China Eastern and Shanghai Airlines have set up a seven-member "leadership" team comprising senior executives of the two companies and central and Shanghai government officials to oversee the restructuring, which could lead to a full merger.

Liu Shaoyong, chairman, China Eastern, will chair the taskforce, while Zhou Chi, chairman of Shanghai Airlines and Ma Xulun, general manager of China Eastern, act as two vice-leaders.

Liu, said the proposed restructuring of the two Shanghai-based carriers has got the blessings of the State-owned Assets Supervision and Administration Commission, which supervises all State-owned companies, including China Eastern, and the Shanghai municipal government, which controls Shanghai Airlines.

Trading in the shares of China Eastern in Hong Kong and Shanghai, and those of Shanghai Airlines in Shanghai has been suspended since June 8 after the restructuring plan was announced.

"Details of the restructuring will be announced in 20 days," Liu was quoted as saying by the local media.

The market has been rife with speculation of an impending merger deal that would result in Shanghai Airlines being absorbed into its much larger rival, China Eastern. At stake is dominance of the Shanghai airline hub, largely shared between the two local carriers and Air China.

Huang Jinrong, analyst, Guosen Securities, said that the best restructuring result would be a full merger. "China Eastern can only hope to achieve a dominant share of its most important market by taking over Shanghai Airlines," he said.

"At present, Shanghai Airlines owns less than 5 percent of the overall market share in China. It seems after the merger China Eastern can hardly show significant improvement, but the two can play a dominant role in Shanghai and neighboring Yangtze River area," said Yao Jun, analyst, Chine Merchants Securities.

Currently, Beijing-based Air China holds 45 percent of the capital's aviation market, while Guangzhou-based China Southern has over 50 percent of the local market share. Before announcing the merger, China Eastern controlled 40 percent of Shanghai's aviation market while its rival Shanghai Airlines held around 15 percent.

Liu Shaoyong told reporters that through the tie-up, the combined share would exceed 50 percent, and offer a more comprehensive aviation network.

Backed by the World Expo next year, Shanghai's tourism market is expected to boom and also help the local aviation industry. Analysts estimate that there would be over 70 million passengers coming to Shanghai during the expo period, and a strong China Eastern would have a greater role to play in the expo.

(China Daily June 16, 2009)