Boosting routes between the world’s two largest travel markets and possibly involving the U.S. carrier taking a stake in the state-owned airline, China Southern Airlines is in talks over a tie-up with American Airlines.
Aafter Delta Air Lines Inc bought 3.55 percent of China Eastern Airlines Corp for $450 million in 2015, this potential deal would make American Airlines the second U.S. carrier to own part of a Chinese airline.
While it was still subject to shareholder and government approval, the tie-up could involve a share issue as well as other forms of cooperation, China Southern, the country’s largest carrier by passenger numbers, said in a filing.
While its mainland-listed shares remained suspended, the company’s Hong Kong-listed shares jumped as much as 5.3 percent in early morning trading on Monday.
By the introduction of private capital and strategic investment into its state-owned enterprises in a bid to improve efficiency and competitiveness and implementing mixed-ownership reforms, Beijing has vowed to shake up its airlines and the tie-up comes amidst such a business outlook by the Chinese authorities.
Given the lack of new flight slots available, the tie-up was the best way for the two companies to offer consumers more flights overseas the tie-up was the best way for the two companies to offer consumers more flights overseas, said BOCOM International analyst Geoffrey Cheng.
While in reality the deal would be little more than a glorified code-sharing arrangement by which airlines pool resources and share flights, any equity stake – expected to be similar in size to the Delta deal – would help cement ties between the airlines, he added.
“The rationale is probably like what Delta has been doing with China Eastern,” he said, adding it would allow them to link up with more second-tier cities in China and the United States. “Essentially if there’s no voting rights, it’s just symbolic.”
As they seek to capitalize on strong growth in outbound Chinese travel that has far outpaced tourism at home, Chinese airlines have been increasing the number of their international routes and aggressively expanding their fleet.
Flights to U.S. cities New York, Boston and Chicago as well as Hawaii are operated by China Southern has flights from its home base of Guangzhou. It has code-sharing agreements with Virgin America and Delta and is also a member of the SkyTeam airline alliance.
For American Airlines, the deal will help it compete with rival Delta, which has invested in foreign carriers in Mexico, Brazil and Britain in recent years and could widen access to China, one of the biggest sources of tourists to the United States.
As part of its deal in 2015, an observer seat on China Eastern’s board was gained by Delta, which also owns 49 percent of Virgin Atlantic Airways Ltd. Cooperation in the areas such as frequent flyer plans, joint investments in lounges and sales and market would be done by them, the two companies had said at the time.
(Adapted from Reuters)