Two privately run firms outbid flag carrier Air China on Monday for control of Shenzhen Airlines with a joint offer of 2.72 billion yuan (USD$328.5 million), the auction house said.

Air China, which industry insiders had considered the front runner in the bidding, lost out to Yi Yang Group and Hui Run Investments when it declined to up its final offer of 2.71 billion yuan.

"The final price was too high," Air China spokeswoman Rao Xin Yu said.

Air China had partnered with Shenzhen Investment Holding Company in the auction, which went back and forth with 93 bids until Yi Yang and Hui Run won 65 percent of Shenzhen Airlines.

Air China would have had a much bigger foothold in wealthy southern China if their bid had been successful.

"Private capital can move in the airline markets faster and much more conveniently through auction processes but Air China failed this time. Maybe it will cost the company much more time to recover the southern China market," said one analyst at a Chinese securities house who declined to be identified.

Shenzhen Airlines operates 27 Boeing 737s and plans to expand its fleet to 100 planes over the next five years. It had been expected to sell for at least 2 billion yuan, insiders said.

China's fragmented aviation sector has been undergoing a consolidation in recent years into groups headed by the country's big three carriers: Air China, China Southern and China Eastern Airlines.

The auction house declined to provide details on Yi Yang or Hui Run.

On its web site, Yi Yang said it focuses on telecommunications, transportation, energy resources, real estate and bioengineering companies.