Air China said it will raise about CNY6.5 billion yuan (USD$952 million) via an issue of new shares, becoming the second Chinese carrier to announce fundraising plans this week.

A recovery in domestic and regional traffic has rekindled investor interest, allowing Chinese carriers battered by the global financial crisis to tap the market to reduce debt, and fund fleet expansion and acquisitions in response to growing competition.

Air China's announcement Thursday came just three days after rival China Southern Airlines said it would issue USD$1.6 billion to repay debt.

Air China and China Southern plan to sell their new shares privately to a handful of investors, including their state-owned parents.

Air China, the biggest of the country's three major airlines, said in a statement it would use the proceeds of the new share issue for working capital and to help lower debt.

After the deal, Air China's gearing could fall by 4.58 percentage points to 71.8 percent from 76.4 percent, it said in a statement to the Shanghai Stock Exchange.

If the company used all the money raised from the share issue to repay debt, it would cut its interest expenses by CNY345 million a year, Air China added.

Shares of the company, which more than doubled in value in 2009, have risen 11.5 percent this year in Hong Kong as industry sentiment improved on strengthening domestic demand and as the global economy stabilized. Trading was suspended on February 26 for Thursday's share announcement and is expected to resume Friday.

China Southern's shares have risen 42 percent this year, partly helped by its capital replenishment plan, which will cut interest expenses and enhance earnings growth.

China Eastern's shares have risen 18 percent, beating the benchmark Hang Seng Index's 3 percent loss and a 5 percent drop in the index for major Chinese companies listed in Hong Kong.

Air China said it would sell up to 585 million new A-shares for about CNY5.6 billion and 157 million H-shares for HK$D1.04 billion.

Its state-owned parent will subscribe to 157 million A shares for not less than CNY1.5 billion and a wholly owned unit of the parent will subscribe to all the new H-shares at not less than HKD$6.62 each.

Air China Chairman Kong Dong said last week that the company's earnings were expected to improve in 2010 and it was keen on mergers and acquisitions at home and abroad.