Shanghai Airlines in call for injection of government cash

By Winny Wang  |   2008-12-17  |     NEWSPAPER EDITION

SHANGHAI Airlines is seeking a cash injection from local government to reduce its asset-liability ratio.

It's not known how much it is seeking but it will be much less than the 3 billion yuan (US$438 million) the parents of China Eastern Airlines and China Southern Airlines each gained from the government, the carrier's Chairman Zhou Chi said yesterday.

He made the remarks on the sideline of a ceremony celebrating the launch of regular direct flights between the Chinese mainland and Taiwan.

China Southern, the country's largest carrier by fleet size, and third-largest carrier China Eastern last week announced they would each raise 3 billion yuan by issuing shares to their parents to repay loans and replenish working capital.

Domestic carriers have had a tough season due to fluctuating fuel prices and falling demand.

Shanghai Airlines, controlled by the local state-assets regulator, reported a loss of 414 million yuan in the first nine months of the year, and its asset-liability ratio reached 90 percent. The fair-value losses on its jet fuel hedging contracts stood at about 98 million yuan at the end of October.

Analysts said cash injections could ease pressures on the ailing industry.

"The industry will encounter oversupply next year, while ticket prices and load factors will decline," said Li Shurong, an analyst with Shenyin and Wanguo Securities. "Airlines are likely to suffer more losses next year as the yuan may decline against the United States dollar."

China's aviation regulator has taken 10 steps to boost the sagging market, including encouraging mergers among domestic carriers.

"We are looking forward to substantial progress of a merger between China Eastern and Shanghai Airlines," Li said.

Earlier reports said the government planned to merge China Eastern and Shanghai Airlines and suggested that the injection would have been part of the plan.