SHANGHAI - THE parent companies of Air China and China's other big airlines are seeking government aid as they face hefty losses this year from high costs and weak demand, industry sources said on Monday.

Shares in the country's three biggest carriers soared on the news, with the official Shanghai Securities News reporting that the parents of China Eastern Airlines and China Southern Airlines were likely to receive 3 billion yuan (S$670 million) each in cash injections.

The sources said, however, that discussions were still under way with a decision expected by the end of the year.

'(Air China parent) China National Aviation Corp is actively communicating with the government about a cash injection', a source familiar with the matter told Reuters.

The source did not indicate how much aid the company was seeking.

A China Southern spokesman confirmed that his company had applied for government aid but said nothing had been decided yet and the carriers would get a decision from the government by the end of the year.

CNAC and the China Eastern group declined to comment.

A senior Chinese airline executive told Reuters last month that big domestic airline groups may seek government aid to help cut their debt ratios.

China Eastern's Hong Kong-listed shares on Monday surged 14.1 per cent to HK$1.05, while China Southern jumped 13.8 per cent to HK$1.24 (S$0.24) and Air China was up percent 6.5 per cent at HK$2.13 in late-morning trade, compared with a 0.1 per cent dip in the benchmark Hang Seng Index .

Falling traffice
After years of double-digit growth, China's air traffic began to show monthly declines from year-ago levels in May as a series of natural disasters and a slowing economy curbed travel demand, forcing airlines to cut loss-making flights.

China Eastern alone has grounded more than 20 planes since the middle of the year, or roughly 10 per cent of its fleet, local media have reported.

A sharp slowdown in the appreciation of the yuan since mid-July is adding to the burden of the country's top three carriers, which booked a combined foreign exchange gain of 6.41 billion yuan in the first half. The carriers hold a large volume of foreign-currency debt from aircraft purchases.

Air China, China Eastern and China Southern all posted losses in the third quarter and for the first nine months, and the whole sector will most likely end up in the red in 2008 for the first time since the Sars crisis in 2003, an industry executive told Reuters last month.

Alfred Chan, chief dealer at Cheer Pearl Investment, said aviation stocks had bottomed out and should have more room to rise.

'Falling oil prices also help ease the high cost burden of airlines', he said. -- THOMSON REUTERS