The relocation of top airline executives, one of the latest prescriptions made by the central government to the blighted aviation industry, could be a harbinger of future industry consolidation, analysts said.

In separate statements on Dec 12, China Eastern Airlines nominated Liu Shaoyong as board director and accepted Li Fenghua and Cao Jianxiong's resignations as president and general manager, respectively; while China Southern Airlines announced Liu's resignation as president.

Caijing magazine reported that Liu will take Li Fenghua's position as China Eastern's president and general manager; Ma Xulun, deputy general manager with Air China, will become China Eastern's vice general manager, and the position of Air China's vice general manager will be filled by Cao.

Luo Zhuping, board secretary with China Eastern, confirmed the management changes but refused to comment further.

Ma Xiaoli, analyst with CITIC Securities, said the 10-item policy package from the Civil Aviation Administration of China (CAAC) last week laid a solid groundwork for a massive industry restructuring. "All the obstacles have been cleared away for possible mergers among domestic airlines," Ma said.

"With Liu's plentiful experience, China Eastern will be able to improve its interior management, and make solid progress towards acquiring Shanghai Airlines," Ma added.

This year, the domestic aviation industry has struck a rough patch as jet fuel prices linger at a high level and the travel sector loses long-growing momentum. In its third-quarter report, China Eastern posted a loss of 2.334 billion yuan, the total debt of China Eastern was 74.33 billion yuan, in stark contrast to its assets of 1.14 billion yuan.

As a pilot-turned-chairman, Liu is known for his prudent management style. This is one reason why China Southern didn't lose megabucks from fuel hedging contracts as its rivals did. Air China said its loss in the fuel-hedging contract was 3.1 billion yuan by October, and China Eastern announced a loss of 1.83 billion yuan.

China Eastern's high debt-to-liability ratio and less competitiveness in both domestic and overseas airways are calling for a drastic change, such as acquiring Shanghai Airlines, said Li Lei, analyst with CITIC China Securities.

But as Shanghai Airlines is a local company while Eastern Airlines is State-owned, "it will entail complex equity problems after their wedding", Li said.

Despite a load of uncertainties, China Eastern has been reinforced with a new management leader and a 3 billion yuan bailout.

"Currently, China Eastern has the potential and aspiration to become the first airline filing a merger quest with its local counterpart Shanghai Airlines. Other smaller airlines may be acquired by Air China," said Ma.

(China Daily December 18, 2008)