China Eastern Airlines to acquire local rival

BEIJING — China Eastern Airlines Corp., one of China’s three major state-owned carriers, will acquire a local rival, the companies announced Monday, as money-losing China Eastern tries to boost its competitiveness.

China Eastern, based in Shanghai, will acquire Shanghai Airlines Co. through share swaps valued at 9 billion yuan ($1.3 billion), the companies said.

China Eastern said the merger would help it expand its market share and integrate resources in Shanghai, China’s biggest business center and a major transportation hub. State media said the combined carrier will control more than half the Shanghai market.

Regulators ordered the two carriers to merge as part of efforts to overhaul China’s trouble aviation industry, according to earlier news reports.

China has one of the world’s biggest, fastest-growing air travel markets, but carriers have suffered heavy losses from slumping passenger numbers and high fuel costs.

China Eastern tried to bring in Singapore Airlines, one of the region’s most successful carriers, as a minority owner to help improve operations. But a plan to have Singapore buy 24 percent of the carrier was rejected by China Eastern shareholders in January 2008.

A deal for the parent of Air China Ltd., China Eastern’s main rival, to buy a stake in the company also fell through.

The other major carrier is China Southern Airlines Ltd.

China Eastern airlines has received more than 7 billion yuan ($1 billion) in government subsidies.

Shares of China Eastern and Shanghai Airlines resumed trading Monday in Shanghai following a suspension while the merger was announced, and both surged 5.1 percent before midday.

Associated Press researcher Bonnie Cao in Beijing contributed to this report.

On the Net:

China Eastern Airlines Corp.: www2.ce-air.com/cea2/en(underscore)US/homepage

Shanghai Airlines Co.: www.shanghai-air.com/salnewweb-en/index.aspx