3b yuan injection too small to lift airlines
An expected 3 billion yuan (HK$3.4 billion) government capital injection into each of China Eastern Airlines Corp and China Southern Airlines will only provide a short-lived boost to their share prices, analysts said, arguing the amount is insufficient to trigger a turnaround.
China Eastern closed 5.05 per cent lower at 94 HK cents yesterday, while China Southern ended at HK$1.20, down 1.64 per cent. Both stocks rose more than 7 per cent on Monday after two Shanghai newspapers said each airline would receive 3 billion yuan by the end of the year to help it cope with the financial crisis.
The injection might be followed by the listed airlines selling shares to their parents, the reports said.
Both airlines said on Monday they had not received official replies from the State Council about the government financial aid.
Their parents had been applying for a capital injection from the State Council to survive the slump in passenger and cargo demand.
The country's Big Three airlines, which include Air China, need to finance 200 new aircraft orders to be delivered in the next three years.
Air China said it was not aware of its parent applying for financial aid from Beijing. 'We are in a comfortable condition to secure loans from banks to fund aircraft acquisitions,' company secretary Huang Bin said yesterday.
'I won't be too excited with the capital injection, since yield management in China Eastern and China Southern are not favourable,' said RCM transport analyst Karen Chan.
Even assuming that the capital injections come with no strings attached and are not dilutive to existing shareholders, the impact on China Southern's earnings next year would be only 15 per cent, producing a loss of 340 million yuan, Citigroup said in a report on Monday.
That would imply the stock's price target rising to HK$1 from 80 HK cents, the report said.
The challenge for international and domestic air traffic on the mainland would be even more severe than that during the 1998 Asian financial crisis, the report said.
China Southern's international traffic remained weak last month, declining 18.7 per cent year on year. The percentage of paid load dipped 5 percentage points to 63.7 per cent last month.
