Unconfirmed media reports have triggered widespread speculation that Singapore Airlines will be the first strategic foreign investor to buy into Shanghai-based China Eastern Airlines.

A Reuters report quoted two company sources from China Eastern as saying that the two airlines are in talks on share-purchasing issues.

Meanwhile, Shanghai-based China Business News reported that Singapore Airlines has authorized Deloitte & Touche Shanghai to carry out an asset evaluation of the Shanghai airline. The investigation is expected to be finished at the end of this month. The result will be the basis for Singapore Airlines to decide a pricing and share-purchasing contract with China Eastern.

However, when approached by China Daily, the relevant parties were tight-lipped about the deal.

Singapore Airlines refused to confirm talks were held with China Eastern regarding share-purchasing issues.

"From time to time, we have general discussions with other airlines about possible opportunities. This is true of China also, which is a very important market in its own right for Singapore Airlines. However, there has been no decision to pursue any opportunities at this point in time," Singapore Airlines spokesman Lim Wei-peng said.

Lu Shaojun, securities representative for China Eastern Airlines, also denied earlier media reports that Singapore Airlines may purchase at least 20 per cent of the corporate shares in China Eastern, which is listed in both Shanghai and Hong Kong.

"I have not heard of such negotiation between the two airlines. Even if we agree to sell shares, such a deal is not feasible," Lu said.

China Eastern is currently the majority shareholder with a 61 per cent share in the listed company in Hong Kong. It would lose control of the company if it sold 20 per cent of the shares.

Lu, who is also chief of the secretarial office of the board of directors, conceded that some overseas airlines had approached China Eastern regarding investment issues, including Cathay Pacific and China Airlines.

Market speculation was also based on earlier media reports in April. China Eastern President Li Fenghua said that the airline was planning to sell at least 20 per cent of its shares to raise about 3 to 4 billion yuan (US$375 million to US$500 million) by the end of this year. Singapore Airlines was put on the list of possible investors.

Plagued by soaring oil prices pushing up operational costs, Chinese airlines are struggling to get themselves out of the red.

Although China Eastern has not released its mid-year report, analysts said the company would suffer losses of at least 400 million yuan (US$50 million) this year.

The airline's performance has been declining since last year when its net profit dropped 88.7 per cent to 60 million yuan (US$7.5 million) on gross revenue of 26.2 billion yuan (US$3.3 billion).

With foreign investors on board, the airline would be able to improve its management and competitiveness. Funds raised would be used to expand its fleet, Li told reporters in April.

(China Daily July 20, 2006)