Singapore Airlines buys US$923 million stake in China Eastern

Friday, 7 September 2007: In a proposal submitted on last Sunday, the combined Singapore Airlines and parent company Temasek Holdings 24% stake buyout of China Eastern Airlines is set to go ahead with a price tag of HKD7.2 billion (USD923 million).The Chinese Government is set to retain the controlling 51% stake held in the loss-making carrier, and it is hoped that Singapore’s superior management capabilities can bring China Eastern into the black.One of the main points of interest in the proposal is the line that stipulates that Singapore Airlines would be able to appoint three members to sit on the 14-member China Eastern Airlines Board. The two airlines have also agreed to an ‘exchange’ of senior management roles.But without a full merger, Singapore Airlines will still be constrained, and with government stipulations against foreign ownership, it is unlikely at the moment that Singapore Airlines will be able to acquire a stake to amounting to more than 25% of China Eastern.In spite of this SIA announced in a statement, “SIA will be granted a right to subscribe for new shares in proportion to its shareholding in the event of a further placement of CEA shares, as well as a future right to increase its stake at a time when foreign ownership restrictions imposed by the Government of the People’s Republic of China may be liberalised.”This new alliance could effectively see Singapore allowed more access into the Chinese market, with the number of services currently just under 70.Looking forward, Singapore Airlines has said, “Both airlines will pursue opportunities for cooperation such as co-ordination of flight schedules and joint marketing activities. CEA and SIA will consider jointly any question of CEA joining a global alliance.”Along with this agreement, Singapore has promised not to pursue any other PRC-based airlines, with the exception of Great Wall Airlines, in which SIA already has an existing stake.

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