China Eastern Airlines and plane maker China Aviation Industry Corp I have got regulatory approval to set up a regional airline under the tightly controlled market.

AVIC I, the country's largest state-owned aircraft manufacturer, will hold a 60-percent stake in the new company and China Eastern will hold the remainder, China Business News reported.

China Eastern may inject its fixed assets in exchange for a stake in the new company, an unidentified official from China Eastern said. The carrier is expected to be launched in the first half of this year, the official said.

The company, named "Happiness" in Chinese, will have a registered capital of one billion yuan and be based in Xi'an.

Fifty Chinese-made Xinzhou-60 Turboprops will serve the carrier at the first stage and the fleet size will be expanded to 100 after 50 ARJ21 jets are put into use.

The approval of the new carrier is rare as the General Administration of Civil Aviation of China has said that it would stop receiving applications to set up airline companies and tighten the approval of submitted applications until 2010.

"We should fully consider the capability and safety of airlines to prevent the industry from overheating," said CAAC's director Li Jiaxiang in an earlier report.

China Eastern is in the midst of a seesaw battle as Air China's parent and Singapore Airlines are fighting for a stake in the Shanghai-based carrier.

Chew Choon Seng, chief executive officer of SIA, said SIA didn't plan to change the terms of its US$918 million offer for a 24-percent stake in China Eastern.

"We continue to engage them (China Eastern) in commercial cooperation, beyond that we have no other plans ... Our offer is still on the table and we have said it is fair and full value," Chew said on the sidelines of a conference in Singapore.

The offer jointly proposed by SIA and its parent Temasek Holdings encountered overwhelming rejection from China Eastern's shareholders in January.

(Shanghai Daily February 19, 2008)