The mainland's largest airline, Air China, plans to issue 400 million A-shares this year to bankroll the expansion of its fleet.

Air China Acting Chairman Kong Dong said yesterday that the company plans to add 24 new aircraft this year, expanding its fleet to 244.

The expansion will be financed by selling A-shares, internal resources and renting new fleets.

Without giving specific details about the timetable or possible issuing prices, Senior Vice-President Fan Cheng said shareholders approved the A-share offer at an earlier meeting.

And if Air China's closing price of HK$5.20 yesterday is any indication, the A-share sales could raise about 19 billion yuan.

"We haven't finalized the timeframe of the offer," Fan said, adding that the A-share issurance won't face headwind from the unstable market conditions. He said the company's performance and strong domestic economy will be enough to bolster investor confidence.

China Eastern deal

Air China expects rival China Eastern to name its strategic partners by August, Kong said.

In January, the parent group of Air China formally proposed a strategic partnership with China Eastern. The proposal came after China Eastern's minority shareholders vetoed a $920 million plan to sell a 24 percent stake to Singapore Airlines and Temasek for HK$3.80 per share.

Travelers check for tickets at an Air China counter in Beijing Capital Airport. Air China plans to issue 400 million A-shares this year. AFP

But China Eastern rejected Air China's counter-offer, which involved a cash injection of $1.9 billion and proposed a broad tie-up between the two airlines' operations for HK$5 per share.

"It's not in anybody's interest for this to drag on indefinitely," Kong said. "But it's for China Eastern's shareholders to decide, and we will respect their decision."

Rising oil prices

Regarding rising oil prices, Fan said the company could hedge 50 percent of its oil-purchasing costs this year. "The hedging went pretty well over the past two months," he said.

In 2007, the company's fuel costs grew 9.4 percent to 17.2 billion yuan, accounting for 36 percent of its total operating expenses. The hedging helped reduce the fuel expenses by 236 million yuan.

In 2007, Air China's net profits grew 57.3 percent to 4.23 billion yuan, while its operating revenues increased by 14.2 percent to 51.3 billion yuan. Total operating expenses increased 12 percent to 47.5 billion yuan. The number of passengers carried by the carrier soared 10.59 percent to 34.8 million.

However, a report by South China Research gives a "sell" rating to Air China's shares with a 12-month target price of HK$4.86.

The report cited the US recession and an overpayment for China Eastern Airlines shares as potential challenges to Air China.

(HK Edition 03/19/2008 page2)