American Airlines to invest US$200m in China Southern

 American Airlines aircraft are parked at Ronald Reagan Washington National Airport in Washington, US.
American Airlines aircraft are parked at Ronald Reagan Washington National Airport in Washington, US.PHOTO: REUTERS

BEIJING (BLOOMBERG) - American Airlines Group agreed to acquire a minority stake in China Southern Airlines Co for US$200 million (S$278.8 million), cementing a partnership between the top carriers in the US and Asia. Shares of the Chinese airline rose in Shanghai when they resumed trading.

China Southern will issue 270.6 million shares in its Hong Kong-listed company to the world's largest airline at HK$5.74 apiece, the Guangzhou-based carrier said in a stock exchange statement on Tuesday (March 28). That is a premium of 5.3 per cent over the closing price before Bloomberg News reported the talks last week. The two airlines also agreed on code sharing, according to the statement.

American Air will hold 2.68 per cent of China Southern's total issued shares, Asia's largest carrier by passengers said in the filing.

The agreement will boost American Air's presence in China, one of the world's fastest-growing aviation markets, which the International Air Transport Association predicts will surpass the US to become the biggest in terms of passengers by 2024. The deal will also help the expansion plans of China Southern, which indicated in January that it was considering bringing in strategic investors.

China Southern is the last of the nation's top three airlines to bring in a non-mainland Chinese strategic investor. Cathay Pacific Airways, based in Hong Kong, owns about 18 per cent of flag carrier Air China. Delta Air Lines acquired a minority stake in China Eastern Airlines Corp in 2015.

"For the price of one widebody aircraft, American could finally be securing a major mainland partner, but it's a long road," said Will Horton, a senior analyst at the CAPA Centre for Aviation in Hong Kong. The two "need to show over the long term this isn't an alliance of the leftovers."

China Southern's stock traded in Shanghai rose 1.8 per cent to 8.02 yuan as of 9.25am, taking its market value to 70.2 billion yuan (S$14.23 billion). The stock had been halted from trading on March 23. The Hong Kong-listed shares climbed 2.4 per cent to HK$5.62, after closing at a seven-month high Monday following China Southern's confirmation that it was in negotiations with American Air.