Air China Vice-President Fan Cheng was named a senior official of Shenzhen Airlines on Tuesday, adding fuel to speculation that the world's most valuable airline would take over the Shenzhen-based carrier.

Fan was appointed Party secretary of Shenzhen Airlines on Dec 1, two sources with direct knowledge of the matter told Reuters yesterday.

He is now in charge of the daily operations of Shenzhen Airlines, the country's fifth-largest air carrier, a source said.

"It suggests that Air China will lead Shenzhen Airlines and it will have a synergy effect on both airlines," Alfred Chan, chief dealer at Cheer Pearl Investment.

Privately owned Shenzhen Airlines said earlier this week Li Zeyuan, a senior advisor who effectively controls the airline, was under police investigation, although the airline continued to operate normally.

Shares of Air China rose 1 percent to HK$6.2 in Hong Kong trading yesterday.

An Air China spokesman declined to comment.

The stock jumped as much as 10 percent on Tuesday, on speculation that Air China would take over Shenzhen Airlines, allowing the country's flag carrier to fend off competition from the merged China Eastern Airlines and Shanghai Airlines.

"Air China is set to benefit from a bigger market share and operation scale. It is similar to the case of a bigger bank taking over a smaller rival. The bigger bank is always seen to have a bigger benefit than the one being taken over," Chan said.

Air China holds a 25-percent stake in Shenzhen Airlines while Li owns about 65 percent through a company.

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