Consolidation in the air as China Eastern, China Southern sign cooperation agreement

China Southern Airlines and China Eastern Airlines have agreed on a framework agreement to cooperate in areas such as sales and procurement. Under the agreement the airlines will help each other in sales, aircraft procurement, ground service, sharing facilities and other areas.

Both airlines said that the agreement would not involve equity investment by the companies in each other.

China Eastern chairman, Li Fenghua, said it would not affect his firm's effort to attract investment and find a strategic partner.

Liu Shaoyong, chairman of China Southern, which is the country's largest airline by fleet size, said that the pact did not exclude cooperation with other carriers, such as flag carrier Air China. He also clarified that talks on the agreement with China Eastern had begun more than a year ago.
Interestingly, the agreement comes into existence less than a week after Air China's parent group, the China National Aviation Holding Co proposed a strategic partnership with China Eastern that would include cooperation in many of the same areas, as well as an investment of over $1 billion in China Eastern.

China Eastern has resisted the offer and now says that Air China's formal submission is incomplete and lacks legal validity.

China Eastern, the country's third-largest airline, has entered into an agreement with Singapore International Airlines, which would have seen that premiere airline taking a minority stake as a strategic investment. China Eastern's minority shareholders, however, rejected the $920 million bid, earlier this month, after the Air China group offered a much higher price per share.