East Star has been in financial difficulty and its privately owned parent company probably needs a deal more than Air China's parent does. But the very fact that Air China has confirmed that talks are taking place is telling as it is another sign that the government wants to see more consolidation. It had already been widely known that China Eastern Airlines' parent is in talks to merge the carrier with Shanghai Airlines, for example.An initial wave of consolidation took place in China early this decade, when the government merged many of its smaller carriers into Air China, China Eastern and China Southern Airlines to create three main airline groups. But several years ago it decided to allow new airlines to launch and a number of privately owned carriers took flight. Nearly all of them have struggled, however, and ownership changes have already taken place among several of them.
Pushing for more consolidation now is Civil Aviation Administration of China (CAAC) chief Li Jiaxiang. Li took over as head of the industry regulator a year ago and has made no secret of his desire to see the country's major airlines - in particular Air China, which he used to head up - enlarged. This was in contrast to the views expressed by his predecessor, former CAAC chief Yang Yuanyuan.
One airline CEO who has met Li told me the CAAC chief considers China's smaller airlines a "nuisance" and he would prefer to see many of them disappear. If Air China's parent does end up buying East Star it may spark a wave of similar deals - and Li may just get his wish.
Nicholas Ionides, Singapore (13Jan09, 01:08 GMT, 291 words)
Air
China's parent company is negotiating to acquire some or all of
privately owned East Star Airlines in another sign that more
consolidation is likely in the Chinese market. Star Alliance
carrier Air China says in a Hong Kong stock exchange filing that its
state-owned parent company, China National Aviation Holding (CNAHC),
"is making preliminary communication with the relevant parties in
relation to the acquisition of the entire or part of the share capital
of East Star Airlines". It adds that "no formal agreement has
been entered into with respect to the transaction and it is not yet
certain if the transaction will eventually materialise". Air China also says it has "not been involved in the transaction but will pay close attention to its progress". East
Star is based in Wuhan and is owned by a privately held travel agency
group. It launched operations in 2006 and according to Flight's ACAS
database has three CFM International CFM56-powered Airbus A319s and six
A320s, all on lease from GE Commercial Aviation Services. It also has
A320-family aircraft on purchase order with Airbus. Last year East Star fell into financial difficulty and reportedly lost some of its domestic traffic rights. China's
air transport market underwent a major wave of consolidation early this
decade when the country's three main airlines, Air China, China Eastern
Airlines and China Southern Airlines, acquired several smaller
state-owned carriers. In more recent years several privately
owned carriers have launched but most have found it tougher than
expected to compete and as a result some have undergone ownership
changes. There have also been signs that more consolidation is
coming in China as government-endorsed talks are currently being held
on a merger of China Eastern Airlines and fellow Shanghai-based carrier
Shanghai Airlines.
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