More consolidation has hit the rapidly reshaping Chinese airline sector with Sichuan Airlines being jointly taken over by China Southern, Shanghai Airlines and Shandong Airlines.

The move is in line with government calls for consolidation in the crowded Chinese market, which has currently around 30 airlines but that is seeing the number falling fast.

Guangzhou-based China Southern, the country's largest carrier, will pay 136.5 million yuan ($16.5 million) for a 39% stake. Shanghai Airlines and Shandong Airlines will each take 10% stakes, while catering company Chengdu Gingko Restaurant will take a 1% stake.

A new company will be established to take over the airline's assets. Sichuan Airlines will take a 40% stake in the new company by transferring its assets to it.

Sichuan's contribution will comprise an office building at Sichuan Chengdu International Airport, plus its fleet of five Airbus A320s and two A321s, five Embraer 145s and one domestically built Xian MA-60.

Chinese government officials have been calling for mergers among the country's airlines for some time. More than two years ago the Civil Aviation Administration of China effectively ordered consolidation in the sector, saying the 10 airlines under its direct control would be merged into three mammoth groups headed by Air China, China Eastern Airlines and China Southern.

That process is expected to take up to two more years to complete. Alongside this, major airlines have been seeking to take over other airlines in the "semi-independent" category, which includes Sichuan. This change has taken place while smaller airlines have been forging their own partnerships.

China Southern says the Sichuan buy-in will allow it to expand market share in the developing southwestern parts of China. Some observers believe the deal may also lead to closer ties between China Southern and the well-regarded independents Shanghai Airlines and Shandong Airlines, potentially giving the major carrier an even more dominant status in the fast-changing domestic market.

Source: Airline Business