Company Watch - China Eastern Airlines

AirGuide Business, Jan 14, 2008

Jan 14, 2008

China Eastern Airlines rejects Air China, says it still favors Singapore Air investment. China Eastern Chairman Li Fenghua insisted yesterday that the carrier's plan to sell a 25% stake to Singapore Airlines and its parent Temasek was not dead even after more than 77% of China Eastern Airlines's minority shareholders voted against the deal, effectively killing it. Li also vowed to continue to oppose efforts by Air China to take a similarly sized stake, declaring that China Eastern Airlines would not be swayed by a richer marriage proposal from Air China and parent China National Aviation Holding Co. CNAC, which led the opposition to the Singapore investment, and Cathay Pacific Airways said they now will join together to bid on the stake in China Eastern, which has a highly desirable hub in Shanghai. CNAC, which holds about 12% of China Eastern, made it clear in the weeks leading up to the shareholder vote that it would move to block the sale because Singapore Airlines/Temasek's HK$3.80 ($0.49) per share offer was too low. CNAC said before the vote that it planned to offer HK$5 per share for no more than a 30% stake if the Singapore Airlines deal was vetoed. Jan 9, 2008

China Eastern and Singapore Airlines shares were suspended on Tuesday Jan. 8, pending the vote. Air China ended the day down 3 percent as investors cashed out of its recent rally. Days ahead of the vote, CNAC had signaled it would try to derail the agreed HKD$3.80 per share sale to Singapore Air, saying it would offer at least HKD$5 a share. Singapore Air and China Eastern insisted their deal was fair at six times the airline's end-2006 book value. Analysts say Air China feared the creation of a strong competitor based in the commercial hub of Shanghai -- where Air China is traditionally weak. Some said investors may now favor a tie-up between China Eastern and Air China, the world's most valuable airline by market capitalization, especially if Cathay gets on board. Others said Singapore Airlines and Temasek could be persuaded to return to the table with a sweetened bid. Jan 8, 2008

China Eastern Shareholders Sink Singapore Air Deal. China Eastern Airlines shareholders rejected a deal to sell a 24 percent stake to Singapore Airlines for USD$920 million, opening the door for bigger rival Air China to make a play for the country's third-largest carrier. Analysts say loss-making China Eastern, squeezed by record fuel prices, would return to the negotiating table with Singapore Air and its parent Temasek to try and get a better deal. A less favored option would be to submit to the Air China group's advances. Jan 8, 2008

China Denies Pressing Eastern Air Shareholders. The Chinese government has denied it is pressing shareholders to approve a USD$920 million investment by Singaporean companies in China Eastern Airlines, while saying it supports such deals in principle. A two-sentence statement by the state-owned Assets Supervision and Administration Commission, quoted by official media, leaves the outcome of shareholders' meetings to vote on the investment next Tuesday shrouded in doubt. It also underlines the government's difficulties in balancing its desire to restructure industries through foreign investment with domestic criticism that China is selling some of its major corporate assets too cheaply. Jan 7, 2008

China Eastern shares traded at HKD$6.73 on Monday Jan. 7, stoking shareholder frustration even though the stock had rallied to a life high of HKD$10.50 in September on news of the deal. The public war of words between the

two rival airlines may have undermined China's plans to restructure its commercial aviation industry. Foreign investors may be more reluctant to get into a sector if Beijing fails to clarify ownership laws, even if the industry is growing at 16 percent a year. Air China's intervention -- the country's leading airline is keen to create a Chinese supercarrier -- contradicts Beijing's policy of introducing international expertise in aviation. The appointment of Air China's ex-chairman, Li Jiaxiang, to the post of the country's top aviation regulator suggests Air China could get the upper hand in years to come. Jan 7, 2008

China's official Xinhua news agency said this was a denial of speculation earlier in the week that Beijing was pressuring China Eastern's minority shareholders, who will meet in Hong Kong and Shanghai on Tuesday, to approve the Singaporean investment. But the commission's statement, which did not mention China Eastern by name, also said: "We support the state-owned giants having overseas strategic investors." Singapore Airlines and Singaporean investment agency Temasek signed an agreement in November to buy 24 percent of China Eastern, China's third biggest carrier, for HKD$7.16 billion. The deal received Chinese government approval. But China National Aviation Corporation (CNAC), which owns 12 percent of China Eastern's Hong Kong-listed shares, said on Thursday it would make a counter-offer for China Eastern if Tuesday's shareholder meetings rejected the Singaporean deal. Jan 7, 2008