Airline to Beat Deadline

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 ◆ Airline to Beat Deadline

China Eastern Airlines Corp. expects to complete its purchase of the assets of Yunnan Airlines Co. and China Northwest Airlines Co. from their parents, which will increase its fleet by two-thirds, within 18 months. "We don't need two years, which is required by the authorities, to acquire the assets," Ye Yigan, chairman of China's third-biggest airline, said in an interview. "We plan to do it within one-and-a-half years." The holding company for the new group, which was to be formed in July, will probably be registered and formally announced in September, Ye said. The assets of Yunnan Air and China Northwest Air, including aircraft, will then be separated from nonaviation assets and evaluated before being transferred to the listed arm of the China Eastern Airlines Group. The Civil Aviation Administration of China is combining the 10 carriers it controls into three groups led by China Eastern, China Southern Airlines Co. and Air China. The industry regulator wants to reduce overcapacity, raise profits and create internationally competitive airlines. China Eastern now operates 70 aircraft, China Northwest has 29 planes, and Yunnan Airlines has 26 planes. The mergers will cost the group billions of yuan and be a "painful" process, Ye said, without giving a specific number. The carrier has Class-H shares traded in Hong Kong, Class-A shares for Chinese investors traded in Shanghai, and American depositary receipts traded in the U.S. and Germany. China Eastern may issue about 1 billion Class-H shares for foreign investors to fund the asset purchases, Ye said. That was made possible when China's government this year relaxed overseas ownership limits on airlines, allowing overseas investors to own a maximum of 49 percent of the company, up from 35 percent, Ye said. Based on China Eastern's closing share price in Hong Kong yesterday, 1 billion Class-H shares would be worth a total of HK$1.03 billion (US$132 million). The Shanghai-based carrier had cash and cash-equivalent assets of about 1.7 billion yuan (US$205 million) as of June 30, according to its first-half earnings report. Ye said he does not expect to cut jobs as a result of the mergers. About 10 percent of the group's employees will be reassigned to nonaviation units such as the catering, hotel and travel-agency businesses, he said. Xi'an-based China Northwest has about 5,000 workers, and Yunnan Air employs 2,000 people. The merged entity will employ about 22,000 people.