China Southern Airlines’ tie-up talks with world’s biggest carrier spurs stock

The Chinese carrier is discussing a stake sale to American Airlines as both look to strengthen their positions in the others' market amid a predicted growth in demand.

A China Southern Airbus A321-231 taxis at Beijing airport. The carrier is in talks with American Airlines about a stake sale. David Gray / Reuters

China Southern Airlines advanced to a seven-month high after saying it is in negotiations to sell a stake to American Airlines, the world’s biggest carrier.

The negotiations are over “a possible major strategic cooperation with American Airlines involving, among others, proposed issue of shares of the company and other business cooperation”, Asia’s largest airline by passengers said in an exchange filing on Sunday. The stock, which resumed trading on Monday in Hong Kong, gained 0.7 percent to HK$5.49, the highest closing level since August 16.

Trading in the Guangzhou-based operator had been suspended since March 23 it was reported that the Texas-based American Airlines would probably make an investment of about US$200 million in China Southern’s Hong Kong-listed shares through a private placement. The companies have not reached a binding or definitive agreement and the cooperation may or may not proceed, China Southern said. The American Airlines spokeswoman Polly Tracey declined to comment.

For American, a deal would strengthen its presence in the Chinese market after rival Delta Air Lines acquired a minority stake in China Eastern Airlines in 2015. China Southern would be 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 Ltd.

“All big US carriers will be making deals of one kind or another with major airlines all over Asia and certainly within China,” said Robert Crandall, former chairman of American. “These things are going to grow and because of the network nature of the airline industry, everybody is going to play and everybody needs to play.”

An agreement will help boost the expansion plans of China Southern, which indicated in January that it was considering bringing in strategic investors. The carrier has been adding routes to Australia, New Zealand and countries in South East Asia as it competes with China Eastern and Air China. A tie-up will increase China Southern’s visibility in the United States, said Will Horton, a senior analyst at the CAPA Centre for Aviation in Hong Kong.

“China Southern may be the largest airline in Asia but it’s relatively unknown in the U.S.,” Horton said. “US consumer mindset changes if American is putting cash in: China Southern isn’t just another airline or partner, it’s a carrier American believes in.”

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Shares of China Southern will remain suspended in Shanghai until further notice, the carrier said separately.

China Southern and its subsidiaries have ordered more than US$15 billion of new aircraft from Boeing and Airbus since 2015 as more people fly in the world’s most populous nation. The International Air Transport Association predicts China will surpass the US to become the world’s biggest air travel market in terms of passengers by 2024.

* Bloomberg

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