NewSurprise HK$3.5b Delta Air Lines investment in China Eastern a sign of more to come

A strategic investment valued at HK$3.5 billion by US-based Delta Air Lines into China Eastern Airlines will significantly boost the Shanghai-based airline's Pacific expansion ambitions and pave the way for more Sino-foreign deals in China's state-owned airlines, analysts say.

China Eastern's announcement on Monday that Delta would be a new shareholder with a 3.55 per cent stake - through the issuance of 465.9 million H shares, pending regulatory approval - came as "a pleasant surprise", said Jefferies analyst Boyong Liu.

The deal would make Delta the largest external shareholder in China Eastern and marks the first strategic investment by a foreign airline into a Chinese state-owned passenger airline, save for flag carrier Air China's cross shareholding agreement with Hong Kong's Cathay Pacific Airways since 2006. This is China Eastern's second bid to introduce a foreign airline stakeholder after failing in 2008 to bring Singapore Airlines on board.

Liu said the deal was "a mutually beneficial agreement" for China Eastern and Delta, both Skyteam alliance members and code-sharing partners, to capitalise on the boom in Chinese outbound tourism.

"The deal could lead the two parties to more openly share their vast domestic networks in China and the US, in order to attract China's outbound tourists," Liu said, adding that Delta could help China Eastern with long-haul expansion and plane deployment.

Air China and China Southern are also expected to expedite their overseas cooperation in the form of joint ventures with foreign airlines on international routes, Liu said. "The trend will help Chinese carriers to grow their underdeveloped overseas networks [and] put more competitive pressure on traditional transit carriers such as Cathay Pacific and Korean Air," he said.