Shanghai Airlines approved for IPO


Shanghai Airlines plans to buy planes with the cash, but analysts warn capacity is expanding faster than demand in China

By Alex Frew McMillan

HONG KONG, China (CNN) -- Shanghai Airlines Co. says it has won approval to go public in China.

"The China Securities Regulatory Commission gave its nod to our initial public offering plan last month," President Fan Hongxi told the Shanghai Daily newspaper.

But Fan said the IPO itself will still have to wait "for some time." The company declined to set a deadline for the sale.

The airline plans to raise 1 billion yuan ($120.8 million) by floating on the on the Shanghai Stock Exchange. The stock sale will be an A share offering, open only to Chinese investors.

Easing investment rules

China is making it easier for overseas investors to buy large stakes in its airlines. As of August 1, international investors will be able to buy more than 35 percent of a Chinese airline, the current limit (full story).

The Civil Aviation Administration of China did not stipulate a 49 percent ceiling. But its new rules say only that the government will retain "a controlling interest." The CAAC also eased ownership restrictions on airports.

Shanghai Airlines is the ninth-largest carrier in the country. It has 24 planes and plans to take on two Boeing 737s this year. It expects to use the cash to buy more planes.

But many of its competitors are also trying to expand their fleets. Analysts warn capacity is growing faster than demand (full story).

New charter terminal open

Shanghai Airlines flies to 80 domestic cities, according to its Web site. But it offers limited international service to places such as Vietnam, Cambodia, Russia and the Chinese special administrative region of Macau.

This week, the airline opened a terminal for business charter flights at Shanghai's Hongqiao airport, using a leased eight-seater jet. Commercial flights also operate out of Pudong International Airport.

It made a net profit of 165 million yuan ($19.9 million) last year, on sales of 3 billion yuan ($362 million), the Shanghai News stated.

The Guangzhou Daily newspaper reports that Shanghai Airlines plans to partner with China Southern Airlines Co., the country's largest carrier, to buy an unidentified domestic carrier later this month.

The CAAC has ordered China's airlines to reorganize into three broad groups, consolidating around China Southern, China Eastern and Air China, its main international carrier.

Shandong Air said Tuesday its profit fell 50 percent in the first half of this year. It is the smallest of China's four publicly traded airlines.

It blamed lower air traffic after a string of crashes. A China Northern Airlines flight crashed into the seas in May (full story) and an Air China flight crashed into a mountain at the Korean city of Busan in April.