CHINA> Regional
Chinese airline goes bankrupt with huge debts
Updated: 2009-08-27 22:51

WUHAN: East Star Airlines, the debt-laden private airline based in central China's Wuhan City, officially went bankrupt after its restructuring application was rejected Thursday.

The Intermediate People's Court in Wuhan City said the plan submitted by the East Star Group and ChinaEquity was unfeasible and failed to meet the conditions for a legal restructuring.

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ChinaEquity, an investment company founded in 1999 in Beijing, had promised to invest 200 million to 300 million yuan (US$29 million to US$44 million) for the restructuring plan.

However, it did not specify the source of the funding and failed to provide certificates and documents, and lacked measures to protect creditors, the court said.

The court said East Star Airlines had no operating income in 2008, while ChinaEquity recorded 470,000 yuan in main business income and a 187,477-yuan deficit last year.

The East Star Group and ChinaEquity agreed the restructuring plan earlier this month. The Intermediate People's Court in Wuhan heard the plan Tuesday.

East Star was founded in May 2005, making it China's fourth private carrier after Okay Airways, United Eagle Airlines and Spring Airlines. It operated more than 20 domestic passenger routes between key cities with a fleet of nine aircraft and held about 10 percent of the market share in Wuhan.

The airline, with a registered capital of 80 million yuan, was jointly owned by a tourist agency, a tourist investment company and a real estate firm, which all belonged to the East Star Group.

On March 13, the airline rejected a government-initiated take-over by the parent group of national flag carrier Air China.

Its operations were suspended by the industry regulator as of March 15, due to prolonged financial and management problems.

The order was issued by General Administration of Civil Aviation of China (CAAC)'s branch in charge of the country's central and southern areas after the Wuhan municipal government submitted an application for the suspension.

The bankruptcy proceedings were launched on March 30 at the request of six creditors, according to the Communications Commission of Wuhan City.

East Star Airlines announced last month that its total debt surpassed 752 million yuan.

General Electric's aircraft leasing arm, GE Commercial Aviation Services, one of the creditors, has taken back all nine aircraft it had leased to the airline.

State-owned Air China has recruited about 600 out of the more than 1,000 staff of East Star Airlines.

The global economic downturn reduced air travel severely, making last year a hard time for the airline industry.

The Chinese government injected billions of yuan into Air China, China Southern Airlines and China Eastern Airlines, the three major state-owned carriers, to help them ride out the downturn.

Wang Chaoyong, chairman of ChinaEquity, said private airlines had no access to bailouts.

Zhao Changbing, spokesman of East Star Airlines, said the government should protect the brand of the private business.

Zhao said the airline rejected the takeover by the parent of Air China because the offer was too low and it only covered the debts.