23 January 2008

Little Trouble in Big China - the China Eastern Saga

Some of you (us) might be just a little confused in the shenanigans going on over at China Eastern. I know I am.

This doesn't make sense.

Singapore Airlines (SQ) made a play To take a minority stake in the Chinese airline (MU). It made sense. Bringing in Western Style discipline but with a distinctly Asian style that SQ has made all its own. Bringing MU up to World class standards wa very attractive to all concerned.

However not EVERYBODY agreed.

China's big fish airline Air China (CA) doesn't like too much competition. It is much happier if there is fractured and unaligned or weak competition. Oh yes and CA's parent China National Aviation Corp sits on MU's board. So just before the end of last year, China National Aviation Corp started making public noises about how it didn't like the merger and that it would offer a lot of money for a much larger stake in MU. Before you can say Kung Fu - they veto the Tamasek/SQ deal and then offer $1.9 Bn for 30% of China Eastern.

To nobody's surprise this was rejected by MU's management and board. At the same time Air China offered a tie up alliance with MU. Again rejected.

Now comes news that MU has jumped into the other side with an alliance with fellow struggler China Southern (CZ). Are you keeping up so far?

So let's see if we can sort out the alliance players here.

MU is not a member of any alliance.
SQ is in Star
CA just joined Star
CZ just joined Skyteam
CX (CA's partner and cross shareholding) is in OneWorld.

So what is the likely outcome?

For veteran China watchers like us... this is just another nice example of the convoluted arrangements in the Middle Kingdom. It will ultimately have a happy ending. Just don't expect one any time soon and the outcome will be a true example of face saving and complexity.

Got it?

And another thing... are alliances really that useful for consumers?

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