SHANGHAI, June 13 (Reuters) - China Eastern Airlines (600115.SS) (0670.HK) and its smaller rival Shanghai Airlines (600591.SS) have reached agreement in principle on major issues for a merger, a senior airline executive said on Saturday.
China Eastern's Chairman Liu Shaoyong told reporters on the sidelines of a shareholders' meeting that he hoped to complete the merger as quickly as possible but that it was difficult to predict the timing.
The two airlines have formed a task force to steer the merger and will submit an outline to shareholders in about 20 days, Liu who is heading the task force, said.
The combined entity will have more than a 50 percent share of the Shanghai air passenger market, Liu said.
The airline will also not cut staff following the merger.
China's airlines are grappling with weakening air travel demand and rising competition after years of double-digit growth.
The country's top three carriers, Air China (601111.SS) (0753.HK), China Southern Airlines (600029.SS) (1055.HK) and China Eastern lost more than $4 billion in 2008. [ID:nSHA21260]
Shanghai Air, which has been in the red for two straight years since 2007, will be delisted if it fails to turn around this year, according to China's securities rules.
Sources familiar with the situation told Reuters in October the government was discussing the possibility of a merger of the two Shanghai-based carriers to create a dominant player with more than 50 percent share of domestic flights in China's financial hub.
Conflict of interest between different government bodies and rejection from Shanghai Air had postponed the deal, but talks began to speed up after the debt-ridden carriers got financial aid from the government, an industry source said.
Analysts are positive about the merger as it will give the carriers, which have been locked in a fight for years, an opportunity to work together to fend off outside rivals.
On whether China Eastern had resumed discussions with Singapore Airlines (SIAL.SI), Liu said: "We are open to any overseas investors, financial investors or industry players, but we have no arrangements with Singapore Airlines at this time."
Last year, Singapore Airlines, along with majority shareholder Temasek [TEM.UL], offered $920 million for a combined 24 percent stake in China Eastern, but minority shareholders led by Air China vetoed the deal.
China Eastern and Shanghai Air both suspended trading of their shares earlier this week because of major restructuring moves.
(Reporting by Fang Yan and Edmund Klamann, Writing by Jacqueline Wong, Editing by Sanjeev Miglanion 13JUNE)
China Eastern's Chairman Liu Shaoyong told reporters on the sidelines of a shareholders' meeting that he hoped to complete the merger as quickly as possible but that it was difficult to predict the timing.
The two airlines have formed a task force to steer the merger and will submit an outline to shareholders in about 20 days, Liu who is heading the task force, said.
The combined entity will have more than a 50 percent share of the Shanghai air passenger market, Liu said.
The airline will also not cut staff following the merger.
China's airlines are grappling with weakening air travel demand and rising competition after years of double-digit growth.
The country's top three carriers, Air China (601111.SS) (0753.HK), China Southern Airlines (600029.SS) (1055.HK) and China Eastern lost more than $4 billion in 2008. [ID:nSHA21260]
Shanghai Air, which has been in the red for two straight years since 2007, will be delisted if it fails to turn around this year, according to China's securities rules.
Sources familiar with the situation told Reuters in October the government was discussing the possibility of a merger of the two Shanghai-based carriers to create a dominant player with more than 50 percent share of domestic flights in China's financial hub.
Conflict of interest between different government bodies and rejection from Shanghai Air had postponed the deal, but talks began to speed up after the debt-ridden carriers got financial aid from the government, an industry source said.
Analysts are positive about the merger as it will give the carriers, which have been locked in a fight for years, an opportunity to work together to fend off outside rivals.
On whether China Eastern had resumed discussions with Singapore Airlines (SIAL.SI), Liu said: "We are open to any overseas investors, financial investors or industry players, but we have no arrangements with Singapore Airlines at this time."
Last year, Singapore Airlines, along with majority shareholder Temasek [TEM.UL], offered $920 million for a combined 24 percent stake in China Eastern, but minority shareholders led by Air China vetoed the deal.
China Eastern and Shanghai Air both suspended trading of their shares earlier this week because of major restructuring moves.
(Reporting by Fang Yan and Edmund Klamann, Writing by Jacqueline Wong, Editing by Sanjeev Miglanion 13JUNE)
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