Alliance to challenge Cathay Pacific and Air China
SHANGHAI: Singapore Airlines Ltd, Asia’s most profitable carrier, will buy a stake in China Eastern Airlines Corp, gaining more access to a market forecast to grow fivefold by 2025.
An agreement will be signed on Sept 2, the Chinese carrier’s Board Secretary Luo Zhuping said by phone yesterday, declining to comment on the size of the stake. Singapore Airlines and parent Temasek Holdings Pte may pay about US$930mil for a combined stake of about 24% in China’s third-largest carrier, people involved in the talks told Bloomberg News in May.
The alliance will help Singapore Airlines challenge Cathay Pacific Airways Ltd and Air China Ltd in the world’s second-biggest aviation market. China Eastern, the nation’s only listed carrier to post a loss last year, may reduce debt and gain management experience.
“The stake in China Eastern will definitely help Singapore Airlines compete with rivals like Cathay in the Chinese market,” said Winson Fong, who helps oversee about US$2.5 billion at SG Asset Management in Hong Kong. “How much it can improve China Eastern’s performance will depend on its involvement in the local company’s management.”
Details of the agreement will be released in statements to the stock exchanges on Sept 2, Luo said by telephone yesterday. Singapore Airlines spokesman Stephen Forshaw said the carrier has nothing to announce at this point, while Temasek, a Singapore state-owned investment company, declined to comment. The Wall Street Journal earlier reported the signing date.
China’s economy has grown at least 10% in each of the past four years, encouraging more people to travel. The nation’s airlines are likely to carry 185 million passengers this year, 16% more than in 2006, the General Administration of Civil Aviation said on June 6.
The investment will be the Singapore carrier’s first in another passenger airline since chief executive officer Chew Choon Seng took office in June 2003. The airline sold a stake in Air New Zealand three years ago after failing to gain better access in the Australian market.
Singapore Airlines may also sell its 49% stake in Richard Branson’s Virgin Atlantic Airways back to the billionaire, the British carrier’s spokesman said earlier this month.
Singapore Airlines’ 61-year-old chief has cut staff, added new planes and sold assets, including an office building in downtown Singapore and the carrier’s stake in a leasing company, to focus on gaining a larger slice of the travel market. That helped boost profit to a record S$2.12bil (US$1.39bil) last year. – Bloomberg