Nicholas Ionides/ATI/SINGAPORE Efforts by the Civil Aviation Administration of China (CAAC) to push mergers among the country's more than 30 airlines appears to be achieving success.

China Southern Airlines has agreed to purchase a small domestic operator and China Eastern Airlines is negotiating to take over at least one other carrier.

CAAC officials have been calling for consolidation among the country's airlines for several years but there has been little progress apart from small deals such as China Southern's takeover of Guizhou Airlines and China Eastern's takeover of China General Airlines.

Speculation that mergers will be forced upon airlines was sparked in July when a senior CAAC official said the 10 airlines under the regulator's control would be merged into three large groups led by China's 'big three' - Air China, China Eastern and China Southern.

Shortly before the announcement, China Eastern confirmed that it was in talks to buy into Great Wall Airlines and soon after China Southern announced that its parent, Southern Airlines Group (SA Group), would acquire Zhengzhou-based Zhongyuan Airlines.

Zhongyuan, owned by Henan Province, has assets of 1.46 billion yuan ($176 million), operates five Boeing 737-300s and two Xian Aircraft Y-7s, and has over 560 employees.

SA Group says Zhongyuan Airlines will maintain its operating name and after the merger the combined group will command 60% of the transport market at Zhengzhou Airport. However, it is likely that Zhongyuan will eventually be totally merged into China Southern's operation.

Guangzhou-based China Southern, 65%-owned by SA Group and listed on the Hong Kong and New York stock exchanges, is China's largest carrier and one of the 10 under the CAAC's authority.

The nine others reporting directly to the regulator are Air China, China Eastern, China Northern Airlines, China Northwest Airlines, China Southwest Airlines, China Xinjiang Airlines, CNAC-Zhejiang Airlines, Great Wall Airlines and Yunnan Airlines.

In another development, Taiwan's China Airlines (CAL) has confirmed that it is seeking a stake in China Cargo Airlines, which is 70% owned by China Eastern and 30% owned by China Ocean Shipping.

If successful in its bid, which has also been confirmed by China Eastern, CAL will be the first airline in Taiwan to hold shares in a Chinese carrier.

Source: Airline Business