China Southern in talks over American Airlines tie-up

Mon Mar 27, 2017 7:19am EDT
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By Brenda Goh

SHANGHAI (Reuters) - China Southern Airlines is in talks over a tie-up with American Airlines that could involve the U.S. carrier taking a stake in the state-owned airline, boosting routes between the world's two largest travel markets.

The potential deal would make American Airlines the second U.S. carrier to own part of a Chinese airline after Delta Air Lines Inc bought 3.55 percent of China Eastern Airlines Corp for $450 million in 2015.

China Southern, the country's largest carrier by passenger numbers, said in a filing the tie-up could involve a share issue as well as other forms of cooperation, but that it was still subject to shareholder and government approval.

The company's Hong Kong-listed shares jumped as much as 5.3 percent in early morning trading on Monday, while its mainland-listed shares remained suspended.

The tie-up comes as Beijing has vowed to shake up its airlines by implementing mixed-ownership reforms and introducing private capital and strategic investment into its state-owned enterprises in a bid to improve efficiency and competitiveness.

BOCOM International analyst Geoffrey Cheng said the tie-up was the best way for the two companies to offer consumers more flights overseas given the lack of new flight slots available.

He added any equity stake - expected to be similar in size to the Delta deal - would help cement ties between the airlines, but in reality would be little more than a glorified code-sharing arrangement by which airlines pool resources and share flights.

"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."   Continued...

A China Southern Airlines aircraft before landing at Manila's International airport.    REUTERS/Romeo Ranoco