China's State Council blesses mergers

Source:
This story is sourced from Airline Business
Subscribe today »

NICHOLAS IONIDES SINGAPORE

China's sweeping airline consolidation has moved an important step forward with final State Council approval for the parent companies of Air China, China Eastern Airlines and China Southern Airlines to acquire six other carriers.

The approvals were finalised on 11 October at a ceremony held in Beijing. The State Council said early last year that it had approved the tie-ups between the state-controlled carriers, but additional formalities were needed.

Under the exercise, which will also see the Civil Aviation Administration of China (CAAC) giving up ownership of the airlines, Air China will merge with China Southwest Airlines and China National Aviation Corp; China Eastern will take over China Northwest Airlines and Yunnan Airlines; and China Southern Airlines will take over China Northern Airlines and Xinjiang Airlines.

The formal plan also includes China Eastern's acquisition of Great Wall Airlines, although this has already taken place. Alongside the state-directed consolidation plan involving the 10 airlines, takeovers of smaller carriers controlled by provincial governments or other government bodies are also taking place, such as China Southern's recent China Postal Airlines buy-in and China Eastern's purchase of a major stake in Wuhan Airlines.

The airlines have been working on the consolidation plans for more than two years, since the CAAC said the 10 carriers would be merged into the three mammoth groups to reduce unnecessary competition that had badly hurt the local industry, and to help them better compete with foreign carriers.

The process is expected to take another year or so to complete, after the parent companies of the three major carriers have injected assets of their new acquisitions into Air China, China Eastern and China Southern. After that the names of the smaller airlines are due to disappear.

Hong Kong-listed China Eastern expects to take over China Northwest and Yunnan by the end of 2003 further to its majority shareholder Eastern Air Group taking control of the two carriers on 11 October. EA Group has since changed its name to CEA Holding, and China Eastern says it is working with its parent on how to implement the takeover of the smaller airlines' assets.

China Southern, which is also listed in Hong Kong, says ownership and assets of China Northern and Xinjiang are being transferred to its parent company, SA Group, which is changing its name to China Southern Air Holding Co. However, assets of the airlines are expected to be transferred into China Southern by the end of next year.