SHANGHAI (Reuters) - Shares of China Eastern Airlines (0670.HK) and China Southern Airlines (1055.HK) jumped by almost half on Thursday as investors cheered a government aid plan to help two of the country’s three biggest airlines stem mounting losses.
After years of robust growth, China’s airlines have suffered a sharp reversal of fortune due to slumping passenger demand as fallout from the global credit crisis spreads.
Strains from a slowing economy and weakening consumption are expected to push the once high-flying industry deep into the red by year-end.
Late on Wednesday, China Eastern (600115.SS) and China Southern (600029.SS) both announced plans to sell more shares to their parent companies in exchange for 3 billion yuan ($437 million) each in capital from the government.
Proceeds will be used to repay bank debt or supplement cash flows, the companies said, as they seek to counter what industry body IATA said was the worst crisis facing airlines in 50 years. [nL9531822]
China’s three biggest airlines, including flag carrier Air China (601111.SS) (0753.HK), all posted losses in the third quarter due to a sharp slowdown in air traffic volume and losses racked up from fuel hedging after oil prices plummetted.
But analysts say the airlines may now avert a crisis as Beijing, which last month announced an unprecedented 4 trillion yuan ($582.7 billion) fiscal stimulus plan for the country, is responding to pleas for help from its debt-ridden airlines.
“Airlines stocks are hot cakes now as the government has shown its commitment to help out in bad times,” said Ma Ying, an analyst with Haitong Securities.
China Eastern's H shares in Hong Kong, suspended since late November, soared 48 percent to HK$1.11 by midday, compared to a 0.1 percent decline in the benchmark Hang Seng Index .HSI.
China Southern’s Hong Kong shares, which had been suspended for more than two weeks, surged 45 percent to HK$1.36.
Shanghai-listed shares in both companies rose by their 10 percent daily limit.
Thursday’s share price surge underscores the market’s willingness to bet on more government measures for the industry.
The parent of Air China has been in discussion with the government about a cash injection, a source close to the group told Reuters in November.
Hainan Airlines (600221.SS), the country’s fourth largest, said on Tuesday the group was considering seeking financial help from the government.
On top of financial aid, China’s aviation regulator also unveiled a series of supportive policies this week, including exemption of levies and ongoing subsidies to airlines flying less profitable regional routes.
Exemptions and rebates for fees paid on airport facilities will total 4 billion yuan alone, the Civil Aviation Administration of China (CAAC) said.
The CAAC is also encouraging airlines to cancel or postpone plane deliveries due in 2009 and has stopped approving new airlines before 2010.
China Eastern will issue up to 652.2 million yuan-denominated A shares to its parent to raise 2.35 billion yuan. It will also issue the same amount of Hong Kong-listed shares to a unit of its parent in exchange for 652 million yuan.
China Southern will issue 721.2 million A shares to its parent to raise 2.28 billion yuan, plus an H share placement of the same amount to a unit of the parent.
After the share placement deals, which still need shareholder approval, China Eastern group will hold 68.2 percent of the listed carrier, up from 59.7 percent currently, while China Southern group’s holding in its unit will rise to 59.25 percent from 50.30 percent, they said separately.
Editing by Jacqueline Wong and Lincoln Feast