Perhaps China's airlines and Singapore Airlines were never meant to be. Even with the state government sanctioning the takeover and a very strategically posed partnership between China Eastern and Singapore Airlines, Singapore's bid for its Chinese counterpart was rejected thanks to the effort of about 78% minority shareholder votes against the acquisition. The result reflected Air China and Cathay Pacific's heavy lobbying in keeping China Eastern a truly Chinese airlines.
Both sides may be dumbfounded; Singapore Airlines failed to tap into the airline goldmine of the world (Chinese air market will grow fivefolds by 2025), and China Eastern is already failing to convert its rising volume in air travel into profits. Air China's undoing may be more political than entrepreneurial, as Singapore Airlines is owned by Temasek Holdings, the state-run investing arm of the Singapore government. Shares for the three airlines fell as trading resumed after the bid was rejected.
Analysts claim that Air China's offer for the 24% stake in China Eastern is better than that of Singapore Airlines', and that China Eastern will continued to be blessed by the Chinese government should it maintain its status quo under state management. In something of a bidding war, Singapore Airlines had initially planned to buy out China Eastern shares at a 43% discount (HK$3.80 apiece) to its last trading day closing price. With a counterbid, Air China then announced that it would buy the same stake in China Eastern for at least HK$5.00 apiece within two weeks of the bid rejection, 32% more than Singapore Airlines' offer.
Singapore Airlines and Temasek Holdings insist that they will continue to cooperate with China Eastern, but will not increase further their offer. This means that Singapore Airlines will have significant troubles in expanding in China, where Air China and Cathay Pacific, who own about 17.5% of each other, have established a stronghold.
What does this mean to the future of the airline industry in China? How will Singapore Airlines lose out with the Olympics in 2008?
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