China Eastern Airlines Corp. (CEA) disclosed on Monday details of a wide-ranging alliance proposal from China National Aviation Corp. (Group) (CNAC).
In a statement on the Shanghai Stock Exchange, China Eastern said its board of directors was dealing with the proposal it received on Jan. 18 and would make an announcement after making a decision.
On Jan. 8, minority shareholders rejected CEA's proposed sale of 1.88 billion H shares, or a 24 percent stake, to Singapore Airlines (SIA) and Lentor Investments, a unit of Singapore Government Investment Company Temasek Holdings.
The Hong Kong-based CNAC, the wholly-owned subsidiary of China National Aviation Holding Co. (CNAHC), parent of Air China Ltd., fulfilled its promise by making the offer within two weeks of the rejection.
In the proposal, CNAC said it offered, as it stated on Jan. 7, to buy with China Eastern Group its listed arm's 2.98 billion H shares at a price of no lower than five Hong Kong dollars (64 U.S. cents) a share. It noted the final price relied on consultations among related parties and it has no intention to take 30 percent or more CEA stake.
The price was 32 percent higher than SIA's offer of 3.80 H.K. dollars per share, which CNAC regarded as not reflecting CEA's fair value. It has also accused the deal of being unfair to other shareholders and domestic airlines as it included anti-dilution rights and a non-competition clause.
CNAC stated it would strive to promote business cooperation between Air China and China Eastern no matter whether or when the bid materialized.
Air China, the Beijing-based flag carrier, would help China Eastern facilitate construction of the Shanghai aviation hub, and optimize its air routes network and operation of the Pudong and Hongqiao airports.
CNAC suggested setting up a joint venture to integrate the cargo business at the two state-owned airlines to sharpen their competitive edge. It also suggested the two carry out wide-ranging cooperation, including code-sharing, air routes optimization, maintenance, and ground services.
The investment of no less than 14.9 billion H.K. dollars (1.9 billion U.S. dollars) in cash would reduce CEA's assets-liabilities ratio to 77 percent from 94.3 percent and save it 776 million yuan in debt interests per year, it said.
The cooperation would bring the two five billion yuan (688.7 million U.S. dollars) in returns annually, including four billion yuan in revenues growth and one billion yuan in cost reduction, CNAC added.
The alliance would help them grasp larger market shares of the international flights from and to Beijing and Shanghai and boost the competitiveness of their internationally weak cargo business, CNAC added.
A source with CEA's board told Xinhua last Tuesday the carrier "is willing to study any sincere bid that conforms with legal procedures and is better than Singapore Airline's offer."
The move marked a softening stance, as CEA's chairman Li Fenghua ruled out an alliance with Air China after a shareholder vote on Jan. 8, saying "CEA will never give up no matter how big the obstacle it faces."
Source:Xinhua
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