China Southern Airlines, Shandong Airlines and Shanghai Airlines (SAL) are to buy shares in Sichuan Airlines in a deal that heralds a new relationship between the three east coast-based competitors. Chengdu-based Sichuan Airlines confirms the deal is going ahead, but declines to give details.

A source at the Guangzhou-based carrier says China Southern is negotiating to buy possibly 40% of Sichuan. Jinan-based Shandong is understood to be eyeing an 8% stake in Sichuan for around 40 million yuan ($4.8 million). SAL is not revealing how much it is interested in. The Civil Aviation Administration of China (CAAC) is expected to approve the deal, the first by China Southern and the two smaller carriers since they created an informal alliance intended to cut costs and increase competitiveness.

In the early stages there will be no official tie-up, but codeshares and co-operation in other areas, says a senior source at China Southern, who expects to save money by co-operation in maintenance and spares supply.

Tying up with China Southern could help Shandong and SAL take on their closest competitor, China Eastern Airlines. It also means that an alliance of small carriers, China Sky Aviation Enterprises, is now effectively dead.

Japan Airlines (JAL) and Japan Air System (JAS) will establish a joint holding company on 1 October in preparation for a full merger by April 2004. Both  airlines forecast steady profit growth over the next two years. JAL and JAS won regulatory approval for the planned merger earlier this year, but were forced to give up some daily slots at congested Haneda to new carriers and reduce fares to ease regulatory authorities' concerns. The former rivals are forecasting a combined group net profit of ¥22 billion ($189 million) for the year ending 31 March, 2003, increasing to ¥29 billion in financial year 2004. Combined sales revenue for 2003 is expected to total ¥2.17 trillion, rising to ¥2.19 trillion in 2004.

Source: Flight International