Air China parent, China National Aviation Holding Co (CNAHC), has announced that it submitted its formal bid to China Eastern Airlines (CEA) last Friday. It said that it intends to purchase 2.9 billion H shares in CEA for at least HK$5 per share and raise its stake to 26.14% from the current 12.07%.

According to China International Capital Corp, CNAHC's financial adviser, CEA will earn HK$14.9 billion from the offer, which will allow it to reduce its debt ratio from the current 94.3% to 77%.

The deal would also increase CEA's annual revenue by HK$4.31 billion and cut annual costs by HK$1.08 billion.

CNAHC also said that it would cooperate with China Eastern, especially in Shanghai, and that the carriers will launch a cargo joint venture.

Continuing the sparring mode that has characterised this merger, China Eastern expressed doubts about the offer, saying, "it is informal and does not conform to legal procedures."

In spite of a rejection by shareholders of a move to align with Singapore International Ailrines, which it claims is an ideal joint venture partner, CEA has remained steadfast in its rejection of an association with CNAC.

SIA, meanwhile, has reiterated that it will not get into a "price war" with Air China for CEA.

Meanwhile analysts are pointing out that CNAHC's offer would result in better synergies for China Eastern than its deal with Singapore Airlines. They also point out that CA's proposed alliance with CEA will pose a potential threat to China Southern Airlines, which is based in Guangzhou.

CEA said in a statement that it expects to report a profit for 2007 due to "currency exchange gains from yuan appreciation."

The carrier had posted a net loss of CNY2.78 billion in 2006.