An airport ground staff member stands in front of a China Southern airplane at Taiwan Taoyuan international airport. The cash injection will help China Southern to lower its debt-to-equity ratio.
Shares in China Southern Airlines were suspended yesterday on the Shanghai and Hong Kong bourses after the carrier said it is yet to decide how to use the 1.5 billion yuan cash injection received from the government.
Guangzhou-based China Southern, the nation's largest carrier by fleet size, said the funds received from the Ministry of Finance would be routed through its parent, China Southern Air Holding Company.
The carrier and its parent are discussing the modalities of using the fund to lower its debt-to-equity ratio, which now stands at 85.73 percent, according to a regulatory filing.
The capital injection will help China Southern lower its debt-to-equity ratio by 1.62 percent to 84.11 percent, said Xie Hong, an analyst at China Jianyin Investment Securities.
The fund is the last tranche of capital that the government extended to the top three carriers as part of its efforts to help them cope with an industry slump in 2008.
The parents of the nation's three major carriers, China Southern, China Eastern Airlines Corp and Air China Ltd received a total of 15 billion yuan from the central government.
"It is unlikely that there will be another round of capital injection in the short term, and the worst time for airliners has passed," said Li Lei, an analyst at CITIC China Securities. The three carriers reported an aggregate net loss of 27.9 billion yuan in 2008, accounting for 48 percent of the global loss in the aviation industry.
China Southern said it expects to return to profit in 2009 after posting a 483 million yuan loss in 2008. The carrier made a net profit of 322 million yuan in the first three quarters of 2009.
Chinese carriers have benefited from the increasing air travel demand spurred by the nation's economic recovery. During the Spring Festival holiday this year, China Southern saw its passenger numbers rise 17 percent over the same period a year earlier, according to Yao Jun, an analyst at China Merchants Securities.
"China Southern has also been affected by the Wuhan-Guangzhou high-speed railway launched last December, which shortens the rail journey to less than three hours. The carrier saw passenger traffic between Changsha and Guangzhou decline 15 percent, despite cutting ticket prices by 5 percent," said Yao.
In late 2008, China Southern's parent company received a separate 3 billion yuan bailout from the government. China Eastern's parent has been given a total of 9 billion yuan in the past two years.
Air China, the nation's largest international carrier, has been granted 1.5 billion yuan, which it will use to buy out minority shareholders in a cargo unit, according to a statement filed to the Hong Kong stock exchange recently.
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