Aviation News
- Singapore Air, Temasek buy 24% of Eastern Air
Date: 3-Sep-2007 Sources: (Shenzhen Daily)
SINGAPORE Airlines Ltd. and parent Temasek Holdings Pte have agreed to pay about US$918 million for a 24 percent stake in China Eastern Airlines Corp., as economic growth boosts air travel in China.
Singapore Airlines and Temasek agreed to buy Hong Kong-listed shares of China Eastern at HK$3.80 (49 U.S. cents) apiece, representing a premium of 1.9 percent to the closing price May 21.
Temasek agreed to buy 649 million new China Eastern shares, giving it an 8.3 percent stake, the Shanghai-based carrier said yesterday in a statement. Singapore Airlines will buy 1.235 billion shares for a 15.7 percent stake. China Eastern's parent company, China Eastern Air Holding Co., will buy 1.1 billion new shares, giving it a 51 percent stake.
The purchase is a good opportunity for all as the potential demand for air travel is huge, said Teng Ngiek Lian, who manages US$2 billion at Target Asset Management in Singapore, including Singapore Airlines shares. 'China Eastern is the only Chinese airline that hasn't done well, which says a lot about management, and that's where Singapore Airlines can help,'' he said.
China Eastern, the nation's third-largest carrier, will expand its board to 14 members from 11 members.
Temasek will have the right to appoint one new member and Singapore Airlines will have the right to appoint two new members to China Eastern's board. The three companies will cooperate in six areas, including fl ights, operations, service, procurement, training and marketing.
After this year's new share sale, China Eastern's debt to asset ratio will decrease to 80.2 percent from the current 95 percent, the statement said.
Net asset value per share will increase to 1.8 yuan, from the current 0.62 yuan, and the company's total assets is forecast to increase 18.4 percent to 71.22 billion yuan (US$9.44 billion), from 60.13 billion yuan.
Singapore Airlines, Asia's most profi table carrier, aims to add fl ights in China, where air travel may grow fi vefold by 2025. China Eastern, the nation's only listed carrier to post a loss last year, may reduce debt and gain a partner to help fend off competition from Cathay Pacifi c Airways Ltd. and Air China Ltd.
Freight operations
A stake in China Eastern will enable Singapore Airlines to build on the 66 passenger flights it operates to Beijing, Shanghai and other Chinese cities each week. The agreement will also complement the airline's freight operations.
'Cargo will pick up as China moves up the production chain,'' said Louis Wong, a Hong Kong-based fund manager who helps manage US$25 million at Phillip Capital Management.
'The Chinese people are getting more affl uent and the demand for foreign and luxury items will increase.'' China's fast-growing economy has encouraged more people to travel. The nation's airlines are likely to carry 185 million passengers this year, 16 percent more than in 2006, the General Administration of Civil Aviation said June 6.
Airlines in China, the world's fastest growing major economy, will boost capacity by an average of 8.1 percent a year over the next two decades, making it the fastest growing region worldwide, according to estimates by Boeing Co.
Growing competition
China Eastern has struggled to turn rising ticket sales into profi t. It made a loss of 305.6 million yuan in the fi rst half, under international accounting standards, compared with 1.58 billion yuan a year earlier.
Its full-year loss in 2006 was 3.31 billion yuan. The airline has debts of 6.2 billion yuan.
The carrier faces growing competition from Cathay Pacific, which last year took over Hong Kong Dragon Airlines Ltd., then China Eastern's only competition on the Hong Kong-Shanghai route. Cathay Pacific later added its own services. Air China, the nation's biggest international carrier, is also adding flights in Shanghai.
Cathay Pacific and Air China own about 17.5 percent of each other.
Singapore Airlines' small stake may limit its ability turn China Eastern around, according to Mark Webb, a Hong Kong-based analyst at HSBC Holdings Plc.
Size of stake
Still, by holding a stake of less than 20 percent, Singapore Airlines won't have to account for the Chinese carrier's losses, according to a May 23 Morgan Stanley report.
Singapore Airlines will have the right to increase its shareholding percentage in China Eastern when permitted by law, said the statement. Overseas investors are barred from owning a controlling stake in Chinese carriers.
China Eastern had 209 planes and 38,747 employees as of June 30, it said Aug. 29. Singapore Airlines operates a fl eet of 93, mainly Boeing planes, as of June 30. (SD-Agencies)
A carte drives past a China Eastern Airline plane parked at the Beijing Capital International Airport yesterday. China Eastern announced yesterday an agreement to sell a stake to Singapore Airlines and Temasek Holdings.
Sponsor Results:
