China Airline Sector Overhaul Unlikely

February 4, 2009

A major restructuring of China's loss-making airline industry is unlikely in the near term as the government has more urgent issues to tackle, a senior Chinese airlines executive said on Wednesday.

Liu Shaoyong, chairman of China Eastern Airlines, said China should set up a state-owned company which will then hold stakes in its three biggest carriers to improve their synergies and global competitiveness.

China Eastern Airlines, China Southern Airlines and Air China, are the country's three biggest carriers. All have warned of losses for 2008 largely due to slowing air traffic demand amid the global economic slowdown.

"The big three are competing fiercely with each other and yet they are all controlled by the same boss SASAC. That is a huge waste of resources," Liu said.

He was referring to the State-owned Assets Supervision and Administration Commission, the ultimate owner of all Chinese state firms.

Liu said he had submitted a proposal to the government during the annual parliamentary meeting in March 2008, but any drastic industry restructuring was unlikely in the near term.

"Personally, I think the current industry structure will remain intact for quite some time as the government needs to handle unexpected situations currently," he said.

China's economic growth slumped to 6.8 percent in the last quarter, dragging down the pace of expansion for all of 2008 to a seven-year low of 9.0 percent as the full force of the global financial crisis struck home.

Chinese premier Wen Jiabao had in January called for prompt action in the first three months of the year to stop the slowdown in the economy.

Sources said the Chinese government was discussing the possibility of brokering a merger of Shanghai-based China Eastern and its smaller peer Shanghai Airlines.

Liu called the proposed merger a "good move", but said the airlines themselves had not held any discussions on equity ties so far.