The final elements of China's long-running airline consolidation effort are in place, with Shanghai Airlines agreeing to acquire Beijing-based China United Airlines.
Observers see it as a strategic move aimed at giving Shanghai Airlines a second base from which to launch its first long-haul international services. The acquisition is also intended to cement the Shanghai carrier's status as the country's fifth dominant airline grouping after the "big three" of Air China, China Eastern and China Southern Airlines, plus fellow "independent" Hainan Airlines.
Shanghai Airlines, which has an extensive domestic network and limited international services, is acquiring China United for 70 million yuan ($8.5 million). It says that for now at least China United will continue to operate flights under its own name and code. Shanghai Airlines is to pay 15 million yuan initially and the remaining 55 million yuan upon completion of the takeover.
China United is controlled by China's air force and operates domestic government VIP flights as well as domestic charter and scheduled civilian passenger services with a fleet of around 20 Western and former Soviet-era single-aisle large jet and regional jet aircraft. Shanghai Airlines' growing fleet comprises more than 30 aircraft, including Boeing narrowbodies and widebodies and Bombardier regional jets.
Shanghai Airlines has been able to remain independent of the country's three main airline groups that are centred around Beijing-based Air China, Shanghai-based China Eastern and Guangzhou-based China Southern. The "big three" have expanded through government-supported takeovers of smaller carriers in recent years that were designed to reduce what regulatory authorities called "disorderly" competition. There are now no significant airlines remaining in the country apart from Hainan and Shanghai that are not under the control of the central government or that do not have some form of ownership links with the big three.
Publicly traded Shanghai Airlines has been cautious about expanding through acquisitions and before the China United deal had only previously taken a 10% stake in Sichuan Airlines.
This is in sharp contrast to Hainan Airlines, which is also publicly traded and which has in recent years bought several smaller carriers including Beijing-based China Xinhua Airlines. Hainan is, meanwhile, planning to set up a new passenger airline in the southwest Chinese province of Yunnan. Few details have been revealed, but the new carrier is to be called Shilin Airlines and will be set up in partnership with Hainan group unit Shanxi Airlines and a local tourism company.
Shanxi Airlines will own 51% while Hainan Airlines will have a direct 48.9% stake and Yunnan Shilin Tourism Aviation will have 0.1%. State-run media say Hainan and Shanxi Airlines will together provide three Dornier 328Jets, one Boeing 737 and one Bombardier Dash 8. "The aim of Hainan Airlines in establishing a new airline company was to tap the huge tourism resources in Yunnan to increase the company's profits," they add.
Yunnan province is growing in popularity as a tourist destination and is already home to Kunming-based Yunnan Airlines, which is owned by the parent of China Eastern.
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Source: Airline Business