China Southern, American Airlines announce tie-up

Albee ZHANG
A superstitious passenger on China Southern Airlines will not be prosecuted for tossing coins at an aircraft engine

American Airlines on Tuesday confirmed it will purchase $200 million in China Southern Airlines stock, the first step in a planned "long-term relationship" between two of the world's biggest carriers.

American Airlines, the world's largest by scheduled passengers carried, will buy 8.83 percent of the Hong Kong-listed shares of China Southern, which is fourth globally and the biggest in Asia.

The two airlines said the tie-up would allow American to tap into China's rapidly growing air travel market, while boosting China Southern's ambitions of raising its global profile, including in the world-leading US market.

"We are two of the biggest carriers in the world and our networks are highly complementary, with the potential to offer China Southern and American customers an unmatched range of destinations in two critical markets," Robert Isom, president of American Airlines, said in a joint statement.

Code-sharing will begin later this year, giving American access to more than 70 Chinese destinations, while China Southern will gain a piece of more than 80 destinations in North and South America, they said.

Increasing demand for air travel among China's growing middle class is expected to see it overtake the United States as the world's biggest market in coming years.

"China Southern's extensive network within China touches developing and thriving markets that only a Chinese carrier can reach and they have a reputation and record of excellence," Isom said.

China Southern will sell more than 270 million of its Hong Kong-listed shares to American at HK$5.74 per share fee, according to a statement by the Chinese airline filed with the Hong Kong stock exchange.

The price was a 4.6 percent premium to Monday's closing price and values the deal at HK$1.55 billion ($200 million).

China Southern also is listed in Shanghai. The deal gives American 2.68 percent of all the Chinese carrier's shares traded across both markets.

- Connecting China, US -

China Southern's chairman, Wang Changshun, said the deal can "better connect two of the world's largest aviation markets and leading economies" and "has the possibility to create enormous benefits".

China Southern said in the exchange statement that the two companies "may seek to increase cooperation" in additional areas including staffing, sales, passenger loyalty programmes and sharing of airport facilities, but gave no specifics.

The link-up will help China Southern to "enhance its internationalisation, increase its competitiveness and influence in the global aviation market," it added.

China Southern operates more than 2,000 flights daily to 208 destinations around the world, while the American Airlines Group operates 6,700 flights to nearly 350 destinations, the companies said.

"Teaming up with such a reputable airline in the world will help China Southern accelerate its expansion, especially in the overseas market," Dickie Wong, Hong Kong-based executive director for research at Kingston Securities, told AFP.

After the announcement, China Southern shares closed 2.73 percent lower in Hong Kong but gained 0.76 percent in Shanghai.

Wong said the share price fall in Hong Kong was due largely to investors taking profits after the company's stock gained in recent sessions amid speculation over the tie-up.