A second phase of consolidation is taking place in China, with flag carrier Air China buying a sizeable minority stake in domestic operator Shandong Airlines.
The deal was confirmed early in March. Shandong says Air China paid more than 500 million yuan ($60 million), acquiring 22.8% of the airline directly and more than 40% of holding company Shandong Aviation Group.
Shandong Airlines is based in the northeast Chinese city of Jinan and is one of few remaining "independent" carriers. It operates to nearly 50 Chinese destinations with a fleet made up of Boeing 737-300s, Bombardier CRJ-200s, CRJ-700s and Saab 340Bs. It also has codeshare relationships with Air China and China Southern Airlines.
Air China had been working on the Shandong buy-in for some time. Observers see it as another phase in the ongoing consolidation of China's crowded airline sector as it is now involving more second-tier carriers. Further tie-ups between the country's "big three" airlines and smaller carriers are now expected in the years ahead.
In recent years Air China, China Eastern Airlines and China Southern have taken over many of the country's airlines, although these were primarily carriers directly controlled by the Civil Aviation Administration of China. The CAAC began demanding consolidation in 2000, saying unnecessary competition had badly hurt the industry. It also said the country's airlines needed to become more financially sound to help them better compete with foreign carriers.
Shandong was one of the more successful independent carriers, but it admitted last year that it needed a partner to develop in an increasingly competitive market. In 2002 China Southern, Shandong and Shanghai Airlines finalised a deal jointly to take over smaller Sichuan Airlines, which was another successful independent carrier that saw the need for a partner to survive.
Earlier, Hainan Airlines expanded its domestic base by acquiring Changan Airlines, Shanxi Airlines and China Xinhua Airlines. This made it the fourth largest airline grouping in the country, overcoming the need to find a partner among the big three.
NICHOLAS IONIDES SINGAPORE
Source: Airline Business
