Air China-Cathay Pacific attempt to outmanoeuvre SIA and buy China Eastern fails
A bold bid by Air China and Cathay Pacific to scupper Singapore Airlines' (SIA) purchase of a stake in China Eastern Airlines has ended in failure after an apparent political miscalculation.
Market watchers were taken by surprise when it was revealed in late September that Hong Kong-based Cathay was trying to put together an ambitious bid with Air China's parent for Shanghai-based China Eastern. Air China's parent was the driving force but after several days of intense market speculation, Air China and Cathay announced a decision had been taken not to proceed. No explanation was given, but it was clear to market observers that the Chinese government did not give its all-important blessing.
China Eastern is the weakest of China's major carriers and there has been increasing speculation it may be forced to merge with another carrier. Air China and Cathay own 17.5% of each other and Air China owns 11% of China Eastern, having quietly bought up shares in recent months.
Early in September SIA and Singapore government investment arm Temasek Holdings agreed to acquire 24% of China Eastern through the purchase of new shares in a HK$7.l5 billion ($916 million) deal. It was approved by China Eastern's board and the Chinese government but still requires minority shareholder approval.
For loss-making China Eastern the SIA agreement was negotiated to ease shareholder concerns that it has not acted quickly enough to restructure its operations, and most market observers believe that it will make it more difficult for another Chinese carrier to take it over in future. Chinese market watchers regard the move by Air China's parent company as a political miscalculation, in that it clearly thought it had the government support needed to overturn approvals that had already been granted for the SIA deal.
Market watchers say the fact that the move was even under consideration may have changed the competitive dynamic in the wider Asia-Pacific market. "Control of the key mainland hubs is a prize that will overshadow all else - and Cathay Pacific and Singapore Airlines have committed themselves to play a leading role," says the Centre for Asia Pacific Aviation. "But questions remain over the intentions of Air France-KLM, Lufthansa, Korean Air, Emirates, Qantas and a host of other carriers. Surely they too will be drawn into battle soon."
Air China in recent months has quietly acquired an 11% stake in China Eastern
Source: Airline Business
