"At a time when the prospects for air travel remain far from clear, it is a natural choice for the two carriers to huddle together against the cold," said Ma Xiaoli, an analyst with the Shenzhen-based Citic Securities Co. Ltd., in a statement. "China Eastern will also step into a better position to compete with archrival Air China."
On top of those factors is a government effort to boost Shanghai up to an international aviation hub, which requires a dominant carrier in the city. For instance, the Beijing-based Air China has gained 45 percent of the capital's aviation market while the Guangzhou-based China Southern has won over 50 percent of the local market share. Analysts estimated that the merger would give the new group about half the market share in Shanghai. In addition, the upcoming World Expo 2010 will be a catalyst to help China Eastern stage a significant comeback, they said.
Road ahead
Nevertheless, if history is any guide, making a success out of an airline merger is not a simple prospect. Over the past 10 years, China Eastern has acquired five domestic rivals including Yunnan Airlines Ltd. and China Northwest Airlines Ltd. None have turned out to be a panacea for the company, which continues to operate with a deficit.
A souring business mood and the two carriers' mountains of debt have left analysts wary of responding positively to the weak-weak alliance. In addition, the huge differences in their corporate management and culture may also become a stumbling block to the integration, those analysts said.
Worse still, even harder-to-answer questions linger for China Eastern, as they do for any merger deal. How does the company clear its liabilities and address a potential overstaffing problem that may emerge from the fusion?
Zou Jianjun, a professor with the Civil Aviation Management Institute of China, cast doubts over the merger's prospects. "There may be not so much room for a great synergy since their flight networks sort of overlap," Zou told Xinhua News Agency.
The alliance could put a floor under performance at China Eastern, but a marked turnaround may still be some way off given how anemic the market has become, said Zou. What the company needs to recapture now is an unrelenting commitment to efficiency and profitability, he added.
"We will take into consideration all the difficulties facing the merger, and restructure our aviation resources to achieve the maximum effect of scaled economies," said Shanghai Airlines' Zhou. |