CSA shares halted on talk of bid from US
Link would promote mixed- ownership reform, broad market access
Shares in China Southern Airlines ( CSA) were suspended from trading in the A- share market in the Chinese mainland and on the stock exchange in Hong Kong on Thursday, following reports that American Airlines might take a stake in the carrier.
In a filing to the Hong Kong Stock Exchange Thursday morning, CSA said it would make an announcement related to “a possible major strategic cooperation.”
On Wednesday, unidentified sources who claimed to be familiar with the matter were quoted by Bloomberg as saying that CSA is in talks to sell some of its Hong Kong- listed shares to American Airlines for $ 200 million. The sale might take place via a private placement, according to the sources.
CSA, Asia’s largest carrier by passengers, has a market capitalization of about $ 10 billion.
The Chinese carrier de- clined to comment on the report when contacted by the Global Times Thursday, citing the Hong Kong bourse’s “quiet period” rules. American Airlines couldn’t be reached either for comment as of press time.
“The deal, if it takes place, can generate win- win results for both sides,” Li Xiaojin, a professor at the Civil Aviation University of China, told the Global Times Thursday.
The International Air Transport Association in February forecast that China will surpass the US to become the world’s largest air passenger market by 2024.
American Airlines, the world’s larg-
est carrier, and CSA A can enlarge their presence in each other’s home market through the deal and further lower operational costs and risks, said Li.
If the deal is sealed, it won’t be the first time that foreign capital has made a foray into China’s civil aviation sector. In 2015, Delta Air Lines bought a 3.55 percent stake in China Eastern Airlines for $ 450 million.
“Such a strategic partnership also allows China and US carriers to further explore the potential of air routes between the two countries,” Lin Zhijie, an independent expert in passenger planes, told the Global Times Thursday.
China- US routes are widely perceived to be promising, as more and more Chinese people want to travel
to the US. Last year,
the average daily number of visitors from China to the US surpassed 8,000 while it was nearly 6,000 in the other direction, the People’s Daily reported in January.
China- US segment routes are now dominated by United Airlines with Air China and China Eastern as the second– and third– largest players respectively, said Lin.
“CSA and American Airlines will be able to compete with those three, if they could co- operate routes via the joint venture,” he said.
According to the unidentified sources, American Airlines is in discussions to appoint an observer to the board of CSA without voting rights.
The expected stake sale represents the Chinese government’s active effort to broaden the ownership of the Stateowned enterprises ( SOEs), said the experts. Last December, a statement issued by the Central Economic
Working Conference designated mixed- ownership reform as a key task for SOE reform this year, targeting industries such as power, railways, defense and civil aviation. In early January during its annual work conference, CSA outlined several steps it would take to support mixedownership reform. Those measures included stake sales to global counterparts, joint venture establishment and the introduction of Internet companies. Lin said that in 2017, more foreign companies are likely to invest in China’s civil aviation sector in response to steps taken by the government since last year to encourage such deals. However, he warned that those investments may face headwinds amid political uncertainty between China and the US.