China Eastern Airlines Aims to Sell 30 pct of Happy Air-Sources

China Eastern Airlines, the weakest of the country’s three biggest airlines, wants to sell a roughly 30 percent stake in regional carrier Happy Airlines to alleviate its strapped finances, company sources said on Tuesday.

China Eastern, which over the weekend warned about 6.2 billion yuan ($907 million) in fuel hedging losses for 2008, is in detailed talks to sell the stake to Aviation Industry Corp of China (AVIC), which owns a majority of the carrier.

Shanghai-based China Eastern holds a 40 percent stake in Happy Airlines, which is based in Xi’an, in western China.

“China Eastern wants to cut its holdings in Happy Airlines to help ease its financial difficulties. That intention is well understood by AVIC,” a company source with direct knowledge of the matter told Reuters.

Another company source added: “China Eastern wants to sell around a 30 percent holding to AVIC and the two sides are working on the details.”

A China Eastern spokesman declined to comment.

In February 2008, China Eastern won regulatory approval to set up Happy Airlines, capitalised at 1 billion yuan, with AVIC I, a state-owned aircraft maker. AVIC I later merged with peer AVIC II to form aviation conglomerate AVIC.

If the proposed deal goes ahead, China Eastern will not only get paid for the 30 percent stake it cedes to its partner but also cut its potential loss of a newly-incorporated carrier, flying less lucrative regional routes, analysts said.

“It is a good move for China Eastern. It has been trying very hard to slash costs amid the current downturn,” said an analyst with Haitong Securities, who asked not to be identified because of company rules.

COST CUTS

Company sources told Reuters that China Eastern was also in discussions with the provincial government of Yunnan to help strengthen ties between the government and its Yunnan branch.

It has also taken the initiative to cut the salary of its mid to high level management by between 10 to 30 percent, effective next month.

After years of double-digit growth, China’s air traffic began to slide in May as a series of natural disasters and a slowing economy dented demand for air travel.

The country’s top airlines, which include Air China and China Southern Airlines all posted net losses in the third quarter.

Many carriers also suffered huge losses in fuel hedging after unexpectedly steep falls in global oil prices late last year. China Eastern was hit hardest. Its passenger volume fell 5.4 percent to 37.05 million in 2008, marking the first decline in at least nine years.

That compared with a 2.3 percent rise in China Southern’s passenger numbers to 58.24 million last year. Air China has yet to announced its full-year operating data.

To help its ailing airline industry, Beijing has unveiled a raft of support measures in the past months, including combined cash injections of 10 billion yuan into China Eastern and China Southern.

China Eastern’s H shares, traded in Hong Kong, fell 2.88 percent to HK$1.01 in the late afternoon, worse than a 2 percent fall in the benchmark Hang Seng Index .HSI.

Its yuan-denominated A shares fell 5.41 percent to 4.20 yuan, against a 1.95 percent drop in the main index .SSEC.

source : Reuters