Air China is expected to acquire 22.8 percent of a regional carrier on the Chinese mainland and 48 percent of its parent group, said industry sources.

Officials with Air China and Shandong Airlines Co Ltd, the smaller carrier involved in the acquisition, refused to reveal details yesterday, only saying all will be disclosed in a statement today.

The acquisition is deemed by industry analysts as a move to expand Air China's domestic network and help improve its profitability.

It also signals latest attempts by the state to reduce its role in state-owned companies as the Shandong government used to be the largest shareholder of Shandong Airlines Group, which held 64.8 percent of the listed arm.

Philip Wickham, an industry analyst with ING's Hong Kong office, said the acquisition is a continuation of the consolidation occurring in the Chinese airline industry.

"In addition, competitive pressures between Air China and Shandong Airlines will recede, improving profitability on routes the two currently both operate," said Wickham.

Air China, which operates more than 320 domestic and international routes, is seeking to sell shares in Hong Kong this year, following its two arch rivals, Shanghai-based China Eastern Airlines Co Ltd and Guangzhou-based China Southern Airlines Co Ltd, which are already listed in Shanghai and Hong Kong.

Business cooperation between Air China and Shandong Airlines started early last September, when the two announced code-sharing agreements on routes linking Beijing with cities in Shandong Province.

Some industry officials say it would be better for Air China to optimize its domestic network if it bought stakes in the country's southern carriers, most of which are already under the wing of China Southern.

(Shanghai Daily March 2, 2004)