Airline shares hit as bid shunned

There has been a large growth in air travel in China

Shares in Cathay Pacific and Air China have fallen sharply after both airlines said they were not planning to bid for a stake in China Eastern Airlines.

By midday in Hong Kong, Cathay stocks had fallen 6% while Air China lost 13%.

Shares in both airlines had been suspended amid speculation that the firms planned to team up to make a bid, but they later resumed trading.

Reports had claimed the pair hoped to block a planned deal between China Eastern and Singapore Airlines.

In a statement, Air China said that it was its holding company, China National Aviation, which had been in talks with Cathay about putting together a joint bid for a stake in China Eastern.

Clearly, the authorities want to create competitive airline companies Jack Xu, Analyst SinoPac Securities.

However, this will "not proceed" now or within the next three months, it added.

Appealing market

Singapore Air is to buy a 24% stake in China Eastern under a $918m (£453m) deal which has been approved by the Chinese government.

The Chinese airline market has been experiencing significant growth, making a deal for part of China Eastern appealing.

During the first six months of the year total passenger traffic on Chinese airlines grew by 16.7% to 86.7 million - with traffic on international routes up 21.8% to 7.9 million and domestic traffic 16.2% higher at 78.8 million.

"Many foreign carriers want to enter China but the market is still sealed off, so they turn to buying stakes in domestic airliners," said Jack Xu, an analyst with SinoPac Securities.

"Clearly, the authorities want to create competitive airline companies, and they have two options: restructuring the companies with capital injections from government or bringing in advanced foreign players to improve the efficiency."

China Eastern is based in Shanghai and offers both domestic and international services.