China Eastern and Shanghai Airlines take a 40% and 15% market share respectively in the Shanghai market. Although they are both based in the city, their businesses are independently operated in two airports.
The State-owned Assets Supervision Administration Commission (SASAC) and the Shanghai government have injected RMB 7 billion and RMB 1 billion into China Eastern and Shanghai Airlines. China Eastern got RMB 2 billion more in mid May and analysts believe this additional money will be used to buy Shanghai Airlines.
In the short run, to assure the stable operation of related parties while achieving synergy between them, China Eastern is likely to acquire all the shares of Shanghai Airlines, and turn the latter into a wholly owned subsidiary. However, the brand of Shanghai Airlines will be operated independently.
Trading Markets reports that under current circumstances the government regulator remains cautious.
There will be too many associated transactions between both sides if China Eastern takes the helm of Shanghai Airlines. Meanwhile, the Shanghai government is not willing to see the disappearance of the local aviation brand even though it is easier for China Eastern to wholly acquire Shanghai Airlines.
The latest news is that China Eastern’s chairman Liu Shaoyong told Reuters on the sidelines of a shareholders’ meeting that he hoped to complete the merger as quickly as possible but that it was difficult to predict the timing.
The two airlines have formed a task force to steer the merger and will submit an outline to shareholders in about 20 days, Liu who is heading the task force, said.
Liu Shaoyong said the combined entity will have more than a 50% share of the Shanghai air passenger market.