WHILE Singapore Airlines's imminent purchase of a stake in China Eastern Airlines (Stock Code: 600115) will help fill both firms' ambitions, industry analysts are concerned the partnership may not create as much synergy as the Air China-Cathay Pacific Airways link.
"The deal will certainly boost China Eastern's performance with financial support and advanced management expertise," said Ma Ying, an analyst with Haitong Securities.
"SIA also needs to entrench its role in China and this is the perfect chance for long-term high growth in China," she added.
As the final deal awaits approval from the State-owned Assets Supervision and Administration Commission, media reports have said Singapore Airlines and its parent Temasek Holdings Pte may pay about US$930 million for a combined stake of about 24 percent, citing people involved in the talks.
SIA may pay about US$600 million, indicating it may take less than 20 percent of the only listed loss-making carrier in China.
China Eastern, which lost 2.78 billion yuan (US$362.4 billion) last year, is in need of a foreign partner to help guide its turnaround and capitalize on the enormous opportunities presented by its base in Shanghai, China's economic engine.
SIA is sitting on more than US$2.5 billion in cash and has indicated that China is a priority investment target with a market expected to grow fivefold by 2025.
"The alliance will help China Eastern fend off competition from Air China, China Southern Airlines and others," said Ji Lijun, an analyst with Shanghai Securities.
But their flight resources are not as complementary as that of Air China and Cathay, and it will not be easy for China Eastern to quickly adopt internationally advanced management, industry officials said.
Singapore is an ideal transfer link between Europe and Australia.
Meanwhile, Shanghai is a good transfer hub for flights to and from Asia to North America, they said.
Although Singapore Airlines' international flights via Shanghai can be transferred easier with China Eastern's network, domestic flights usually use Hong Kong as a transfer point, Ma said.
Air China operates flights linking Europe and North America to Beijing while Cathay has strength in South America and Southeast Asia. The linkage complements each other's network, she said.
Potential financial risks may have persuaded Singapore Airlines to co-invest with Temasek.
"Were Singapore Airlines to take less than a 20 percent equity stake in China Eastern, it would not have to account for the loss from China Eastern as it restructures the carrier," said Chin Y. Lim with Morgan Stanley Research Asia Pacific.
"However, with a co-investor aligned solely with SIA, the carrier would be in the sweet position of having effective strategic control without paying significant upfront capital and assuming initial associated losses."
Chinese carriers flew 160 million passengers last year, 15 percent more than in 2005, according to the General Administration of Civil Aviation. China's economy has grown at least 10 percent in each of the past four years, making travel affordable to more people.