MIAMI – China Eastern Airlines (MU) will receive a cash injection of ¥31bn (US$4.60bn) from four new investors, the company said on Monday.
The US$4.60bn capital boost for the China Eastern Group will come from four state-owned enterprises. These companies are China Life Investment Holdings, which will inject ¥11bn; Shanghai Jiushi Group with ¥10bn; as well as China Guoxin Asset Management and China Tourism Group, which will inject ¥5bn each.
China Eastern Airlines, one of the country’s Big Three state carriers, has been struggling recently after losing US$1.3bn in the first half of 2020. The investment is part of an equity diversification plan by the Chinese government.
China claims the investments are not supposed to be considered bailouts. Instead, it is a transfer of ownership to different state-owned entities. None of the cash will come from private companies; the funds will be provided by different government-controlled investors.
This means China Eastern will remain entirely state-owned. Chinese state-owned enterprises make up about 30% of the country’s GDP.
MU’s rival China Southern Airlines (CZ) received a similar package last year. CZ received a capital injection of ¥30bn from three government-backed investors.
Domestic market recovery?
The cash injection comes at a critical time for MU, as its shares have tumbled 23% this year due to the fall in travel demand in the wake of the COVID-19 pandemic. China’s domestic market, which is now the biggest in the world, has suffered from a huge drop in demand. In 2019, there were 6,535 daily domestic flights in China, this number has now fallen 58.6%.
However, China is seeing some recovery in its domestic market. Load factors which hit a low in February, have now climbed to 60% and more flights are taking to the skies.
“China is now returning to work and relaxing domestic travel restrictions. We’ve seen a slow resumption of domestic air services. Load factors of 60% show that passenger confidence is returning too, albeit slowly,” said IATA chief economist Brian Pearce.
Pearce also states that MU intends to use the additional funds to expand business operations, strengthen its core aviation business, as well as “strengthen coordination with strategic investors in aviation insurance, transportation, tourism services.” MU currently operates a huge fleet of 568 aircraft from its hub at Shanghai Hongqiao (SHA).