China Southern Airlines Co. Ltd., the country’s largest airline, said over the weekend it would buy assets worth US$2 billion from its State parent as part of a restructuring of the fragmented industry.

The government began a consolidation drive in late 2002 to rationalize a sector crowded with some 20 airlines and suffering from frequent margin-sapping price wars. It grouped most carriers under the wings of Air China, China Southern and China Eastern Airlines.

It was not entirely clear what price was paid, but a statement on the Shanghai Stock Exchange’s Web site (www.sse.com.cn) said China Southern would pay 897 million yuan (US$108.4 million) in cash, and take out a short term loan of US$1 billion to buy assets from its parent, China Northern Airlines and Xinjiang Airlines.

The assets were valued at 16.9 billion yuan (US$2.04 billion), it said, and the airline would also assume 15.1 billion yuan in debt.

The airline’s fleet size would rise to 214 aircraft from 139, it said, giving it a network covering most of China and cities as far apart as Amsterdam and Sydney.

The three airlines already share China Southern’s CZ air code.

After all the mergers are complete, China will be effectively left with only two independent carriers — Hainan Airlines Co. Ltd., part owned by the financier George Soros, and Shanghai Airlines Co. Ltd.

China’s aviation industry is expected to report its best profits this year since 1997 as the domestic passenger load factor has reached 70 percent for the first time since 1996.

The sector, which was hit by a slowdown during the deadly SARS epidemic last year, reported a loss of 5 billion yuan in 2003.

(Shenzhen Daily November 15, 2004)