American Air to invest US$200m in China Southern deal

[BEIJING] American Airlines Group Inc agreed to acquire a minority stake in China Southern Airlines Co for US$200 million, cementing a partnership between the top carriers in the US and Asia.

China Southern will issue 270.6 million shares in its Hong Kong-listed company to the world's largest airline at HK$5.74 apiece, the Guangzhou-based carrier said in a stock exchange statement Tuesday. That is a premium of 5.3 per cent over the closing price before Bloomberg News reported the talks last week. The two airlines also agreed on code sharing, according to the exchange statement.

American Air will hold 2.68 per cent of China Southern's total issued shares, Asia's largest carrier by passengers said in the filing.

The agreement will boost Fort Worth, Texas-based American Air's presence in China, one of the world's fastest-growing aviation markets that the International Air Transport Association predicts will surpass the US to become the biggest in terms of passengers by 2024. The deal will also help the expansion plans of China Southern, which indicated in January that it was considering bringing in strategic investors.

China Southern is the last of the nation's top three airlines to bring in a non-mainland Chinese strategic investor. Cathay Pacific Airways Ltd, based in Hong Kong, owns about 18 per cent of flag carrier Air China Ltd. Delta Air Lines Inc acquired a minority stake in China Eastern Airlines Corp in 2015.

"For the price of one widebody aircraft, American could finally be securing a major mainland partner, but it's a long road," said Will Horton, a senior analyst at the Capa Centre for Aviation in Hong Kong.

The two "need to show over the long term this isn't an alliance of the leftovers".

The Hong Kong-listed stock closed on Monday at a seven-month high after China Southern confirmed it's in negotiations with American. The Shanghai-listed shares are scheduled to resume trading Tuesday. China Southern has a market value of about US$10 billion.

BLOOMBERG