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Airlines fueled by capital injection

By Tu Lei (chinadaily.com.cn)
Updated: 2008-12-11 13:59

Logos of China Southern Airlines (left) and China Eastern Airlines on the planes. [CFP]

China Eastern Airlines and China Southern Airlines, two of the country's largest air carriers, said late Wednesday they each received a 3-billion yuan ($438 million) government cash injection as they struggle with mounting debts and slowing travel demand.

Related readings:  Chinese airlines face downturn  Shanghai Air soars on bailout reports  Airlines upgrade to offset losses  Regional airline debuts to tap potential market

It is the first time Chinese airlines have received a State cash injection over the past five years.

China Eastern said it would issue both domestic A-shares and Hong Kong's H-shares to its parent company to obtain the 3 billion yuan the government injected into its parent company.

China Southern said it would issue A-shares to its parent company to obtain 2.28 billion yuan. It would also issue H-shares to the parent's overseas unit.

Luo Zhuping, board secretary of China Eastern Airlines Co Ltd, was quoted by the Oriental Morning Post Thursday as saying that the plan is subject to approval by shareholder meetings and the China Securities Regulatory Commission.

"The A-shareholder meeting will be held soon, and the H-shareholder meeting will be held in 45 days," said Luo, "The 3 billion yuan is expected to be here next year."

Figures show the debt-to-asset ratio in the third quarter of 2008 for China Eastern had reached over 98 percent, and 83 percent for China Southern. The ratio is expected to decline to 94.7 percent and 80.5 percent respectively after the injection.

China Eastern had a record 2.33 billion yuan loss in the third quarter of this year. It also reported a 1.83 billion yuan loss from fuel hedging as of Oct 31 after the price of jet fuel plunged 58 percent from a record within four months.

China Southern slumped to a third-quarter loss of 810 million yuan compared with last year's 1.9 billion yuan profit. And its passenger numbers fell in each of the three months in the quarter. Its nine-month tally rose 0.9 percent to 43.1 million.