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...largest carrier by revenue, was hailed as an example of capitalism invading the country's tightly controlled airspace. China Eastern was entertaining an offer by Singapore Airlines to buy 24% of the company for $920 million when a rival bidder, China National Aviation Corp. (CNAC), parent of flag carrier Air China, swooped in with a promise to beat that offer. In an uncharacteristic move, airline-industry regulators in Beijing said they would allow China Eastern's shareholders to settle the matter...
...highest bidder, on Jan. 8 voting to reject Singapore's overture. This cleared the way for CNAC to sweeten the pot. But while the vote may have seemed like the free market at work, the Chinese government isn't about to let the invisible hand shape its air travel industry. By green-lighting CNAC's $1.9 billion hostile bid, Beijing actually steered the proceedings toward what it really wants: by consolidating China's fledgling and fragmented airline industry, regulators aim to form a Chinese "supercarrier" capable of competing on international routes against the world's largest airlines. An alliance between...
...aviation regulator. Just as Beijing has opened up its backward banking sector to overseas investment in order to tap the expertise of foreign financiers, in recent years the CAAC has been allowing foreign airlines to take small stakes in domestic carriers, hoping that outside partners could improve airline management. Air China, for example, has a cross-shareholding agreement with Hong Kong-based Cathay Pacific, and in 2005 American financier George Soros invested $25 million in Hainan Airlines, the country's fourth largest airline by revenue. But by freezing out Singapore Airlines, CAAC officials signaled that they have decided to close...
...aircraft should go hand in hand with the recruitment of new staff and the improvement of safety standards," he said. China clearly needed to change course. Although the market has grown about 10% a year for the past five years, the top three players - China Southern, China Eastern and Air China - are filling less than three-quarters of their seats with paying customers. During a recent price war, tickets were discounted by as much as 70%, according to local media reports. Rising fuel costs and fare caps enforced by Beijing have sliced profit margins. Air China earned about $300 million...
...Others are skeptical that travelers will gain much through mergers of domestic carriers such as Air China and China Eastern. Air China has little expertise to lend its potential new partner when compared with Singapore Airlines, which is known for top-flight service. "Bring in Singapore, and you can be confident service levels will go up," says Pinkham, the Centre for Asia Pacific Aviation analyst. "With Air China, the improvement is a lot less certain...