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Singapore Airlines, Temasek to buy stake in China Eastern

By Chan Sue Ling and Cathy Chan (China Daily)
Updated: 2007-05-30 09:14

Singapore Airlines Ltd and parent Temasek Holdings Pte may pay about $930 million for a stake in China Eastern Airlines Corp to expand the carrier's reach in China, according to sources.

Singapore Airlines would invest about $600 million and Temasek about $330 million for a combined stake of about 24 percent, said the sources who did not want to be identified before the terms of the deal are finalized and approved by the regulators.

A man watches a China Eastern plane taxi at Shanghai's Hongqiao Airport. Singapore Airlines Ltd and parent Temasek Holdings Pte may pay about $930 million for a stake in China Eastern.

The deal would give Singapore Airlines, Asia's most profitable carrier, more access to a market forecast to grow fivefold by 2025. And China Eastern, the mainland's only listed carrier to make a loss last year, may reduce debt and gain a partner to help fend off competition from Cathay Pacific Airways Ltd and Air China Ltd in Shanghai, its home market.

"China Eastern is potentially a goldmine for Singapore Airlines," said Greg Kuhnert, who manages about $1 billion in Asian equities, including Singapore Airlines shares, at Investec Asset Management in London. "The Chinese airline industry has one of the highest growth rates worldwide."

Chinese carriers flew 160 million passengers last year, 15 percent more than a year earlier, according to the General Administration of Civil Aviation. China's economy has grown at least 10 percent in each of the past four years, making travel affordable to more people.

China Eastern has a market value of $4.89 billion, meaning a 24 percent stake would be valued at about $1.17 billion.

A deal may be announced this week, according to the sources, ending at least 10 months of talks.

Singapore Airlines spokesman Stephen Forshaw, Temasek spokeswoman Lim Siow Joo and China Eastern board secretary Luo Zhuping all declined to comment.

A deal would help Singapore Airlines, which made a record S$2.12 billion ($1.4 billion) profit last fiscal year, build on its 104 flights a week to Chinese cities. It would also complement the carrier's cargo operations.

"The air cargo side of the business offers significant opportunities," Kuhnert said.

China Eastern's loss widened to 3.31 billion yuan in 2006 from 467 million yuan a year earlier. The carrier has 205 planes and 35,000 employees.

A stake in China Eastern may help Singapore Airlines compete with Cathay Pacific in the North Asian market.