A possible alliance between Singapore Airlines and China Eastern Airlines Corp got the thumbs-up from analysts yesterday after Singapore's Minister Mentor Lee Kuan Yew revived the idea on Monday. Mr Lee said the loss-making mainland airline could 'reinvent' itself after learning from SIA, as he resurrected the prospect of new talks on a deal that was scuppered last year. But first China Eastern must go through a government-sponsored merger with another cash-strapped carrier, Shanghai Airlines. Analysts said that if SIA became an investor, the mainland government would see it as a way of bailing out both its troubled carriers without the need for more direct capital injections. 'The government has to do something to avoid the bankruptcy of a major carrier. State capital and strategic investors are necessary to get the deal going,' said Citi analyst Ally Ma. 'China Eastern badly needs more money to recover and recapitalise, and Shanghai Airlines needs to be bailed out,' said a finance expert. 'SIA can help ease the burden of the Chinese government. 'But in the end, it is a matter of price. If the price is good enough, SIA will go ahead,' he added, mindful of the fact that last year's attempt at an alliance was derailed when Air China's parent company offered a higher price to shareholders. 'We believe it is possible SIA may invest in China Eastern, but not in the near term,' said Daiwa Institute analyst Kelvin Lau. 'In the near term, they will focus on China Eastern's merger with Shanghai Airlines. 'If SIA is to be successful, it must resolve the pricing issue.' A merger between China Eastern and Shanghai Air would represent 'a major blow' for the ambitions of rival Air China in the Shanghai market, said Ms Ma. The China Eastern-Shanghai Air merger will control 50 per cent of the passenger market for flights in and out of Shanghai. The consolidation is likely to increase profitability by boosting the scale of the new carrier's operations while cancelling out overlapping routes and associated operating costs. The central government wanted China Eastern to improve its business rather than directly inject money into the airline, so the merger was an alternative to capital injection by the government, said Mr Lau. 'Instead of the government directly bailing out Shanghai Airlines, China Eastern is a platform for the government to bail out Shanghai Airlines,' said the finance expert. Shanghai Air said it would invest an additional 110 million yuan (HK$124.74 million) in Shanghai Airlines Cargo International. Other shareholders will also increase investments in the cargo company in line with their stakes and boost the registered capital of the cargo company to 664 million yuan from 464 million yuan, according to a statement on Shanghai Securities News website. SIA shares rose 4.38 per cent yesterday to close at S$13.34 (HK$70.75). Shares of Shanghai Air and China Eastern were suspended on Monday pending an announcement about the merger. China Eastern said in a stock exchange announcement that it was working with its state-owned parent on plans for a restructuring and to lower the gearing ratio.