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American Airlines is buying a $200 million chunk of China’s largest airline

By Donny Kwok and John Ruwitch, Reuters From Business Insider

(Reuters) – China Southern Airlines Co Ltd said on Tuesday it would issue HK$1.55 billion ($199.6 million) worth of shares to a subsidiary of American Airlines Group Inc , giving the U.S. airline a stake in China’s largest carrier.

The deal would make American Airlines the second U.S. carrier to own part of a Chinese airline after Delta Air Lines Inc bought 3.55 percent of China Eastern Airlines Corp for $450 million in 2015.

In a filing to the Hong Kong stock exchange, China Southern said it would issue 270.61 million Hong Kong-listed H-shares, representing 2.68 percent of the enlarged share capital of the airline.

The shares would be issued at HK$5.74 apiece, or at a 4.6 percent premium to the previous close.

Among other things, the deal would help China Southern improve its governance, strengthen management, boost its competitiveness and help “achieve the strategic goal of building a world-class aviation industry group”, the filing said.

It said the two airlines may also increase cooperation in code-sharing and other areas, including staffing, sales, passenger loyalty programs and airport facilities sharing.

China Southern’s Hong Kong-listed shares jumped as much as 5.3 percent in early morning trading on Monday before closing at HK$5.49, while its mainland-listed shares remained suspended.

The airline is China’s biggest in terms of passenger numbers. It is a member of the SkyTeam airline alliance and is based in the southern city of Guangzhou.

The tie-up comes as Beijing has vowed to shake up Chinese airlines by implementing mixed-ownership reforms and introducing private capital and strategic investment into its state-owned enterprises in a bid to improve efficiency and competitiveness.

Chinese airlines have been aggressively expanding their fleet and increasing the number of their international routes as they seek to capitalize on strong growth in outbound Chinese travel that has far outpaced tourism at home.

For American Airlines, the deal could widen access to China, one of the biggest sources of tourists to the United States, and will help it compete with rival Delta, which has invested in foreign carriers in Mexico, Brazil and Britain in recent years.

(Reporting by Donny Kwok in HONG KONG and John Ruwitch in SHANGHAI; Editing by Stephen Coates)

Read the original article on Reuters. Copyright 2017. Follow Reuters on Twitter.

IMAGE: China Southern Airlines Wikimedia Commons

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