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2009-1-14 03:06:00 p.m. HKT, XFNA
BROKER CALL - Air China kept 'neutral' on potential East Star deal - HSBC
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| BEIJING (XFN-ASIA) - HSBC said it is maintaining its "neutral" rating and 2.4 hkd price target on Air China after the airline revealed its parent China National Aviation Holding Co may buy up to 100 pct of East Star Airlines.
Air China's shares were up 3.65 pct at 1.99 hkd this afternoon in Hong Kong.
While no formal agreement has been reached yet and it is not certain the transaction will materialize, a deal would create commercial benefits for Air China, HSBC said.
Privately-owned East Star operates nine leased Airbus A320s from Wuhan, which is currently dominated by China Southern and China Eastern. A takeover would help Air China quickly take market share in the area through East Star's airport slots and customer base, HSBC said.
Moreover, East Star has a stable and cheap sales channel as its parent, East Star Group, has a tourist business and uses the carrier for flights, HSBC said.
Air China also has a better track record than other Chinese carriers in restructuring acquired airlines, it added.
But the deal does carry risks, HSBC said, noting that East Star is deeply in debt. The airline, which began operations in 2006, reported profits for its first two years of business, but recent reports suggest it has unsettled bills with airports and suppliers, HSBC said.
(1 usd = 7.8 hkd)
will.davies@afxasia.com |
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