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China Eastern not to ally with Air China
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China Eastern Chairman Li Fenghua reiterated that the company will not merge or restructure with Air China under any circumstances, after a sales proposal to sell stakes to Singapore Airlines was rejected by 77.6 percent shareholders on Tuesday.


"China Eastern and Air China are at the same level in terms of operation, management and market performance, so we will not consider introducing Air China as our strategic partner no matter how high the price they can offer," said Li at a press briefing after the shareholders meeting.


Around 77.6 percent of China Eastern's shareholders on Tuesday rejected a proposed sale of 24 percent stake to Singapore Airlines and Lentor investment Pte Ltd, a wholly owned subsidiary of Temasek.


Many shareholders have expressed their objections in the three-hour shareholders meeting held in Shanghai Hangyou Hotel, near China Eastern's headquarters.


An attendee surnamed Ji who represents minor shareholders holding 600,000 H shares of China Eastern, said that Singapore Airlines' offer price is too low and unfair to minor shareholders.


Yang Peng from Rongtong Fund Management Co Ltd, the third largest shareholder of China Eastern's circulating shares, also voted down the deal and said that China Eastern can consider the proposal of Air China, who offer a higher price.


Singapore Airlines (SIA) said in a statement yesterday it was "disappointed" after China Eastern shareholders rejected the deal, but it "will continue to support the building of a relationship with China Eastern, noting that the airlines are still mutually willing to develop the relationship."


China Eastern signed an agreement to sell a combined 24 percent stake to Singapore Airlines and Temasek at HK$3.8 on September 2. But CNAC, the parent company of Air China, which owns 12.07 percent stake in China Eastern, said on Sunday that it can make a higher offer of 5 HK dollars per share.


CNAC said on Tuesday that it plans to submit a formal offer to China Eastern within two weeks after shareholders rejected the Singaporean deal.


China Eastern's chairman Li Fenghua said the voting result is within his expectation because a vast number of shareholders that previously supported the deal have changed their ideas after CNAC made the offer.


"We will further study the possibilities for the alliance with Singapore Airlines and also consider shareholders' suggestions," said Li.


Li said that the price is not a major obstacle. "If Singapore Airlines raise the price, Air China may follow suit to offer a much higher price, which is not an effective way to solve the current problem," said Li, adding that China Eastern will mull over further plan to act against the CNAC bid, but declined to elaborate.


Analysts said that the result is within their expectation because of Air China's higher offering prices. Air China aims to gain a leading position in Shanghai, which is expected to build into an international aviation hub, analysts said.


China Eastern accounts for 35 percent of aviation market in Shanghai, followed by 18 percent of Shanghai Airlines and 12 percent of Air China.


"Air China's market share is expected to soar to 50 percent if it succeeds in the possible merger with China Eastern," said Zheng Qingping, an analyst at Tebon Securities.


"All airline companies are striving to gain more market share in Shanghai, with the increasing importance of the city in the international aviation market," said Zheng.


(China Daily January 9, 2008)

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