So we all know now that Singapore Airlines is taking a nearly US$1 bln stake (roughly 25%) in China Eastern, but don't think this is exactly going to be smooth sailing entirely. In fact, expect turbulence.

First, Singapore Airlines taking a stake in a foreign carrier isn't exactly their cup of tea to begin with, and they have not had a great track record in the past (case in point: Air New Zealand, Virgin Atlantic).

SIA once held a 25% stake in Air New Zealand, which was later reduced to 6.3% following the New Zealand governmental rescue in 2001 of ANZ after a slew of problems with ANZ and Ansett. It then divested that 6.3% stake for next to nothing.

The 49% stake in Virgin Atlantic has also not been something that has been entirely "awesome" for SIA; case in point, look at their latest FY earnings from a few months ago and the comments on Virgin Atlantic. Not good.

Now SIA is dabbling with China Eastern. Concerns have surfaced about the deal and the Singapore government's role in it, but it is widely expected Beijing will approve it. Still, China Eastern operates at a loss (the only one in China to do so)and it remains to be seen just how far SIA will be able to affect change at the carrier.

While China Eastern does have its hub in Shanghai, and Singapore Airlines now has a foot in the door with the mainland chinese market, enacting change at China Eastern is something I don't think is likely, and at the end of the day its all about dollars and cents which is what everyone cares about; and thats the biggest problem at China Eastern now.

Curtis Bergh

Labels: China Eastern, MU, Shanghai, Singapore Airlines, SQ, Turbulence