American Airlines ‘may’ buy stake in China Southern Airlines

China Southern Airlines Co. Asia’s biggest carrier by passengers, is in advanced talks to sell a stake to American Airlines, according to people familiar with the matter.

The negotiations focus on an investment of about US$200 million by Fort Worth, Texas-based American in China Southern’s Hong Kong-listed shares, said the people, asking not to be identified as talks are confidential. The sale likely would take place through a private placement, one of the people said. China Southern has a market value of about US$10 billion.

An investment in China Southern would allow American, already the world’s largest carrier, to strengthen its presence in a market that the International Air Transport Association predicts will surpass the US to become the world’s biggest in terms of passenger numbers by 2024. Delta Air Lines acquired a minority stake in China Eastern Airlines Corp. in 2015.

Under the discussions, American would nominate an observer without voting rights to the Chinese company’s board, the people said. Details of a deal are subject to change and a transaction could still fall through.

A spokesman for American Airlines declined to comment. China Southern representatives couldn’t immediately comment when reached after regular business hours.

China Southern and its subsidiaries have ordered more than US$15 billion of new aircraft from Boeing and Airbus since 2015 as more people fly in the world’s most populous nation.

China Southern and Delta are members of the SkyTeam global airline alliance. American is in the competing Oneworld group, which doesn’t have a China-based partner. Such alliances make it easier for passengers to fly around the world by combining schedules through one carrier and allowing travellers to accrue and use frequent-flier miles across airlines. China Eastern also is a SkyTeam member.

A China Southern stake sale would represent the Chinese government’s efforts to diversify ownership of state-controlled enterprises. Authorities have urged firms in industries including power, energy, defence and aviation to take measures this year to broaden ownership.

China Southern is the last of the nation’s top three airlines to bring in a non-mainland Chinese strategic investor. Cathay Pacific Airways Ltd., which is based in Hong Kong, owns about 18 per cent of flagship Air China Ltd. Besides Delta, Shanghai-based China Eastern also counts online travel-services provider Ctrip.com International Ltd. among its shareholders.

American recently received a six-month extension, until September, to begin flights between Los Angeles and Beijing because it was unable to secure viable slots from the Chinese government.

The airline connects 350 destinations in 50 countries, mostly in North America, the Caribbean, South America and Europe. It has flights from major US cities to Beijing and Shanghai. China Southern -- with a fleet of 684 aircraft as of June 2016, the largest in Asia -- flies to 208 destinations across 40 countries and has been expanding on routes to Australia, New Zealand and Southeast Asia.