Andrzej Jeziorski/SINGAPORE

China Eastern Airlines says it will buy regional carrier Great Wall Airlines by the year end and is in detailed discussions about other mergers and alliances, while listed regional Hainan Airlines has revealed plans to buy Changan Airlines. The two moves, which come soon after China Southern Airlines' swoop for Zhongyuan Airlines, mark a big step forward in the consolidation of the Chinese airline sector.

That consolidation has been urged by the Civil Aviation Administration of China (CAAC) in response to the perceived structural weakness of the industry in China. It has plans for the 10 airlines under its authority to form three groups, headed by Air China, China Eastern and China Southern (Flight International, 8-14 August). China Eastern and China Southern have nevertheless announced improved first half profits, suggesting the country's air transport sector is recovering from the Asian downturn.

China Eastern's plans, approved by the CAAC, should see it buy 55% of Great Wall for 100 million yuan ($12.1 million). The Ningbo, Zhejiang province-based regional operates over 30 routes serving more than 20 cities. "It still depends on the negotiations between the two sides," says China Eastern. "It is our plan to complete this acquisition by the end of this year."

The Shanghai-based carrier also says it is in "comprehensive talks" with other, unnamed Chinese carriers on further acquisitions and alliances, contradicting earlier statements.

China Eastern says it will probably replace Great Wall's fleet of three Boeing 737-200 Adv twinjets and two Tupolev Tu-154s, naming latest generation 737s and Airbus A320 family aircraft as prospective buys. "We will integrate the fleet plan with ours," it says.

By the end of 2002, China Eastern aims to increase its own A320 fleet to 20 aircraft and acquire 10 A319s. It also plans to supplement its five-strong A340 fleet with a further five to replace its last three Boeing MD-11s. The A340s, from the new -500/-600 family and most likely -600s, will be introduced from 2003.

The airline's MD-11s are being converted into freighters, to be operated by subsidiary China Cargo Airlines.

Hainan is planning to replace Xian-based Changan Airlines with a new carrier, Changan Airlines Industrial. Hainan would contribute two aircraft and 200 million yuan of equipment for a 26.5% stake, with parent Hainan Holdings adding a further two aircraft, plus 400 million yuan of equipment and 50 million yuan cash for a further 59.7%. Changan would hold 13.8% of the new carrier, assuming existing debts and injecting 104 million yuan and its seven Xian Aircraft Y-7s.

• China Eastern's net profit more than doubled to 203.67 million yuan in the first half, while Guangzhou-based China Southern showed a 46% rise to 347.97 million yuan. China Eastern's turnover was 5.34 billion yuan, up 13%, while China Southern's revenues climbed 12% to 7.06 billion yuan.

Source: Flight International