China Eastern Airlines Corp, Shanghai's biggest carrier, rose the most in two weeks on the city's stock market yesterday amid speculation it may combine with smaller rival Shanghai Airlines Co.

China's third-largest carrier jumped 6.26 percent to close at 10.69 yuan, after climbing by the 10 percent daily limit. Shanghai Airlines gained 0.5 percent to close at 8.02 yuan.

"There is speculation that China Eastern will merge with Shanghai Airlines," said Wu Kan, a fund manager in Shanghai at Dazhong Insurance Co, which oversees the equivalent of US$285 million. "This has boosted buying of airlines."

A tie-up with Shanghai Airlines would raise China Eastern's market share in China's commercial capital to 55 percent, helping it compete with larger rivals Air China Ltd and China Southern Airlines Co. The carrier is seeking funds to cut debt and improve its operations.

China Eastern board secretary Luo Zhuping said the carrier has no plan to merge with Shanghai Airlines at present. Instead, the airline is focusing on disaster relief efforts following last week's Sichuan earthquake.

Shanghai Airlines is controlled by the city's government, while China Eastern is majority-owned by the state government.

China Eastern wants to raise 15 billion yuan (US$2.15 billion) for new planes and training, chairman Li Fenghua said earlier this month.

The company plans to reach the target by reviving the sale of a stake to Singapore Airlines Ltd, by tapping capital markets and through government subsidies, he added.

The airline's minority shareholders vetoed the sale of a stake to the Singaporean carrier and its parent Temasek Holdings Pte in January in anticipation of a higher offer from Air China.

China Eastern rose 1.7 percent to close at HK$3.53 in Hong Kong.

(Shanghai Daily May 21, 2008)