Air China

Consolidation likely with CAAC change

PUBLISHED : Saturday, 29 December, 2007, 12:00am
UPDATED : Saturday, 29 December, 2007, 12:00am

Shares in mainland airlines rose yesterday on speculation that consolidation in the industry might accelerate now that Air China chairman Li Jiaxiang moves to head the General Administration of Civil Aviation of China (CAAC).

'It is likely that more mergers will take place in the airline industry because Li Jiaxiang is very aggressive in merging with other airlines,' said Kelvin Lau, an analyst at Daiwa Institute of Research.

Mr Li, the newly appointed executive deputy minister, is a well-known supporter of airline mergers, unlike his predecessor Yang Yuanyuan.

Mr Yang has advocated competition within the industry and has opposed further consolidation.

The abrupt change in style at the head of the administration may suggest Beijing wants to adopt a more aggressive approach to changing the industry.

Mr Li said on September 21 that the airline industry needed another round of reform to create a mega-carrier able to fend off overseas competition.

He elaborated earlier this month, saying that mainland airlines could share resources and optimise management through share swaps.

In August, Air China president Cai Jianjiang named possible merger targets, including China Southern Airlines, Shanghai Airlines and Hainan Airlines.

Shares in Hainan Airlines rose 0.8 per cent to 12.88 yuan in Shanghai yesterday. Shanghai Airlines closed at 17.47 yuan in the A-share market, up 3.6 per cent.

China Eastern Airlines rose 3.13 per cent in Hong Kong to HK$7.26 while the shares traded 6.8 per cent higher in Shanghai to 21.29 yuan. Air China closed 1.88 per cent higher at HK$10.86. China Southern Airlines fell 0.2 per cent to HK$9.88 in Hong Kong while its A shares traded 2.4 per cent higher to 27.94 yuan.

Mr Li published a book in September about his management experience in the industry after he earned fame by leading Air China's turnaround.

Li Fenghua, chairman of China Eastern, has praised Mr Li as a leader with vision, even though the two chairmen are on different sides in the merger dispute.