China Eastern Airlines received another 2 billion yuan infusion to help the company complete its merger with Shanghai Airlines. Just last year, the government infused 7 billion yuan in the company to help it survive, and now that troubles are now off the books, the merger is set to be completed as soon as regulatory approval is given.
China’s Airlines Tanking
There’s simply too much competition within Chinese airlines for any of the companies to make significant amounts of money. With so many fixed operating expenses, many Chinese airline companies are showing minute profits or sizable losses within an industry that will soon be merged together to become more competitive. Along with the cash infusions this year, the Chinese government also gave China Southern Airlines a 3 billion yuan handout in an effort to keep the company’s balance sheet above water.
Both Companies Hurting
China Eastern reported a loss of nearly 14 billion yuan last year and Shanghai Airlines posted a much smaller loss of about 1.2 billion yuan. Industry analysts suspect that the two firms will not be able to show a profit unless the two are consolidated to reduce costs.
A Quick Merger
The Chinese government has become incredibly efficient with the merger of multiple companies. It is expected that the merger between China Eastern Airlines and Shanghai Airlines will be complete in 2009 with their operations to be completely merged by 2010 when the World Expo begins. There appears to be some discrepancy in how the merger will take place. Thus far, Shanghai Airlines has denied the merger, saying that the Chinese government has yet to give little direction about how the two are supposed to be merged.