China Eastern acquires Shanghai Airlines for $1.3 billion

China’s third largest airlines, China Eastern Airlines Corp Ltd is all set to buy Shanghai Airlines, in an all-share deal wherein Eastern airlines will exchange its 1.3 shares for one Shanghai Airlines’ ‘A’ share. The deal is valued at 8.9 billion yuan ($1.3 billion).

Both China Eastern Airlines and Shanghai Airlines have witnessed major losses in fiscal 2009.

This move will help them get back on track with more resources at their disposal. According to the deal, Shanghai Airlines will keep its brand name as a subsidiary of state-controlled China Eastern Airlines.

With this merger, Eastern airlines will get its hands on 50 per cent market shares in Shanghai Airlines and will control over 50% of the operations from Shanghai.

Liu Jingbo, spokesman of the working team explained that the move would perhaps ‘promote consolidation of regional airlines and to facilitate building Shanghai into an international hub.’

Further, China Eastern Airlines plans to sell around 1.35 billion yuan-denominated ‘A’ shares for 4.75 yuan each to 10 institutional investors.

There are chances that the airline would also sell up to 490 million HK$-denominated ‘H’ shares for HK$1.4 per share to its Hong Kong unit. China Eastern airlines aims to raise up to 7 billion yuan following the selling of these shares.

However those shareholders who do not wish to swap shares would be availed of a cash option, the statement said.

China Eastern Airlines currently has a fleet of 240 planes, while Shanghai Airlines operates 66 planes.

The Chinese government has 61.64 per cent shares in China Eastern Airlines.

The carrier reported a net loss of 13.9 billion yuan in 2008.