ATW Daily News

China Eastern gets additional CNY4 billion from Beijing

Tuesday January 6, 2009

The Chinese government injected an additional CNY4 billion ($584.5 million) into China Eastern Airlines on top of the CNY3 billion provided last month in an effort to help the carrier work through its financial difficulties.

The Shanghai-based airline plans to sell nonpublic shares to its parent China Eastern Air Holding Co. in order to reach the CNY7 billion total (ATWOnline, Dec. 11, 2008). The holding company's stake in CEA will rise to 74.6% from 59.7%.

The carrier expects to reduce its debt ratio by 8.4 points to 90.1% as a result of the aid, which it said will "exert an important influence for CEA to get out of difficulties and realize prosperity again." Its financial situation deteriorated as the global financial crisis hastened a continuing decline of domestic demand. It reported a $420,000 loss on its fuel hedge contract in November, which followed a CNY1.83 billion writedown the previous month.

It has become a growing trend for Chinese carriers to seek--and receive--government aid (ATWOnline, Dec. 24, 2008). China Southern Airlines received CNY3 billion last month while HNA Group and Shanghai Airlines have asked for help from local authorities. Tianjin-based Grand China Express Airlines is expected to receive CNY200 million from the Tianjin municipal government.

But some local analysts argue that government aid will not solve all the problems. Newly appointed CEA Chairman Liu Shaoyong shares that view, saying, "No matter how much government aid we can get, CNY3 billion or even more can't solve the fundamental problem. So I think the Chinese airline industry needs a big 'surgery' in the future. But how to perform this 'surgery' has to be decided by Beijing."

by Katie Cantle

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