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SCMP Reporter

Move may sway China Eastern minority shareholders' decision on SIA, Temasek tie-up
Air China chairman Li Jiaxiang was promoted to be an executive deputy minister of the country's civil aviation watchdog yesterday, an appointment sure to upset China Eastern Airlines Corp, which is at loggerheads with the national carrier's parent company over a strategic tie-up with Singapore Airlines.
Industry sources said Mr Li was appointed to the job at a morning meeting of the General Administration of Civil Aviation of China. They said his predecessor, veteran pilot Yang Yuanyuan, who took over the position in 2003, was tipped to become a deputy head of the State Administration of Work Safety.
Mr Li will be formally appointed as a minister when the National People's Congress hosts its annual meeting in March.
Air China sources said that the carrier would not rush to appoint a new chairman and Mr Li would keep the chairmanship for a while.
Mr Li's promotion comes before  a vote on January 8 by China Eastern shareholders to decide whether the company's proposed partnership with Singapore Airlines  should proceed. China Eastern needs the approval of at least 66 per cent  of the minority shareholders.
China Eastern agreed earlier this year to issue a combined 1.75 billion shares to Singapore Airlines and Singapore's sovereign fund Temasek Holdings at HK$3.80 per share.
But China National Aviation Holding, Air China's parent, which owns 12 per cent of China Eastern's H shares, has argued the price is too low and proposed another alliance plan with a higher offer.
Analysts  say the government's endorsement of Mr Li will convince many of China Eastern's undecided minority shareholders to vote against the Singapore Airlines partnership.
Lending credence to that argument, shares in China Eastern yesterday rose 3.13 per cent to HK$7.26, almost double the offering price. Investors are betting on  a counter-offer from Air China.
Industry watchers suggest Mr Li's appointment is a sign the central government wants to push civil aviation reform in a different direction.
Mr Yang has favoured promoting competition among the three big mainland airlines while Mr Li has long been an ardent supporter of consolidating domestic airlines in order to collectively compete with overseas carriers.
Press officials from CAAC and the work safety administration refused to comment yesterday on the appointment.
CAAC transferred its ownership of state-owned airlines to the State Assets Supervision and Administration of China in 2003 but still has considerable influence over  airline personnel appointments.
China Eastern's No1 official, Li Jun, and China Southern Airlines president Liu Shaoyong were both vice-ministers of CAAC before getting the top jobs at the two airlines.
Mr Li's predecessor at Air China, Wang Kaiyuan, was also a former CAAC deputy minister.
Many industry insiders, as well as some Air China employees, had not expected Mr Li's appointment. Several Air China sources said they did not learn about it until yesterday morning.
'The airline business is a small circle and information flies around fast here. But I did not hear anything until this morning,' said a mid-level Air China official.
China Eastern chairman Li Fenghua appeared not to be well informed on the appointment, either, saying a couple of days ago in Beijing that the airline's strategic partnership with Singapore Airlines was a reflection of CAAC's intention to let the three biggest domestic carriers compete with each other.
A  source close to Mr Li said the appointment could be considered a surprise, but it was a 'reasonable surprise'.
'Put aside the timing, looking back at what Mr Li has achieved in turning Air China's business around in the past few years, I don't think anyone  should be surprised at his promotion,' the source said.
Under Mr Li's watch, Air China has posted consecutive profits since 2001 and successfully listed on the A and H-share markets. Air China is now considered one of the most profitable airlines in the world.
Mr Li is a former air force general of the People's Liberation Army and is no stranger to  sudden appointments.
State officials called him one night in November 2000 while he was still working for the air force in the northeast city of Shenyang to tell him he would be Air China's party chief the next morning.



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