China Southern 'in talks to sell stake to American Airlines'

BEIJING • China Southern Airlines, Asia's biggest carrier by passengers, is in advanced talks to sell a stake to American Airlines Group, according to people familiar with the matter.

The negotiations focus on an investment of about US$200 million (S$280 million) by American Airlines in China Southern's Hong Kong-listed shares, said the people, asking not to be identified as talks are confidential. The sale would likely take place through a private placement, one of the people said.

China Southern has a market value of about US$10 billion.

Bringing in the world's largest carrier as a partner will help the Guangzhou-based airline expand its network through code-sharing as it adds more destinations.

The tie-up will help American strengthen its presence in a market that the International Air Transport Association predicts will surpass the US to become the world's biggest in terms of passenger numbers by 2024.

Under the discussions, American would nominate an observer without voting rights to the Chinese company's board, the people said. Details of a deal are subject to change and a transaction could still fall through.

  • CHINA SOUTHERN

    684

    Fleet size, as of June 2016.

    208

    Number of destinations it flies to

A spokesman for American declined to comment. China Southern representatives could not immediately comment.

Trading in the shares of the Chinese carrier was suspended in Hong Kong and Shanghai yesterday, pending an announcement of a possible major strategic cooperation, according to an exchange filing.

Beyond Beijing, China Southern's stock has gained 35 per cent this year in Hong Kong, compared with an 11 per cent advance in the benchmark Hang Seng Index.

American connects 350 destinations in 50 countries, mostly in North America, the Caribbean, South America and Europe.

China Southern - with a fleet of 684 aircraft as of June last year, the largest in Asia - flies to 208 destinations across 40 countries and has been expanding on routes to Australia, New Zealand and South-east Asia.

"The deal would allow China Southern and American to expand their presence in each other's home markets without being constrained by the limit on air rights," said analyst Su Baoliang at Sinolink Securities.

China Southern and its subsidiaries have ordered more than US$15 billion of new aircraft from Boeing and Airbus Group since 2015 as more people fly in the world's most populous nation.

China Southern and Delta Air Lines are members of the SkyTeam global airline alliance.

American is in the competing Oneworld group, which does not have a China-based partner.

Such alliances make it easier for passengers to fly around the world by combining schedules through one carrier and allowing travellers to accrue and use frequent-flier miles across airlines. China Eastern Airlines is also a SkyTeam member. A Delta spokesman declined to comment.

American closed little changed at US$40.35 in New York on Wednesday, leaving the shares down 14 per cent this year.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on March 24, 2017, with the headline 'China Southern 'in talks to sell stake to American Airlines''. Print Edition | Subscribe