Juneyao Airlines invests US$1.9bil for China Eastern stake, shares rise

SINGAPORE: Juneyao Airlines and its parent are investing US$1.9bil for a stake of around 5% in state-owned China Eastern Airlines, saying the investment is in line with Chinese policy and will boost Juneyao’s brand abroad.

The investment, which was unveiled as part of China Eastern’s up to US$2.23bil share sale announced on Tuesday, comes as the Chinese government has promised to open up more of its state-owned sectors to private investment as part of a wider effort to make its companies more globally competitive.

Shanghai-based Juneyao Airlines said the investment was meant to improve the strategic partnership between state-owned capital and private capital in line with Chinese policy and to help build up its brand internationally.

Juneyao’s shares climbed 2% in morning trade yesterday on news of the investment, which is subject to regulatory approval.

In contrast, shares of China Eastern, China Southern Airlines Co and Air China Ltd were down more than 5% as the yuan slid after the US decided to impose extra tariffs on Chinese goods.

The Juneyao investment in China Eastern could allow the two Shanghai-based airlines to tighten their grip on the aviation market in China’s commercial capital where combined they control half of the seats, according to Corrine Png, CEO of Singapore-based transport research firm Crucial Perspective.

“This makes sense from China Eastern and Juneyao’s perspective but consumers may not like this,” she said.

“Following Juneyao Group’s investment in China Eastern, competition between the two rivals is likely to ease and cooperation could ensue.”

Juneyao Airlines and its controlling shareholder Juneyao Group are expected to own more than 5% stake in China Eastern if they fulfil the upper limit of the proposed share subscriptions.

China Structural Reform Fund Corporation Ltd, whose mission includes the reform of state-owned companies, will also invest up to US$301.6mil.

China Eastern said it will use the proceeds from the share sale to fund the purchase of 18 airplanes, 15 flight simulators and 20 back-up engines as well as to boost working capital.

Juneyao first flew in 2006 and is one of China’s largest private carriers operating both domestic and international flights. It is a connecting partner with Star Alliance, whose members include Air China.

Delta Air Lines Inc, a founding member of SkyTeam, bought a 3.55% stake in China Eastern for US$450mil in 2015 and has an observer seat on its board.