yuan.

The funds will be used to repay bank loans, which can reduce the carrier's asset-liability ratio from 83.26 percent to 80.66 percent, the statement said.

China Southern will also issue 721 million H shares to the group's wholly owned subsidiary at 1 yuan apiece. The carrier said last month that its parent will get 3 billion yuan from the central government.

China Southern and China Eastern have racked up debts of about 70 billion yuan each after combining with unprofitable carriers and buying new planes in anticipation of surging demand. Instead, travel growth this year has slowed because of higher fuel prices, flight disruptions and a cooling economy.

The cash injections are in line with China's 10 measures to protect the domestic aviation industry from the global financial turmoil.

The Civil Aviation Administration of China said yesterday it would waive several fees and taxes, worth a total of 4 billion yuan, that airlines have to pay.

The administration also called for mergers among carriers to optimize the market structure to avoid cut-throat competition. The aviation industry is filled with merger rumor regarding China Eastern Airlines and Shanghai Airlines. But there has been no word from either carrier.

CAAC urged carriers to cancel or postpone plane deliveries due next year as a cooling economy damps travel demand. Airlines were also asked to park unnecessary planes, retire old ones and return aircraft leased from overseas once contracts are due.

Another 10 billion yuan would be invested in upgrading airport safety and 400 million yuan will be used to subsidize regional carriers.

(Shanghai Daily December 11, 2008)