* Regulator suspends license effective Sunday
* Move due to inability to pay debts and poor management
(Recasts, adds quote from government official)
BEIJING, March 15 China grounded East Star
Airlines, a small private carrier based in the central city of
Wuhan, for being unable to pay back heavy debts and for "poor
internal management", a government official told state
China's aviation regulator suspended East Star's operating
license effective from Sunday, Tan Shizhang, a traffic
department spokesman within the Wuhan city government, told
China Central Television.
"The main reason is due to the airline not being able to pay
back its heavy debts, which has lead to operational
difficulties," Tan said.
East Star, which has a fleet of nine aircraft and operates
about 20 flights a day, was marked as a potential takeover
target by the parent group of Air China (601111.SS), the flag
carrier said in a statement in January. [ID:nSHA154806]
The suspension order came after General Electric's (GE.N)
aircraft leasing arm, GE Commercial Aviation Services, sought
redress from the Wuhan government after repeated requests to the
company for unpaid aircraft leasing fees came to nothing, the
A notice posted on the website of the Civil Aviation
Administration of China (www.caac.gov.cn) said authorities had
"already taken emergency measures to coordinate relevant
airlines to temporarily fly (East Star's) routes, refund tickets
and reschedule flights."
Slumping air traffic due to slowing domestic demand has made
it hard for China's small private airlines to compete with
state-owned Air China, China Eastern (600115.SS) and China
Since December, China Eastern and China Southern have
announced plans to receive a total of 10 billion yuan ($1.5
billion) in cash injections from the government to help them
ride out the slump. Private carriers do not enjoy such support.
China's first private airline, Okay Airways, said in December
it had halted its passenger services indefinitely because of the
global financial crisis.
(Reporting by Ian Ransom; Editing by David Holmes)