China Eastern Airlines

China Eastern HK$4.4b share placement aims to cut debt

PUBLISHED : Wednesday, 12 September, 2012, 12:00am
UPDATED : Wednesday, 12 September, 2012, 2:01am

China Eastern Airlines plans to raise HK$4.42 billion by selling shares to its parent China Eastern Air Holdings in a bid to trim debt and reduce interest payments.

The board of directors of the Shanghai-based carrier yesterday approved the placement of 698.9 million A shares at 3.28 yuan and 698.9 million H shares at HK$2.32 to its parent. The proceeds will be used to repay 4.3 billion yuan of outstanding bank loans due by June next year.

The move is expected to save the carrier 138 million yuan in interest payments.

Last year it paid 1.7 billion yuan in interest and it paid 985 million yuan in the first half of this year. The charges dwarfed earnings, which tumbled to 813.9 million yuan in the first half from 2.25 billion yuan a year earlier.

Airlines are heading for a double setback as operating costs increase while passenger and cargo demand weakens.

A report from the International Air Transportation Association said airlines' profitability had been squeezed this quarter after a minor improvement in demand for freight was seen in the first half of the year.

"Demand drivers have also weakened, with consumer confidence failing in China, the United States and particularly in Europe," the report said.

Aircraft utilisation rates have been declining and the trend is expected to continue as the use of more wide-bodied aircraft, which have more cargo capacity, is set to increase by more than 70 per cent this year.

As a result, air freight rates, which have been declining since early 2011, could continue to come under downward pressure, the association said.