Domestic carriers are anxiously awaiting China Eastern Airlines' shareholder meeting on January 8, as the result will indicate the future direction of the aviation industry.
China Eastern and Singapore Airlines have fallen in "bitter love" since they signed a cooperation deal last month.
Under the terms of the deal, Singapore Airlines will spend HK$4.7 billion (US$602 million) to buy a 16-percent stake in China Eastern, and its parent Temasek Holdings Pte will buy an 8.3-percent stake for HK$2.5 billion at HK$3.80 a share.
China Eastern's parent will buy 1.1 billion new shares for HK$4.18 billion to maintain a majority stake.
However, the deal requires approval from minority shareholders, including Air China, once a bidder for China Eastern.
Air China, the country's flagship international carrier, hasn't declared whether it will accept or veto the deal.
Xia Fulu, analyst of Industrial Securities, said Air China dreams of becoming one of the top 10 carriers in the world, which pushes it to seek domestic acquisitions.
If it fails to block the deal, Shanghai Airlines, which owns a 16-percent market share in Shanghai, may become its next target, Xia said.
Before the deal was made, Air China considered pairing with Hong Kong's Cathay Pacific Airways for a stake in China Eastern, but Cathay eventually backed away from the plan.
China Eastern and Singapore Airlines remain upset as Air China's parent increased its holding in China Eastern's H-shares to 12.07 percent from 11.02 percent on November 29 at HK$7.585 a share for 4.28 million shares.
If shareholders with more than 33.3 percent of the carrier's H-shares veto the deal on January 8, the plan falls apart.
Air China's board secretary Huang Bin said the firm has no plan to acquire China Eastern and that the purchase of shares was an independent initiative made by a Hong Kong-based investment arm under the parent company.
Still, the move triggered speculation that Air China hasn't given up on its plan to trump the Singapore Airlines-Temasek deal.
Meanwhile, some shareholders said the price of HK$3.8 is "unreasonably low" and may cause a drain on state assets. It forced the carrier to hold road shows to convince skeptical investors in five cities, including Shanghai, Beijing and Hong Kong, that the deal is beneficial.
China Eastern and Singapore Airlines said they are fully committed to the deal and the price of HK3.80 a share.
The price to book ratio is 6.42 in the deal, more than doubling the 3.17-ratio when Air China sold Dragon Airlines to Cathay Pacific Airways, said Luo Zhuping, China Eastern's board secretary.
"This is the only and final plan that has been approved by the Chinese government, and to achieve the plan has become our task," Luo said previously.
Senior officials from Singapore Airlines and Temasek also expressed their determination to finalize the deal since they have spent a lot of capital and human resources on it.
(Shanghai Daily December 30, 2007)
