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Sept 3, 2007
Singapore Airlines strikes deal in China
Singapore Airlines announced a deal yesterday that will sharpen substantially its focus on the Chinese market and that industry insiders say could prompt the sale of its 49 per cent stake in Virgin Atlantic this year.

Singapore Airlines said that, along with Singapore’s “sovereign fund” Temasek Holdings, it would buy a 24 per cent stake in China’s third-largest carrier — the loss-making China Eastern Airlines.

As well as repositioning Singapore Airlines within the region, the deal is expected to trigger a long-expected rush of airline industry consolidation throughout Asia. Air China, China Southern, Cathay Pacific and several other regional players are understood to be mulling merger or alliance ideas. Singapore’s deal will give it greater access to China, an air-travel market that analysts believe could expand by 500 per cent over the next two decades and is expected already to represent 185 million passenger journeys this year.

Singapore Airlines’ new stake in China Eastern Airlines, for which it agreed to pay about $918 million (£455 million), will give it limited control of one of the few loss-making airlines serving the booming Chinese market. Investors have criticised China Eastern heavily for its failure to turn a profit in the world’s fastest-growing air-travel market. Its loss last year amounted to about 3.31 billion yuan (£218 million).

Analysts said that over the weekend that Singapore, regarded as one of the best-run airlines in Asia, may quickly be able to stem China Eastern’s flow of red ink through operational synergies and other cost savings. However, others believe that China’s strict rules preventing an overseas investor owning more than 50 per cent of any airline could seriously limit Singapore’s ability to effect real change at China Eastern. The Time Reports

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