Although China Eastern Airlines has close cooperation with Shanghai Airlines, the two carriers haven't discussed exchanging stakes in each other, China Eastern's Chairman Liu Shaoyong said yesterday in Shanghai.

Two China Eastern jets queueing for take-up in Beijing Capital International Airport (PEK) [Maverick/China.org.cn]

"The market is filled with anticipation of a merger between Shanghai Airlines and us, which is not a bad thing, but we haven't discussed with them about swapping stakes. Our current cooperation focuses on sharing resources," Liu said.

He made the remarks at yesterday's shareholders' meeting after he was appointed as the new chairman of the country's third-largest carrier. Liu previously headed China Southern Airlines, the country's largest carrier by fleet size, before taking up the new position.

"We hold an open attitude toward various types of investors, such as strategic investors and management companies, but the most urgent task for us is to become strong," Liu said.

The carrier expects a significant decrease in losses this year, a slight profit next year and more profits in 2011, according to its three-year plan.

China Eastern said earlier that its fair-value losses on hedging deals totaled 6.2 billion yuan (US$906 million) as of December and warned that it will post a "significant" loss in last year's earnings.

"The possibility of expanded hedging losses for this year is slim, and we may form a new group to manage the hedging business," Liu said.

The parent of China Eastern has received a 7-billion-yuan cash injection from the Chinese government. The Shanghai-listed carrier will raise 5.56 billion yuan by issuing 1.4 billion yuan-denominated A shares to its parent and another 1.44 billion yuan by issuing H shares.

The proceeds of the two share issues will cut the company's debt-to-asset ratio to 90.1 percent from 98.5 percent.

China's aviation industry contributed to 4.5 percent of the country's gross domestic product and in the past five years, the industry has paid more than 20 billion yuan of taxes and various fees to the country.

"We hope the country would inject more cash into the industry," Liu said.

He said he still believed the future trend is "to set up a state-owned company to run the country's three biggest carriers so that they compete with overseas rivals" but added that such a change wouldn't happen in the short term.

(Shanghai Daily February 4, 2009)