China Eastern Airlines will raise 7 billion yuan, more than double the amount originally planned, by selling shares to its state-owned parent company.

The plan is the latest government effort to rescue the beleaguered airline after it reshuffled the company's top executives more than two weeks ago.

The Shanghai-based carrier will sell 1.44 billion Shanghai-traded A shares at 3.87 yuan apiece and 1.44 billion Hong Kong-traded H shares at 1.00 yuan to its State-owned parent company, China Eastern Air Holding Co, in exchange for the new capital, the company said yesterday in a notice to the Hong Kong Stock Exchange.

The money raised will increase the airline's cash balance and lower its debt-to-asset ratio by 8.36 percentage points to 90.13 percent.

China Eastern earlier posted a net loss of 2.29 billion yuan in the first nine months of 2008. Its net operating cash flow was 1.66 billion yuan, far short of the 12.8 billion yuan needed to repay its debts.

"The company's operating and financial condition is under enormous pressure. The continuous fluctuations in global financial markets make it extremely difficult for the company to obtain financial support in the short run," the airline said in a statement.

Trading in China Eastern's shares on the Hong Kong and Shanghai bourses, suspended since December 24, resumed yesterday. The company's A shares closed at 4.49 yuan, down 3.65 percent from the closing price before the suspension, while its H shares lost 8.53 percent to HK$1.18.

"The capital injection should help improve China Eastern's liquidity in the short term," said Li Lei, an aviation analyst with CITIC China Securities. But what matters to the company's longer-term health will be market demand, he said.

China Eastern announced earlier this month that it would receive a 3-billion-yuan cash injection by selling shares to its parent company shortly after the government injected the same amount of funds into Guangzhou-based China Southern Airlines, also one of the three major State-owned carriers, including Air China.

Guangzhou Daily yesterday cited an unnamed source as saying that the government will inject 9.5 billion yuan into Air China. But Rao Xinyu, Air China's board secretary, denied the report, saying she has not heard such information "up to now".

A senior company official from China Southern yesterday told China Daily that the airline needs more capital than what it has already received.

Chinese airlines booked a combined net loss of about 4.2 billion yuan in the first 10 months of 2008 because of soaring fuel prices earlier this year and falling demand caused by the economic slowdown.

Earlier this month, Liu Shaoyong, former chairman of rival China Southern, took over the helm at China Eastern, and Ma Xulun, former deputy general manager of Air China's parent company, was named president of the ailing airline.

(China Daily December 31, 2008)