East Star, one of China's private airlines, was ordered to suspend flights as of Sunday because of prolonged financial and management problems, said the local government.
The order was issued by the General Administration of Civil Aviation of China (CAAC)'s branch in charge of the country's central and southern areas at midnight after the government of Wuhan City, capital of Hubei Province, submitted an application Saturday afternoon for the suspension, the municipal government said in a statement.
Because of East Star's unpaid debts and weak management, the city government applied to suspend the company's business "in an effort to safeguard the security of people's lives and assets", the statement read.
The airliner had failed to pay due plane rental fees to GE Commercial Aviation Services (GECAS), forcing the American firm to seek help from the local government since the second half of last year and was ready to start legal actions, Tan Sizhang, an official with the municipal traffic committee told Xinhua.
However, the official did not say how much debt East Star owes.
Passengers holding East Star tickets were put on flights with other companies including Air China, China Southern and China Eastern, Tan said.
East Star was founded in May 2005, making it China's fourth private carrier after Okay Airways, United Eagle Airlines and Spring Airlines.
The company, headquartered in Wuhan, flew its first flight on May 19, 2006. It has 10 rented planes, seven A320 and three A319, and operated more than 20 domestic passenger routes between key cities including Shanghai, Guangzhou, Hong Kong, Macao. It held about 10 percent of the market share in Wuhan.
The airline, with a registered capital of 80 million yuan (US$11.7 million), was jointly owned by a tourist agency, a tourist investment company and a real estate firm, which all belonged to the East Star Group.
East Star began to negotiate with China National Aviation Holding Company, the parent firm of Air China, over merging last year in an effort to deal with a financial shortage.
Buying part or all of the airline could help Air China increase its competitiveness in the central part of the country against major rivals China Southern and China Eastern, which have market share of 40 percent and 20 percent, respectively, in the city.
However, East Star made an announcement Friday to call off the deal because "it was impossible for both sides to establish a foundation for commercial cooperation".
The city government has set up a team to deal with the flight suspension and purchase affairs.
East Star refused to make any comment Sunday when contacted by Xinhua.
(Xinhua News Agency March 15, 2009)
