China Eastern Airlines, Shanghai Airlines heading towards merger

China is making efforts to merge China Eastern Airlines and Shanghai Airlines, both airlines based in Shanghai in the People’s Republic of China.

As a part of the move in that direction, Liu Shaoyong, chairman of China Southern Airlines, replaced Li Fenghua as chairman of China Eastern Airlines. Also, Ma Xulun, deputy general manager of the state-owned China National Aviation Holding Company (CNAC), was appointed president of CNAC, in place of Cao Jianxiong.

CNAC also owns Air China, based in Beijing.

The website atwonline.com quoted an industry insider saying: “In an effort to boost Shanghai’s status as an international aviation hub, the state-owned Assets Supervision and the Administration Commission of the State Council, the controlling shareholder of China Eastern Airlines, reached anagreement on the merger of the two Shanghai-based airlines.”

The website also said that key details on how the Shanghai Airlines-China Eastern Airlines combination will move forward is yet to be decided, but Liu Shaoyong is expected to be chairman of the merged carrier. It added that the Chinese government’s plan to revive China Eastern Airlines includes a change in leadership in advance of any consolidation.

China Eastern Airlines Corporation Limited is a major Chinese airline operating international, domestic and regional routes. Its main base is Shanghai Pudong International Airport, with a hub at Shanghai Hongqiao International Airport. At present, China Eastern Airlines does not belong to an airline alliance, but reports say that it may join the Oneworld or SkyTeam.

Shanghai Airlines, with its main bases at Shanghai Pudong International Airport and Shanghai Hongqiao International Airport, operates domestic and international services. It also retains a few flights at Nanjing and Hangzhou, and is one of the most concentrated “hub and spoke” airlines in China. Shanghai Airlines started operations in 1985.

Earlier in 2008, an effort to sell a strategic stake in China Eastern Airlines to Singapore Airlines and the Singapore government’s investment arm Temasek Holdings had failed. A competing plan to sell China Eastern Airlines’ shares to China National Aviation Holdings also had failed.

China Southern Airlines and China Eastern Airlines are likely to receive 3 billion yuan ($440 million) each from the Chinese government by way of capital injection, aimed at helping the two carriers tide over their financial crises. Both airlines have been hit by fluctuations in currency values and oil prices as well as declining passenger and freight demand.

China’s state-owned carriers posted losses amounting to of 4.2 billion yuan ($613 million) in January-October 2008. Recently, the government had asked the airlines to cancel or defer aircraft deliveries until their business recovers.