Air China is said to be buying into a regional air carrier in Shandong Province, which industry insiders believe will help it expand its domestic network.

Shandong Airlines Co Ltd, which is based in the provincial capital of Jinan, yesterday said in a statement that its parent, Shandong Aviation Group, is going to sell 22.8 percent of the listed unit.

Though the carrier didn't specify a buyer, Bloomberg News reported that Air China will buy the non-tradable shares. Air China operates the most international flights among Chinese air carriers.

"We haven't yet got the notice from our biggest shareholder about who is the buyer and the discussion with potential investors is still under way," said Zheng Baoan, Shandong Airlines' board secretary.

Currently, Shandong Aviation Group holds 64.8 percent of the regional carrier, which is listed on China's hard-currency B-share stock market.

Zheng said the move is aimed at introducing more shareholders, hoping to bring more flexibility to the company's management.

"We started to deal with the issue at the end of last year, so it's nothing related with the losses brought about by the SARS outbreak," Zheng noted.

Shandong Airlines posted a net loss of 122.68 million yuan (US$14.82 million) in the first half of this year.

Air China President Li Jiaxiang said in Beijing a few weeks ago that his company was then in talks with Shandong Airlines about a share transfer, when he declared that the two carriers would offer code-sharing flights to and from cities in Shandong Province, such as Qingdao and Jinan, starting in September.

Deng Hongmei, an analyst with Shanghai-based Everbright Securities, said the move will help Air China expand its flight map inside the country.

"It's normal that larger air carriers are eager to find smaller counterparts to cover more domestic destinations after last year's industry reshuffle," said Deng.

Last year, nine air carriers under the control of Civil Aviation Administration of China merged into three newly created air groups.

(eastday.com September 19, 2003)