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Navigation Primary Navigation Home Singapore Asia Pacific World Business Entertainment Sports Technology Top Stories Most Popular Secondary Navigation Australia China India Indonesia Japan Malaysia Philippines Thailand Vietnam Search Search: China airline aid raises hopes for policy support Reuters - Friday, November 28 By Fang Yan and Alison Leung SHANGHAI/HONG KONG, Nov 27 - China's state aid for its biggest airline is too little, too late to avoid losses this year but it has raised hopes of more policy support for a debt-laden, inefficient industry as it confronts a faltering economy. China Southern Airlines <1055.HK> <600029.SS>, the country's largest carrier by fleet size, said late on Wednesday that its state-owned parent would get a 3 billion yuan capital injection from the government. This looks set to be the first step of a government rescue of state-run airlines, including Air China <0753.HK> <601111.SS> and China Eastern <0670.HK> <600115.SS>, hit hard by weak air traffic demand and hefty losses on fuel price hedging. "There is no doubt that Air China and China Eastern will both get similar aid packages soon. But they will probably all end up in the red this year as the cash injection is too late to bolster their bottom lines," said Li Lei, an industry analyst with China Securities. China's airlines, which began to boom after putting the 2003 SARS crisis behind them and as China's brisk economic growth spurred business and leisure travel, saw a sudden reversal of fortune early this year with a series of natural disasters and a sudden economic slowdown. With high levels of debt as they aggressively built up their fleets and with notoriously low levels of service and efficiency after years in a stodgy state-run system, they had been especially vulnerable and were seeking partners to bolster their finances and operations even before the downturn. GOVERNMENT SUPPORT China Southern said it was considering a share placement to its state parent in return for some of the government funds, although any such move would require government approval. China Eastern's shares were suspended from trade as it announced its parent company was also applying for state aid, while Air China's Hong Kong-listed shares surged 9.41 percent to HK$1.86 in anticipation that it would benefit as well. A source familiar with the matter had told Reuters last week that Air China's parent company was also seeking a cash injection from the government. Several analysts saw the aid approval as a clear sign that Beijing, which earlier this month announced a 4 trillion yuan stimulus plan to boost the country's economy, was willing to support the airline sector. "We believe this injection is simply a temporary solution to the financial difficulties facing China Southern. We expect a more far-reaching industry restructuring process to occur in 2009," UBS said in a research note. The government is widely expected to play a major role in orchestrating industry consolidation. Government officials have been moving to broker a merger of China Eastern and its smaller cross-town rival Shanghai Airlines <600591.SS>, according to sources familiar with the matter. Smaller, cash-strapped non-state carriers, which have little hope of getting government aid, may also become acquisition targets, industry analysts said. The aid, expected to help cut debt-to-asset ratios at the airlines running as high as 90 percent or more, will also make them more attractive to potential foreign partners, they added. China Eastern remains keen for a tie-up with Singapore Air <SIAL.SI>, even though the Chinese carrier's shareholders early this year rejected a $920 million deal to sell a 24 percent stake to Singapore Air and its majority owner Temasek Holdings [TEM.UL]. Singapore Air has also been under pressure from shareholders to give up on China Eastern, due to concerns about poor service and weak financials, sources familiar with the matter have told Reuters. Merrill Lynch said on Thursday it believed that increasing government ownership of China Southern through a possible share issue could bring in Air France-KLM Group <AIRF.PA> as a strategic partner. China Southern said in June it planned to set up a 75 percent-owned air cargo venture with an Air France-KLM unit, but made no mention of bringing it in as an investor. 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