China Eastern Airlines has announced the establishment of a strategic cooperation partnership with Singapore Airlines and Lentor Investments. Lentor is an indirect, wholly-owned subsidiary of Temasek Holdings.
The strategic cooperation will introduce world-class airline management and operation experience to CEA, as well as strengthening the Company’s capital structure and enhancing the Company’s governance standards, thereby creating substantial strategic value to all parties involved, including the Company, shareholders, passengers and the entire domestic aviation industry.
Pursuant to the strategic cooperation, CEA will issue approximately 2.985 billion new H shares in total, among which approximately 1.1 billion shares will be placed to China Eastern Air Holding Company (“CEA Holding”), approximately 1.235 billion shares will be placed to SIA and the remaining portion of approximately 649 million shares will be placed to Temasek. The subscription price of the CEA new H shares is HK$3.80 per share, representing a premium of approximately 464.95% over the net asset value per share of the Company (unaudited) as at 30 June 2007. CEA Holding, SIA and Temasek will subscribe for the CEA new H shares in cash amounts of approximately HK$4.182 billion, HK$4.693 billion and HK$2.468 billion respectively. Total proceeds will amount to approximately HK$11.342 billion, which will be primarily used for improving products and services offered by the Company, enhancing staff training, introducing new aircraft and investing in equipment, technology and facilities so as to improve the overall operating efficiency of the Company.
Upon completion of the share subscription, CEA Holding, SIA and Temasek will be respectively interested in 51.00%, 15.73% and 8.27% of the Company’s enlarged issued share capital. The introduction of SIA and Temasek as strategic shareholders of CEA has obtained approvals in principle from China’s various regulatory authorities. Presently, the strategic cooperation is only subject to the approval at the Company’s extraordinary general meeting to be held on 8 January 2008, as well as final procedural approvals by regulatory authorities including the China Securities Regulatory Commission.
Mr. Li Fenghua, Chairman of CEA, said, “The establishment of a strategic cooperation partnership with SIA and Temasek has been progressing smoothly, thanks to the dedicated support from the State, government departments and regulatory authorities. SIA, as a world-renowned airline, possesses professional knowledge and extensive experience in the operating areas of international air transport and passenger service, whereas Temasek has won acclaim for its superior experience in financial operation and investment management. The introduction of the two partners’ experience will effectively raise the Company’s aviation operation and management to a world-class level. Meanwhile, the closer cooperation with SIA in operation will facilitate maximum synergies for both parties, thereby elevating the two parties’ business development to another level.”
Mr. Li noted that the strategic cooperation proposal would bring substantial benefits to CEA and its shareholders. The Company will have access to SIA’s extensive international network which enables the Company to expand and grow its international business rapidly and effectively. The Company and SIA will also be engaged in long-term cooperation in a number of areas, including flight operation, maintenance and repair, procurement, marketing, secondment of personnel, code sharing, human resources, training and technical engineering. The strategic cooperation is expected to enable the Company to substantially expand its route offerings and achieve greater passenger traffic flow and revenue generation, as well as realizing increased operating efficiency and costs savings, thereby effectively enhancing the Company’s shareholder return. SIA and Temasek will nominate two persons and one person respectively as CEA’s directors, and currently SIA has nominated its Chairman and Chief Executive Officer to be the Company’s directors. It is expected that the introduction of SIA and Temasek to the Company’s board of directors will facilitate improvement in the Company’s business and operation, as well as effectively enhancing the Company’s management and governance standards.
“The strategic cooperation proposal also creates substantial value to passengers. The establishment of the strategic partnership between CEA and SIA will facilitate a greater variety of air routes and flight options for both parties as well as more convenient reservation and ticketing systems. In addition, the introduction of SIA’s world-class management experience will also significantly improve the Company’s flight operation and service quality, thereby offering a most satisfying service to both domestic and international passengers,” said Mr. Li.
The strategic cooperation proposal between CEA and SIA is also monumental to the development of the Chinese aviation industry. World-class airline management and operation experience will be introduced to the domestic aviation industry, while raising the reputation of China’s airlines. The cooperation will also promote healthy competition within the domestic aviation industry, thereby enhancing the operating efficiency of domestic airlines and effectively facilitating a healthy development of the domestic air transport industry. It will also bring greater international passenger traffic and subsequently greater business, tourism and retail opportunities to the China market.
Mr. Li summarized, “The establishment of a strategic partnership with SIA and Temasek will create an all-win situation for various parties involved. SIA, as one of the world’s largest and most profitable airlines, is now making a strategic investment in China, the world’s most rapidly expanding aviation market, in an airline company with the most development potential which is based in Shanghai, the most vibrant city of China. As such, CEA is all set for great developments. With all parties involved aiming at creating an “all-win” situation, the strategic cooperation has received dedicated support from the State and various regulatory authorities. We will strive to meet everyone’s expectation to complete the share subscription proposal so as to enable the Company’s business to go far and beyond.”