American Airlines acquires stake in China Southern Airlines

By on
Qantas-American Airlines Alliance
W. Douglas Parker (L), Chairman and CEO of American Airlines, shakes hands with Qantas Managing Director and Group CEO Alan Joyce. Reuters/Joe Skipper

American Airlines Group Inc. is reportedly buying a minority stake in China Southern Airlines Co. for US$200 million (AU$262 million), securing an affiliation between the top carriers from the US and Asia. The latest agreement would make American Airlines the second US carrier to own part of a Chinese airline after 3.55 percent of China Eastern Airlines Corp was bought by Delta Air Lines Inc. in 2015.

According to a filing, American Air will hold 2.68 percent of China Southern’s total issued shares. Bloomberg notes that it would boost Fort Worth, Texas-based American Air’s presence in China.

The deal would also mean three biggest airlines in China now all have tie-ups with foreign airlines, boosting the sector’s global competitiveness. "It makes sense to partner with another foreign airline," Daiwa Capital Markets analyst Kelvin Lau said per Channel News Asia.

Lau said he thinks there will no changes as far as management is concerned because the stakeholding is small. The carrier's mainland-listed shares rose 4.3 percent in early trading to their highest price in 7-1/2 months. Meanwhile, its Hong Kong-listed shares dropped 1.28 percent at 0256 GMT.

American Airlines’s acquisition of a minority stake in China Southern is expected to strengthen management, boost competitiveness, enhance governance and “achieve the strategic goal of building a world-class aviation industry group.” The airline’s filing indicates that the two companies will increase cooperation in code-sharing, as well as in other areas such as staffing, sales, passenger loyalty programs and sharing airport facilities.

China Southern Airlines Co. is the biggest airline in China when it comes to passenger numbers. The airline is a member of the SkyTeam alliance and is headquartered in the southern city of Guangzhou.

Meanwhile, Beijing promised to shake up Chinese airlines through the implementation of mixed-ownership reforms. It also reportedly plans to introduce private capital and strategic investment into its state-owned enterprises in order to push for competitiveness and efficiency. The airline said it operates over 2,000 flights per day.

“For the price of one widebody aircraft, American could finally be securing a major mainland partner, but it’s a long road,” Will Horton, a senior analyst at the CAPA Centre for Aviation in Hong Kong, said. China is forecast to surpass North America as the biggest air travel market in the next two decades. The statement from China Southern said the deal with American Airlines "is expected to provide continuous impetus for the company's long-term growth.

Join the Discussion