China National Aviation Holding Company (CNAHC), parent of flagship carrier Air China, will seek a partnership, rather than a merger, with China Eastern Airlines (CEA) in its counter-offer for the rival carrier.
CNAHC also said it would, as promised, submit the bidding within two weeks of the rejection to CEA's proposed 24 percent stake sale to Singapore Airlines (SIA) and Lentor Investments, a unit of the Singapore state investment company Temasek.
Minority shareholders voted against SIA's bidding on Tuesday after CNAHC's wholly-owned subsidiary, China National Aviation Corp. (Group) (CNAC), said it planned to buy 24 to 30 percent of CEA's shares at five H.K. dollars (64 U.S. cents) apiece, 32 percent higher than SIA's offer price of 3.8 H.K. dollars.
The counter-offer would include terms on shareholding arrangement, business integration and the building of Shanghai's aviation hub, Xinhua-run Shanghai Securities News quoted an unnamed CNAHC official as saying on Thursday.
It would also reflect the long-held concept of Li Jiaxiang, former CNAHC's general manager and Air China's board chairman, for the joint running of overlapping flights, combined cargo transport subsidiaries and a cross-shareholding arrangement between the two carriers, the official stated.
The two central government-owned airlines could still maintain independent operation and their own brands, the official added.
Li, new head of the General Administration of Civil Aviation of China, the industry regulator, had been longing for an alliance with CEA to gain more access to the Shanghai market, a move aimed at building Air China into a "super carrier" to better vie with foreign rivals for larger market share.
CEA had a dominant 36 percent share of Shanghai's aviation market, compared with 12 percent of the Beijing-based Air China.
Compared with SIA's bid, Air China's tie-up plan could better help the two major airlines boost efficiency by jointly arranging flights, many of which overlapped, and to improve the competitive edge of the nation's aviation industry, said Li Lei, analyst with China Securities.
Hong Kong leading carrier, Cathay Pacific, may not take CEA stake with the counter-offer. But the possibility of its involvement in the business integration and management could not be ruled out, an unnamed CNAHC official said.
Cathay Pacific, which had a 17.5 percent stake swap with Air China, could provide the management expertise CEA wanted from its planned strategic alliance with SIA, said Li Lei.
Responding to CEA's refusal to give consideration to an ally with Air China, the official said whether the counter-offer could be accepted would be based on how reasonable and exercisable the offer was and how best it represented the interests of the nation's aviation sector.
Hong Kong-based CNAC said last week SIA's offer price doesn't reflect CEA's fair value. The deal was unfair to other shareholders and domestic airlines as it included anti-dilution rights and a non-competition clause.
The offer price greatly underestimated CEA's profitability in the future in light of the nation's aviation boom and its dominant market share in Shanghai, a mutual fund manager, whose firm held Air China, CEA and China Southern stakes, told Xinhua on condition of anonymity.
CEA had earned 1.04 billion yuan (143 million U.S. dollars) in net profit in the first three quarters of 2007, compared with a loss of 2.78 billion yuan in 2006.
(Xinhua News Agency January 10, 2008)
