The Battle For China Eastern Airlines

Back in early July 2006, Singapore Airlines (SQ) and China Eastern Airlines (MU) entered into wide ranging financial and co-operative talks. As recently as May 2007, it was agreed in principle that the Singaporean carrier would buy a stake in the Chinese airline.

However, the impending deal has never been far from the prying eyes of the head honcho’s in downtown Beijing.

It comes as little surprise then to see Air China (CA) parent, China National Aviation Holding (CNAC) ready to pounce and trump the bid laid out by SQ and its parent Temasek Holdings.

Image courtesy of Rick Schlamp

While we can sit and argue all day long about the benefits and drawbacks of a stake acquired by either SQ or CA, the real question is who is going to blink first in this duel to snare a piece of one of China’s up and coming intercontinental airlines.

As at the time of writing, SQ/Temasek had tabled an offer of HK$3.80 per share.

CNAC has put in a counter bid of at least HK$5.00 per share.

Singapore Airlines chief Mr. Chew Choon Seng was quoted as saying “nothing is a must-have“, the question is whether CA runs the risk of paying over the odds to keep its Asian rival at bay and keep the mooted Chinese synergies between itself and MU firmly on the Chinese mainland.

Image courtesy of Air China

Perhaps the answer to this tug of war lies within the statement given by China Eastern Executive Director Luo Zhuping.

“We are a state-owned company. Price is not the only consideration. We can’t decide to accept someone’s proposal on our own accord.”

It’s unlikely that a resolution to this drawn out saga be concluded anytime soon, but given the above quote, you’d have to be naïve to rule out SQ & Temasek’s desires - even if the strings are being pulled towards CA.

With the news that Air China’s former chairman, Li Jiaxiang has taken up a new position at the helm of the General Administration of Civil Aviation of China, there is always a “risk” that he will favor his former employer to move in on MU and kickstart intra-Chinese airline mergers without having to confront parties from outside the mainland.

The bigger question, and the one that remains largely on the sidelines, is what will the other carriers in China do? Indeed, what will China Eastern do?

Will they wait to see SQ/Temasek step into their territory giving them carte blanche to speak to overseas suitors/partners, or will they have something to fear from a growing and dominant Air China?

Whomever secures the hand in marriage to China Eastern will also likely be the one that spurs the most competitive change within mainland China too.

1 comment January 7th, 2008