World Crisis Online

Shanghai China Eastern Airlines (CEA), already suffering losses and a heavy debt burden and working up to the last moment on its acquisition of Shanghai Airlines, has announced it is now planning to buy 20 spanking new Airbus 320 planes.

In 2008, the category price for 20 A320s came to about 9.917 billion yuan (about $1.452 billion). CEA’s accrual purchasing price will be lower than the category price. CEA said the deal had been approved by its board and has been submitted for approval to relevant regulatory departments.

Related articles Airbus “Loses” Chinese Order, and Everybody Has to Adjust Air China, CEA, and China Southern Airlines Out of Woods in Q1 Purchasing so lavishly at such a time has drawn attention. The aviation market declined markedly last year, and CEA reported a 14.046 billion loss, including a book loss on a fuel cost hedging transaction, in 2008, and was labeled “ST” on the Shanghai Stock Exchange, indicating it needed “Special Treatment” due to technical insolvency. Soon after, however, its parent company China Eastern Group received a 7 billion yuan capital injection from the government and CEA’s asset liability ratio fell after China Eastern Group injected these funds into the company.

At the beginning of May, China Eastern Group again received 2 billion yuan from the government. However, this time it won’t be easy for China Eastern Group to inject the funds into its listed sector. After the earlier injection, China Eastern Group’s stake in CEA increased to 74.64%, very close to the 75% limit. So China Eastern Group will have to figure out another mode of injection. It is reported that the 2 billion yuan fund injection is connected to CEA’s acquisition of Shanghai Airlines. Shanghai Airlines also got 1 billion yuan from the government.

Now CEA is seeking greater funding support. When the trading of both China Eastern’s and Shanghai Airlines