Singapore Air confirms deal talks

Singapore flew 18 million passengers last year

Singapore Airlines has confirmed it is in talks about buying a stake in China Eastern Airlines, a deal analysts believe could be worth $1bn (£500m).

Its shares rose 1.6% on Wednesday amid reports that it was about to buy a 25% stake in the Chinese carrier.

Singapore said it was "in advanced stage of discussions" about a deal but did not give any further details.

A tie-up would give Singapore Airlines greater access to the growing number of Chinese air passengers.

'Risks'

If the deal is confirmed, it would follow a similar tie-up between Air China and Hong Kong's Cathay Pacific.

However, Singapore Airlines warned that the agreement had not been finalised and would be subject to regulatory approval.

A potential deal could easily run aground Peter Negline, JP Morgan

One analyst said the two sides had to overcome significant obstacles to secure the deal, such as who would run the business afterwards and what the role of the Chinese government, currently a shareholder in China Eastern, would be.

"A potential deal could easily run aground on any or all of these issues," said JP Morgan aviation analyst Peter Negline.

Currently loss-making, China Eastern is China's third-largest carrier, behind number one Air China, and China Southern Airlines.

Based in Shanghai, it mainly serves domestic routes in China.

A deal between Singapore and China Eastern would leave China Southern as the last of the country's three biggest airlines without a foreign, or at least Hong Kong-based, investor.

Singapore is the world's largest airline by market capitalisation, carrying 18 million passengers last year.

China's domestic airlines have been rapidly expanding, but they lack an international brand identity or any code-sharing arrangements with partners outside China.