BEIJING - SINGAPORE Airlines' bid for a stake in China Eastern Airlines is looking doomed ahead of a key shareholder vote next week that could presage a revived counter-bid by Air China, analysts said on Thursday.

Flag carrier Air China's parent company, a major shareholder in China Eastern, has already said it will vote against the proposed deal at a meeting next Tuesday, saying it undervalues loss-making China Eastern.

But even if SIA raises its bid - it has vowed not to - the deal faces a powerful foe in new China aviation authority chief Li Jiaxiang, Air China's former chairman and a man widely known to be strongly opposed to allowing SIA into China's booming aviation sector, analysts said.

SIA and Singapore's government-linked investment entity Temasek would take a combined 24 per cent stake in China Eastern for US$923 million (S$1,338) under a preliminary agreement reached in September.

Many have called it a dream come true for both sides.

Shanghai-based China Eastern would gain an infusion of money and expertise from one of the world's most respected airlines, while the Singaporean side would gain a foothold in China's booming market for air travel.

But the deal has laid bare intense competition over a piece of China's aviation pie, particularly the lucrative Shanghai-Hong Kong routes plied by China Eastern.

Air China and its own investor, Hong Kong's Cathay Pacific Airlines, withdrew a subsequent rival bid for China Eastern but will likely make another play after galvanising opposition to the SIA proposal next week, analysts said.

'Cathay and Air China have always been interested in allying with China Eastern. They may put forward some new proposal and may have done it already,' said Deng Hongmei, Shanghai-based analyst with Essence Securities.

Since SIA's offer of HK$3.08 (57 Singapore cents) per share of China Eastern, stock in the Shanghai carrier has soared amid expectations of a rival bid, making the original agreement look inadequate, analysts said.

On Thursday, the Hong Kong-based Ming Pao newspaper cited an unnamed source close to Air China as saying the mainland flag carrier planned to outbid SIA with an offer of HK$5 per share.

China Eastern shares traded down HK$0.13 or 1.61 per cent at HK$8.05 early on Thursday on the Hong Kong stock exchange.

Singapore Airlines maintains it will not up the ante.

'The price is fair and mutually agreed between all the parties,' spokesman Stephen Forshaw said on Wednesday.

Analysts see a good chance SIA will raise their bid, to a point.

'It would be quite out of the question to expect them to double the original price, but raising it would help defuse some of the pressure on the deal,' said Peter Harbison of the Centre for Asia-Pacific Aviation, a Sydney consultancy.

But analysts said price is a secondary issue, especially now with the move just last Friday of Air China's Mr Li to head the China Administration of Civil Aviation, the industry regulator.

Citic's Li Lei said the new CAAC chief was widely known to favour cooperation by Chinese carriers to develop the domestic market - rather than relying on foreign help.

Even if he does not intervene directly, his appointment is seen as further tipping China Eastern shareholders in Air China's favour, analysts said.

'What matters most is that Air China does not want SIA to enter (China's market) because it will be even harder for Air China to break into the Shanghai market,' said Li Lei.

Li Jiaxiang's appointment also could mean investors interested in major China airlines may not be welcome in the future, Citic's Mr Li added.

But Mr Harbison said the growth of China's market and proliferation of smaller Chinese airlines should yield plenty of other opportunities. -- AFP

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