More signs have emerged that a fresh wave of consolidation may hit the Chinese market, with Air China's parent company confirming it is in talks to acquire smaller East Star Airlines.

Air China has revealed that its state-owned parent, China National Aviation Holding, "is making preliminary communication with the relevant parties in relation to the acquisition of the entire or part of the share capital of East Star Airlines".

It says it has "not been involved in the transaction but will pay close attention to its progress".

There have been suggestions for months that more consolidation may soon be seen in China, as government-endorsed talks have been taking place on a possible merger of China Eastern Airlines and fellow Shanghai-based carrier Shanghai Airlines.

An initial wave of consolidation took place in China early this decade when the government merged many of its smaller carriers into Air China, China Eastern and China Southern Airlines to create three main airline groups.

The government then decided several years ago to allow new airlines to launch and a number of privately owned carriers took flight. Nearly all of them have struggled, however, and ownership changes have already taken place among several of them.

East Star is one of the struggling new carriers. It is based in Wuhan and owned by a privately held travel agency group. The carrier was launched in 2006 and operates leased Airbus A319s and A320s, with A320-family aircraft on purchase order with Airbus.

Last year East Star fell into financial difficulty and as a result had some of its domestic traffic rights taken away by regulator the Civil Aviation Administration of China. Another troubled carrier, Beijing-based Okay Airways, recently ­suspended passenger operations but says it hopes to resume services soon.

Pushing for more consolidation is CAAC chief Li Jiaxiang. Li took over as head of the industry regulator just over a year ago and has made no secret of his desire to see the country's major airlines - in particular Air China, which he used to head up - enlarged.

Consolidation talks come as China's government has been forced to provide cash bailouts to several of its carriers, among them China Eastern, China Southern and Hainan Airlines. Another operator, Shanghai Airlines, is also seeking financial aid.

China's government has also recently introduced another measure to help the country's struggling airlines by deciding to no longer tax the funds carriers generate from fuel surcharges. This tax break will be backdated to 1 January 2008.

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Source: Airline Business