The consolidation of China's crowded airline sector seems to be moving into a new phase, in which the big three - Air China, China Eastern and China Southern - will take stakes in smaller independent carriers that fear for their survival.

Shandong Airlines has revealed that it is in talks with Air China over acquisition of a sizeable stake. State-run media say the Beijing-based flag carrier is seeking a 20% stake in the smaller airline, as well as a 26% stake in unlisted parent company Shandong Aviation Group.

Jinan-based Shandong operates a mix of around 25 Boeing 737, Bombardier CRJ200 and Saab 340 aircraft. It has expanded in recent years largely by focusing on regional jet operations, but has been losing money on those services and says it is looking for a strategic investment partner among the country's big three.

Alongside the state-directed consolidation of China's airlines, a handful of takeovers of smaller carriers controlled by provincial governments or other state bodies have taken place. More are likely following the talks between Shandong and Air China.

Shandong was one of the more successful independent carriers, and the admission that it needs a partner to develop in an increasingly difficult market is seen as significant. It comes a year after China Southern, Shandong and Shanghai Airlines finalised a deal jointly to take over smaller Sichuan Airlines, which was another successful independent carrier that saw the need for a partner to survive.

Earlier, one of the most successful of the independents, Hainan Airlines, expanded its domestic base by acquiring Changan Airlines, Shanxi Airlines and China Xinhua Airlines. These acquisitions meant it became the fourth largest airline grouping in the country, overcoming the need to find a partner among the big three.


Source: Airline Business