Andrzej Jeziorski/SINGAPORE

Following renewed official calls for consolidation of the Chinese airline industry, SA Group - parent of China Southern Airlines, the country's largest carrier - is to take the first step by buying Zhongyuan Airlines, based in the northern province of Henan.

SA says the merger "has been under discussion for several weeks", and has been approved by the Civil Aviation Administration of China (CAAC) and the Henan provincial government. The move follows a CAAC announcement that the 10 carriers under its authority will combine into three large groups, headed by China Southern, China Eastern Airlines and Air China.

Previous calls for mergers among China's 30-plus carriers have been resisted, but with the sector still struggling in the wake of the Asian downturn, Beijing is determined to see rationalisation.

Zhongyuan is currently owned by the Henan Provincial Communications Department, and, together with China Southern, will account for 60% of the market in Zhengzhou, where it is based. Analysts say the move by SA, which owns 65% of Guangzhou-based China Southern, advances the CAAC's goal while avoiding the risk of taking on the debts of larger carriers such as China Northwest and China Northern.

Zhongyuan operates five Boeing 737-300s and two Xian Aircraft (XAC) Y-7 turboprops. It has assets of 1.46 billion yuan ($176 million) and employs more than 560 people. SA says the carrier will continue under its own name, although an eventual merger with China Southern seems likely. Previous deals have seen Guizhou Airlines be bought by China Southern and China General Airlines be taken over by China Eastern, which has also been in takeover talks with Great Wall Airlines.

Source: Flight International