China Eastern, Southern to receive 3 bln yuan state cash injection

Two leading Chinese carriers, China Eastern Airlines and China Southern Airlines, announced they will get 3 billion yuan (US$441.2 million) state bail-out respectively.

CEA said in a statement filed with the Shanghai Stock Exchange that it will issue 652.18 million A shares to the government and its major shareholders at 3.6 yuan per share, and the same amount of H shares on the Hong Kong stock market at 1 yuan per share. Proceeds will be used to replenish capital flow.

China Eastern Airlines (CEA) opened 10 percent higher on Thursday morning on the Shanghai exchange.

The bail-out will reduce CEA's asset:liability ratio by 3.77 percentage points. The ratio stood at 98.49 percent on Sept. 30. It will effectively improve the carrier's financial condition and free up cash, said Luo Zhuping, secretary of the CEA board of directors.

China Southern Airlines announced in a separate statement a plan to raise 3 billion yuan through share issues in Shanghai and Hong Kong. It will issue 721.15 million A shares at 3.16 yuan per share and the same amount of H shares at 1 yuan.

China's airlines have seen passenger traffic rise by double-digit rates for 20 years, but major carriers are under many pressures this year that have been hitting all classes of seats.

Natural disasters such as last winter's prolonged snowstorms and the May earthquake in southwest China hit tourism and air travel. In recent months, the global financial crisis and economic slowdown have curbed business travel.

Liu Gongshi, senior expert in civil aviation industry, said aviation transportation has irreplaceable importance in the country's economic development.

Chinese state-owned airlines, in particular, have made contributions in carrying out state missions and disaster relief works. State capital injection is necessary when these major airlines suffer from climbing assets liability ratio, Liu said.

The share issue plan still needs approval from shareholders and regulators. It is expected to be completed in 2009.

(Xinhua News Agency December 11, 2008)