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China Southern Airlines reacts to debt crisis

June 12, 2012, Honk Kong, China - China Southern Airlines Ltd., China's biggest state-owned carrier by number of passengers, said Tuesday it's raising up to 2 billion yuan ($314 million) to help pay off debt amid a shaky global economic outlook and high jet fuel prices.


June 12, 2012
By Carey Fredericks

The airline, which is listed on Hong Kong's stock market, plans to sell about 465.1 million new shares to its parent company, China Southern Air Holding Company, at 4.30 yuan ($0.67) each.

The money would be used to repay bank loans, with any left over added to working capital. The share issue still needs regulatory and shareholder approval, the company said in a statement to the stock exchange.

The share sale follows two similar capital injections, in 2008 and 2010, that raised about 4.5 billion yuan in total for the airline.

Chinese airlines have been expanding their fleets rapidly in recent years to keep up with surging demand for air travel in booming Asia, but that's also left them with rising debt.

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Net debt at China Southern, one of the country's three major state-owned carriers, rose 18 per cent to 75.8 billion yuan ($11.9 billion) last year. The airline's fleet of 444 aircraft is the country's biggest and it has spending commitments of 61.2 billion yuan ($9 billion) for 180 more aircraft to be delivered through 2016.

The fundraising comes as airlines struggle to survive amid high fuel prices. The International Air Transport Association warned this week that Europe's debt crisis would drag down airline profits if it triggers a recession.

The global aviation trade group said fuel accounts for 33 per cent of carriers' costs, up from 13-14 per cent a decade ago, and it forecast that oil prices will average $110 a barrel this year.

China Southern is based in the southern business centre of Guangzhou.