Air China, battling falling demand, puts M&A aside

HONG KONG, Sept 18 (Reuters) - Air China (0753.HK) has postponed plans to buy rival China Eastern Airlines (0670.HK) because the aviation industry is struggling with falling demand for air travel amid financial turmoil in the United States, Kong Dong, chairman of the Chinese flag carrier, told a newspaper.

"Although oil prices have fallen below $100 (a barrel), uncertainty grows on demand for air travel," the South China Morning Post quoted Kong as saying.

Kong said his priority was to weather the drop in demand by strengthening Air China's internal controls rather than growing through mergers and acquisitions, the strategy pursued by his predecessor, Li Jiaxiang.

Passenger traffic at China's three major airlines, Air China, China Eastern and China Southern Airlines (1055.HK), has declined since May as a devastating earthquake in southwest China and strict security measures relating to the Beijing Olympics deterred travel. [ID:nSHA5870]

Kong, who was appointed chairman of Air China in April, also said commercial considerations should give way to government decisions when it came to industry consolidation, the paper reported on Thursday.

Earlier this year shareholders of China Eastern, including Air China's parent, vetoed a $920 million offer by Singapore Airlines (SIAL.SI) for a 24 percent stake in the Shanghai-based carrier.

China Eastern, which rejected a counter-offer by the parent of Air China, had said it would not give up its search for a strategic investor. [ID:nHKG38021] (Reporting by Alison Leung; Editing by Ken Wills)