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Air China 'will not block SIA-China Eastern deal'
Karamjit Kaur Tue, Dec 18, 2007 The Straits Times
ASSURANCES have been given that Air China will not block a tie-up between China Eastern Airlines, Singapore Airlines (SIA) and Singapore's Temasek Holdings. Setting the record straight, China Eastern chairman, Mr Li Fenghua, told The Straits Times he was informed by the Chinese government just last week that state- owned Air China promised not to stand in the way of the partnership. This was after the government, which supports SIA's and Temasek's bid for a 24 per cent stake in the Shanghai-based carrier, instructed Air China to back off.

The roadshow in Hong Kong, Singapore and cities in mainland China is to explain to investors several key things, Mr Li said.

First, contrary to what some may think, there is no other higher offer on the table, and it is 'highly unlikely' that a new offer will come before the Jan 8 meeting.

Second, if the deal with SIA and Temasek falls through, share prices - which have risen 80 per cent since the tie-up was announced - 'will tumble', he said.

'From the meetings I have had with investors so far, I am confident they now understand what is at stake here and will bless the deal,' added Mr Li.

China Eastern is 57 per cent-owned by parent CEA Holdings, which needs just 9 per cent more to hit the 66 per cent threshold required for the deal to be successfully voted through.

Although the tie-up is supported by the Chinese government, there is speculation that Air China's parent, China National Aviation Corp, will try to block the deal, which has created some unease among shareholders.

Yesterday, Hong Kong-listed China Eastern shares fell 6.39 per cent to HK$6.30.

SIA and Temasek's joint bid of HK$7.2 billion (S$1.33 billion) prices the airline's shares at HK$3.80 each.

Although China Eastern had received higher offers from other airlines before the deal with SIA was sealed, management chose to go with the 'best-run airline in the world', Mr Li said.

'This is not just a capital injection. The significance of the tie-up lies more in the introduction of best practices and improving our product and service levels.'

This is why the tie-up involves exchange of staff, he said. SIA will send 12 people to China Eastern, which will likewise attach its own staff to the Singapore carrier.

SIA is fully committed to the deal, which will give it important access to the fast-growing China aviation market, the airline's divisional vice-president for planning, Mr Michael Chan, said during the meeting with investors yesterday.

China Eastern, which expects to return to profit this year after two years of losses, has big expansion plans. The airline currently has a fleet of just over 200 planes operating more than 500 mainly domestic routes, but plans to lift its fleet size to 323 by 2010, Mr Li said.

CONFIDENT OF SUCCESS

'From the meetings I have had with investors so far, I am confident they now understand what is at stake here and will bless the deal.'
MR LI, China Eastern's chairman, on his conviction that the tie-up with SIA and Temasek will succeed. He has told investors there is no higher offer on the table and that the airline's share price will tumble if the deal fails