China's East Star Air Faces Liquidation

Debt-ridden Chinese carrier East Star Airlines, grounded by the government earlier this month, faces liquidation, the official Xinhua news agency said on Friday.

Six creditors of East Star Airlines have asked a court in the central city of Wuhan to start liquidation proceedings against the privately-run carrier, Xinhua said, citing unnamed city officials.

It did not name the creditors but said the carrier's 16 bank accounts had been frozen by the court.

Officials at East Star Airlines could not be reached for comment after repeated phone calls to the company.

East Star, which has a fleet of nine aircraft and operates about 20 flights a day, was marked as a potential takeover target by Air China, the flag carrier had said in a statement in January.

Slumping air traffic due to slowing domestic demand has made it hard for China's small private airlines to compete with state-owned giants Air China, China Eastern and China Southern.

Since December, China Eastern and China Southern have announced plans to receive a total of CNY10 billion yuan (USD$1.5 billion) in cash injections from the government to help them ride out the slump. Private carriers do not enjoy such support.

China's first private airline, Okay Airways, said in December it had halted its passenger services indefinitely because of the global financial crisis.