China Eastern To Push Shanghai Air Merger

August 11, 2009

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China Eastern Airlines said on Monday it would actively push ahead with its acquisition of smaller rival Shanghai Airlines in the second half of the year but warned of an uncertain industry outlook.

China Eastern, one of the country's top three carriers, also said it earned a net profit in the first half of the year of CNY984.65 million yuan (USD$144 million) under international accounting standards, turning around from CNY212.5 million net loss a year earlier, helped largely by fuel-hedging gains.

The carrier did not provide earnings guidance for the rest of the year but warned about uncertainties continuing to face the industry, including weak international air traffic and the lingering impact of the H1N1 flu virus.

Board Secretary Luo Zhuping said in April, however, that the carrier had a chance to return to the black for the full year with a pick-up in domestic air travel.

China Eastern unveiled a detailed plan last month to acquire Shanghai Air via a CNY9 billion share swap that will give them roughly half of the air travel market in China's financial hub.

Monday's statement gave no timeframe for completing the deal.

Rivals Air China and China Southern Airlines already control about 50 percent of the market in their home bases in Beijing and Guangzhou.

During the six-month period, China Eastern carried 20.79 million passengers, up 14.78 percent from a year earlier with help from a recovering domestic economy, but its cargo volume fell 8.13 percent as the global economic downturn continued to weigh on foreign trade, it said.

Its fuel-hedging contracts in the first six months yielded a mark-to-market gain of CNY2.79 billion, compared with a CNY451 million gain in the year-ago period.

Under domestic accounting standards, China Eastern's first-half net profit was CNY1.17 billion, up from CNY41.62 million.

China's airlines faced strong headwinds last year as a slowing economy hit demand for air travel, pushing the three biggest carriers into a combined loss of more than USD$4 billion.

But domestic air traffic has resumed its normal growth pattern this year, as Beijing's aggressive economic stimulus package lifted consumer confidence.

The country's air passenger volume rose 24.6 percent to 17.72 million in June, the fastest growth rate in at least three years, according to official data.

Big Chinese state carriers also received cash aid from the government to ease their operating woes. China Eastern's state parent has received CNY9 billion in government aid since December, of which CNY7 billion was injected into the listed unit through a share placement.