Chinese OTA leader Ctrip.com International (Ctrip) and China Eastern Air (China Eastern), parent company of China Eastern Airlines announced their entry into a strategic collaboration agreement.
Under the agreement, Ctrip has agreed to invest RMB3 billion (about $463 million) in China Eastern Airlines' A shares through a private placement of shares. Ctrip may elect to further increase its ownership stake in China Eastern Airlines following the placement (possibly up to 10%, according to a report of Bloomberg) in the next twelve months and may be entitled to appoint an observer or a director to China Eastern Airlines' board of directors, subject to the satisfaction of certain conditions such as ownership thresholds.
Bloomberg reported Ctrip is to buy 3.55% of China Eastern and the deal is part of the airline's plan to finance purchase of planes for further expansion.
The stake held by the state-owned parent of the airline, China Eastern Air, will decrease to about 52% from about 62% upon dilution as the listed unit sells shares to fund the spending plan, Ma said. Current rules prohibit the parent’s stake to drop below 50%, he said.
Xulun Ma, general manager of China Eastern Airlines, said on March 12 that the carrier was actively pursuing state ownership reform and to further reduce state-own shares of the carrier’s stake to encourage more investments from the market.
The Shanghai-based carrier predicted a 60-70% net profit growth for the first quarter this year due to robust demand and lower fuel prices.
Ctrip and China Eastern will collaborate with each other on a broad range of products and services such as low-cost transportation solutions, international air travel, IT technology, travel insurance, and e-commerce.
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