China Eastern Airlines is to take 55 per cent of Great Wall Airlines in the sector's second takeover this month. Earlier China Southern Airlines' parent, Southern Airlines (Group), took over Zhongyuan Airlines. The takeovers are the start of a plan unveiled last month by the Civil Aviation Administration of China to merge the 10 airlines under its jurisdiction into three large aviation groups. China Eastern chairman Li Zhongming decline to disclose the financial arrangement of the Great Wall acquisition. He said it was at the asset valuation stage and pending government approval. He dismissed speculation that Great Wall was in trouble. '[Great Wall] certainly has net positive assets, and of quite a substantial amount,' he said. The Ningbo-based carrier was profitable last year, said director Luo Zhuping. Mr Li said China Eastern - one of the mainland's three-largest carriers - would consider issuing shares to pay for the acquisition and was more likely to issue Hong Kong-listed H shares than mainland-listed A shares. At the end of June, the company had more than one billion yuan cash (about HK$936.4 million). With debts of US$1.25 billion, it has a debt-to-equity ratio of 74 per cent. Mr Li also confirmed flagship Taiwan carrier China Airlines plans to take a 25 per cent stake of China Eastern's 70 per cent-held cargo carrier China Cargo Airlines. Both China Eastern and partner China Ocean Shipping would reduce their holdings. China Eastern's board of director had given the green light to the sale, he added. It was waiting for government consent. While the deal would give China Airlines a foothold in the fast-growing mainland air-cargo market, analysts expect the deal to face the hurdle of sensitive cross-strait political relations. Mr Li expects more expensive fuels and traffic growth will see China Eastern's fuel costs increase by about 300 million yuan in the whole year, after they rose 19 per cent, or 153 million yuan, in the first-half. 'We expect high fuel costs will continue to add cost pressure in the second-half as two recent price rises have yet to be reflected,' he said. During the first half the company recorded a 110 per cent rise in its net profit - to 203.67 million yuan. This was partly due to a 54.9 per cent increase in profits from aircraft disposals - at 98.41 million yuan. An analyst said the airline plans to sell two additional aircraft in the second half. Operating profit rose 20.4 per cent to 519.58 million yuan, with turnover growth exceeding the rise in expenses. Turnover climbed 13.3 per cent to 5.34 billion yuan, compared to a 12.6 per cent rise in expenses. Average yield - a profitability measure in terms of per tonne-kilometre passenger and cargo revenues - fell 5.5 per cent to 5.25, while the overall load factor rose 5.75 percentage points to 56.45 per cent.