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CNAHC to acquire East Star Airlines

By Lu Haoting (China Daily)
Updated: 2009-01-14 07:48

An East Star passenger jet takes off from Wuhan Tianhe International Airport. [China Daily]

China National Aviation Holding Co (CNAHC), the parent company of Air China, is in talks with Wuhan-based East Star Airlines to acquire all or part of the private carrier's stakes in a bid to strengthen its operation in Central China.

CNAHC is making "preliminary communication" with East Star Airlines about the share sale, the State-owned airline group said in a statement to the Hong Kong Stock Exchange late Monday night.

CNAHC sent representatives to East Star Airlines last week to conduct audits and investigations for the acquisition, a source from the private carrier told China Daily on Tuesday.

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"East Star Airlines has been plagued by cash flow problems for a long time. We have been in talks with several other airlines before, but no agreement has been reached," the source said on condition of anonymity.

East Star Airlines, the fourth private carrier in China, launched its maiden flight in 2006. It operates about 20 routes from Wuhan, capital of Hubei province, with nine leased Airbus A320 family aircraft. The airline is owned by China East Star Group, which is involved in tourism and real estate business and is one of the largest private enterprises in Hubei.

Hangzhou airport in Zhejiang province recently stopped providing boarding bridge and VIP lounge services to East Star Airlines because the airline has not been paying airport fees on time since September 2007 and owes over 3.8 million yuan in airport charges. The airline received similar warnings in December from Shenzhen Airport Group and Yunnan Airport Group.

Chinese private airlines are much more vulnerable than their State-owned counterparts as the economic crisis deepens. Okay Airways, China's first private airline, suspended service in December due to an internal management dispute. Another private carrier in Sichuan province, United Eagle Airlines, grounded two jets in November due to mounting losses.

"The difficult financial situation of East Star Airlines may give CNAHC a good bargain on the acquisition price," said Li Lei, an aviation analyst with CITIC China Securities.

The acquisition could help CNAHC to strengthen its business in Central China in the long term, Li added.

Wuhan has been vying to become an air transport hub in Central China. The airport transported nearly 10 million passengers in 2008, up from six million in 2006.

Air China has the smallest market share in Wuhan, compared with its rivals China Southern Airlines and China Eastern Airlines.