Delta to buy into China Eastern Airlines

BEIJING/SHANGHAI (REUTERS) - China Eastern Airlines plans to work with new investor Delta Air Lines to expand its global footprint beyond China-US routes, an executive from the Shanghai-based carrier said.

Delta said on Monday that it will buy a 3.55 per cent stake in the state-owned carrier for US$450 million (, subject to board approval, making it the first US carrier to invest in a Chinese airline. Delta will also get an "observer" seat on China Eastern's board.

While the airlines will deepen their ties on trans-Pacific routes, there is scope to work in other regions such as Europe, James Wang, ChinaEastern's board secretary, told Reuters, without providing more details.
This would help grow China Eastern's international business, which accounts for 35 percent of its revenues, he added.

"China and the US are the two biggest aviation markets in the world and the growth potential is huge," Wang said. "There are lots of ways we can cooperate with each other, and not just limited to the China-US routes."

ChinaEastern ordered 20 Boeing 777-300ER jets in 2012 to expand its long-haul network. Industry sources expect it to buy more widebody jets from either the US planemaker or its European rival Airbus in the coming years.

The airline operates 35 weekly departures to four US destinations from Shanghai, and plans to open new services to North America and increase frequencies on existing ones.

Delta has 28 weekly services to Shanghai and daily services to Beijing, and it said its China network has tripled in five years.

The two carriers already have extensive codeshare partnerships on each others' domestic network.
Analysts believe that the deal is more valuable for Delta.

China will be the world's largest passenger market by 2034, according to the International Air Transport Association, and Shanghai is expected to remain the main hub into the country. Delta's stake could spark "competitive responses", including deals between Beijing-based Air China and United Airlines, Sydney-based aviation consultancy CAPA said in a report.

Rao Xinyu, Air China's company secretary, told Reuters that the airline will "strengthen our strategy for the US market".

The investments could increase the pressure on Asian network carriers such as Hong Kong's Cathay Pacific, Singapore Airlines, and Korean Air.

Cathay, which owns around 20 per cent of Air China, is the only international carrier to have a stake in a Chinese airline.

Singapore Airlines and Singapore's state-owned investment firm Temasek tried unsuccessfully to buy a stake in China Eastern in 2007, but the bid fell through in early 2008.