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HONG KONG: Trading in Air China shares was suspended Monday amid speculation it will team up with Hong Kong's Cathay Pacific to block Singapore's bid to gain a foothold in the Chinese aviation market.
Air China and Cathay Pacific are said to be trying to scupper a bid by Singapore Airlines to acquire a key stake in struggling China Eastern, China's third-largest carrier.
In a statement to the Hong Kong stock exchange, the Chinese flag carrier said its shares had been suspended from trading, pending the release of an announcement that "may contain price-sensitive information."
"The suspension is not all about the (Cathay) issue," an Air China spokeswoman in Beijing told AFP.
Trading in Cathay shares was also halted Friday pending an unspecified development. A company spokeswoman said news relating to the suspension could be released after the market closes on Monday.
"The combination of Air China and Cathay is a very strong combination," said Jim Eckes, managing director of consulting firm Indoswiss Aviation.
"To do that as a blocking action, and keep Singapore Airlines out of the deal, it's a very good way to keep out contenders," he said.
Singapore Airlines (SIA) and the city-state's Temasek Holdings said earlier this month that they planned to buy a combined 24 percent stake in China Eastern for 923 million US dollars, giving them a way into the fast-growing Chinese aviation market.
A SIA spokesman declined to comment on "market speculation".
The South China Morning Post reported that Cathay would use its alliance with Air China, China's largest airline and an 11 per cent stakeholder in China Eastern, to block the plan at a December shareholder meeting.
Under a deal struck last year, Cathay Pacific, SIA's long-time regional rival, and Air China already own 17.5 per cent stake in each other. That deal also saw Cathay take over smaller rival Dragonair.
Analysts said the attraction for both airlines is China Eastern's Shanghai service. Sixteen of the 32 daily flights between Hong Kong and Shanghai are operated by Cathay and Dragonair.
With China Eastern operating 13 and Shanghai Airlines three, a deal could give Cathay a virtual monopoly on the lucrative route.
"The stakes are high enough -- control of the massively important Shanghai market -- for battle to be declared," the Sydney-based Centre for Asia Pacific Aviation said.
Citing an unnamed China Eastern official, the Wall Street Journal reported on Monday that the airline had not received any offer from Cathay.
China Eastern shares hit an all-time high Monday at 10.5 Hong Kong dollars (1.40 US) following the reports.
The source told the Journal that the carrier will try to persuade shareholders to approve a deal with SIA and that he was "confident" it would get the go-ahead as it had received key approvals from Chinese ministries.
The deal requires the support of two-thirds of China Eastern's minority shareholders.
Ultimately, the issue of who should control China Eastern will have to be settled by the Chinese government, CIMB-GK brokerage said.
"The Chinese government will play a pivotal role in the outcome of the looming battle," it said in a research note.
"If SIA is thwarted in its China Eastern bid and Air China gains control of China Eastern, competition in China's passenger aviation industry could be significantly affected, with the market at risk of leering towards an oligopoly," it added. - AFP/ac
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