Airline shares take off on speculation of bailouts

By Leo Zhang  |   2008-11-17  |     ONLINE EDITION

SHARES of China's top three airlines surged today after media reports said the parent groups are expected to receive government cash injections to counter growing costs and slack demand.

China Southern Airlines Co, the country's biggest carrier by fleet size, rose the 10 percent daily cap to close at 3.67 yuan (54 US cents), compared with a 2.22 percent gain on the benchmark Shanghai Composite Index.

China Eastern Airlines Corp, the third-largest by fleet size, advanced 10 percent to 3.85 yuan while Air China Ltd, the country’s flagship international air carrier, also jumped 10 percent to finish at 4.65 yuan.

The central government is likely to offer a cash injection of 3 billion yuan each to the parents of China Eastern and China Southern, newspapers including the Shanghai Securities News and the Oriental Morning Post reported, citing unnamed sources.

The parents China Eastern Air Holding Co and China Southern Air Holding Co will then inject the money into the listed units, according to the Oriental Morning Post.

Elsewhere, the state-run parent of Air China is also reportedly seeking cash from the government. Industry sources said earlier that the central government was considering bailing out several troubled airlines, but no decision has been made.

Officials at the three airlines all declined to comment on media reports yesterday. Calls made to the Civil Aviation Administration of China, the industry regulator, went unanswered.

The proposals to inject money into airlines are part of the central government's plan to help a raft of state-owned enterprises as it acts to bolster demand and spur growth, according to Shanghai Securities News.

Chinese airlines, including the top three, posted heavy losses in the third quarter due to rising fuel costs and declining traffic volume. Industry analysts expect the air transport industry to sink into the red for the entire year.