Appointment signals airline shake-up

By Wendy Leung  |   2008-12-13  |     NEWSPAPER EDITION

CHINA Southern Airlines Co Chairman Liu Shaoyong will take the helm of China Eastern Airlines Corp, sources told reporters yesterday.

China Southern held a meeting yesterday morning to confirm the decision, a person who declined to be identified told Bloomberg News. Liu has resigned, the airline said in a statement to the Hong Kong stock exchange.

The management change paves the way for China Eastern to combine with hometown rival Shanghai Airlines Co, according to Caijing magazine, which reported the appointment earlier yesterday.

The government is encouraging cooperation between the nation's state-owned carriers after they racked up 4.2 billion yuan (US$613 million) in losses in the first 10 months of the year.

"The move is part of the central government's plan to revamp the aviation industry," said Jack Xu, an analyst at Sinopac Securities Co in Shanghai. "It will help with future mergers and lead to more cooperation."

Chinese carriers are struggling with waning demand this year because of a cooling economy. The government has injected 3 billion yuan each into the parents of China Southern and China Eastern, the nation's largest and third-largest carriers, to help the airlines reduce their debts.

Li Jiaxiang, head of China's aviation regulator, has encouraged airlines to cooperate more. In his previous job, as chairman of Air China Ltd, he also called for the formation of a Chinese "supercarrier" to compete with rivals overseas.

China Southern and China Eastern earlier in the year applied to code share on more than 40 mainly domestic routes. The two expected to generate combined gains of about 1 billion yuan a year through the cooperation, as it will allow them to cross-sell tickets and cut operating costs, Liu said in March.

China Eastern, heading for its third loss in four years, previously attempted to boost its management by selling a stake to Singapore Airlines Ltd. The deal was vetoed by minority shareholders in January after Air China's parent pledged to make a higher offer.

Li Wenxin will serve as the interim chairman of China Southern until a replacement has been elected, the carrier said in the statement.