The mergers, the largest ever of their kind in China's history, were aimed at preparing the domestic aviation industry for rising global competition by creating carriers large enough to battle foreign airlines.

Beijing-based national flag-carrier Air China, Shanghai-based China Eastern Airlines and Guangzhou-based China Southern Airlines will play a leading role in the domestic industry.

"However, establishing the groups is only the first step in the whole merger process," said Chen Gang, a China Eastern official.

"Currently, the three companies under our group are still independent from each other in many aspects, only sharing the same title. It will take a long time for us to merge capital, human resources, management, fleet resources and production capacity."

The board of China Eastern hopes the capital restructuring will be finished by the end of next year, Chen added.

Air China has merged with China Southwest Airlines and China National Aviation Corp., which holds controlling stakes in Air Macau and Hong Kong's Dragonair to form China National Aviation Holdings Co., with total assets worth 57.3 billion yuan (US$6.9 billion).

China Southern, the country's No. 1 carrier in terms of fleet size, will form China Southern Air Holdings Co. after taking over China Northern Airlines and China Xinjiang Airlines. With a combined fleet of 180 aircraft, its total assets are worth 50.1 billion yuan.

Shanghai-based China Eastern has combined with Yunnan Airlines and China Northwest Airlines to form a new group named China Eastern Holdings Co., with total assets of 47.3 billion yuan.

Together, the three groups will hold 80 percent of the market and control most international routes.

"In the long term, the merge will surely have some impact on medium and small-sized regional carriers because the size of an airline is important to its ability to compete," said Qiu Yanying, an industry analyst. "Large airline groups may still be granted preferential treatment. For instance, operating rights for trunk routes linking major cities may be given to these bigger airlines instead of small ones."

However, small and medium-sized carriers still have two to three years to expand themselves and to improve their service since it will take years for the three new groups to merge totally, Qiu noted.

Some smaller airlines are already taking steps to allow themselves to compete with their bigger rivals.

Shanghai Airlines, for example, listed an IPO on the Shanghai stock market yesterday to raise funds for its future development.

In addition, three other aviation related groups have been formed to optimize the existing resources of the aviation industry, namely, China Aviation Information Holdings Co., which controls Hong Kong-listed Travelsky Technology Ltd., China Aviation Supplies Holdings Co., which imports aircraft from Boeing Co. and Airbus Industrie, and China Aviation Oil Holding Co.

(eastday.com October 12, 2002)