Chinese carrier to take advantage of low share prices after Air Cambodia plan scrapped

China's fast-growing Hainan Airlines is stepping up its search for a minority stake in a US airline, after scrapping plans to set up a joint-venture carrier in Cambodia.

Hainan, the fourth-largest airline group in China following three domestic acquisitions over the past two years, has been exploring the possibility of acquiring a stake in a US airline for some time. Industry sources say the carrier has stepped up its search recently, believing it is a good time to take advantage of low US airline stock prices.

Hainan could potentially enter the US market in partnership with George Soros, the billionaire US financier. American Aviation, an investment fund which Soros controls, has the biggest single stake in Hainan, around 15%. Soros declines to comment.

Sources say no formal talks have been held, although Hainan has identified potential targets. Hainan executives did not respond to requests for comment.

The airline, meanwhile, has scrapped plans to set up a new Cambodian national carrier, Air Cambodia, in partnership with the Cambodian government.

The Hainan executive in charge of the venture, Jimmy Guo, says: "International capacity is our first consideration and it looks like there is not enough room for us to go any further," after international operating rights were given to other carriers, such as President Airlines and planned start-up Mekong Airlines.

Hainan announced early this year that it had agreed to set up the new airline with the Cambodian government, in its first overseas deal. The airline was to have been 49% owned by the Hainan Airlines Group, 41% by the government and 10% by local company CTG.

Chinese regulators later approved Hainan's investment and a 1 October start was planned. Air Cambodia was to have operated two Boeing 737-400s on domestic and international routes.

Air Cambodia aimed to fill the gap in the market left by the October 2001 collapse of national carrier Royal Air Cambodge.

Cambodia has a number of small carriers but none has made an impact. Mekong Airlines now aims to become Cambodia's main international airline. It is being established by a group of Australian industry veterans using Airbus A320s and ATR 42s.

Source: Flight International