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interface news reporter | xue bingbing

on the evening of august 30, china eastern airlines (600115.sh) released two important announcements in succession. one was the "announcement on the absorption and merger of wholly owned subsidiary 123 airlines co., ltd." and the other was the "announcement on the capital increase of wholly owned subsidiary shanghai airlines co., ltd." according to the announcement, china eastern airlines will cancel and liquidate 123 airlines, incorporate it into the company's large fleet for unified operation, and increase capital of 4.5 billion yuan to shanghai airlines to reduce its asset-liability ratio.

as one of the three largest state-owned aviation enterprises, china eastern airlines has many member airlines. among them, shanghai airlines, china united airlines, and 123 airlines are wholly-owned subsidiaries of china eastern airlines, and china eastern airlines jiangsu, china eastern airlines wuhan, and china eastern airlines yunnan are its holding subsidiaries. focusing on the core hubs of shanghai and beijing and the regional hubs of xi'an and kunming, as of the first half of this year, china eastern airlines has a total of 792 passenger aircraft with an average age of about 9 years.

in detail, 123 airlines is a domestic civil aircraft operator within the china eastern airlines system, operating 24 arj21 regional aircraft as of the first half of the year. china eastern airlines said that after the completion of this absorption and merger, the company, as the absorbing and merging party, will inherit all the assets, businesses, claims and debts of 123 airlines and continue to operate.

shanghai airlines is the largest subsidiary of china eastern airlines, and operates almost in an integrated manner with china eastern airlines. the two companies have implemented code-sharing cooperation on many domestic routes. china eastern airlines said it plans to increase its capital in shanghai airlines by rmb 4.5 billion in cash, and its shareholding ratio in shanghai airlines will remain unchanged after the capital increase, which will help strengthen its capital strength.

domestic civil aircraft operators who “failed halfway”

official data shows that the predecessor of 123 airlines was china eastern business aviation co., ltd., which was established in september 2008. 123 airlines was listed in february 2020, and then passed the ccar-121 operational qualification review in december 2020, starting the commercial market operation of domestically-produced civil aircraft.

at the beginning of its establishment, 123 airlines announced that it would mainly operate domestic civil aircraft such as arj21 and c919. it would initially operate regional passenger aircraft arj aircraft, and would receive domestic large aircraft c919 around 2022, becoming the world's first user of c919. however, china eastern airlines did not let 123 airlines go, but chose to receive and launch the first commercial flight of domestic large aircraft.

after losing the opportunity to operate the c919, 123 airlines has completely become a regional passenger aircraft operator. according to official introduction, 123 airlines uses pudong airport as its main operating base, builds a "regional network" by opening up third- and fourth-tier cities with abundant traffic around the base and integrating with china eastern airlines' route network, providing high-density transportation services.

interface news found that this summer season, 123 airlines operates a total of 15 routes, mainly including shanghai pudong-jieyang chaoshan, shanghai pudong-guilin, nanchang-zhengzhou, hefei-yantai, etc.

in addition to the aircraft type, another embarrassing point is that 123 airlines has been using china eastern airlines' mu code since it was put into operation. in an interview with jiemian news, zhai zhigang, general manager of 123 airlines, explained that this was because 123 airlines was a newly established subsidiary of china eastern airlines and had only been established for a short time, and the time slot resources at shanghai hongqiao and shanghai pudong airports were tight.

"as the company expands, with the support of industry units and various operating units, 123 airlines will use its own two-letter and three-letter codes as soon as possible and independently operate its own flights." zhai zhigang once said. however, until the announcement of cancellation and liquidation, 123 airlines did not have its own independent code.

moreover, 123 airlines has been losing money since its establishment and is in a predicament of insolvency. according to jiemian news, which sorted out the annual financial reports of china eastern airlines, in the four years from 2020 to 2023, the net loss of 123 airlines has expanded from 58 million yuan to 584 million yuan, more than 10 times. the debt-to-asset ratio has continued to rise, from only 16.50% in 2020 to 92.89% in 2023. as of the first half of this year, it has been insolvent with an asset-liability ratio of 102%.

in an announcement yesterday, china eastern airlines said that in order to further optimize the company's management structure, shorten the management chain, improve management efficiency, reduce management costs, integrate the arj21 fleet into the company's large fleet for unified operation, and coordinate production organization, the company decided to absorb and merge 123 airlines. 123 airlines, as the absorbed party, will be deregistered in accordance with the law.

this also means that after only four and a half years of establishment, 123 airlines will bid farewell to the civil aviation market forever. however, jiemian news also noted that the arj regional aircraft of the other two state-owned airlines, air china and china southern airlines, were originally incorporated into the company's large fleet for unified operation, and there is no separate regional aircraft operating airline. this time, china eastern airlines absorbed and merged 123 airlines, which is also a performance of keeping pace with the industry.

shanghai airlines wants to be reborn

shanghai airlines is now the largest subsidiary of china eastern airlines, operating a total of 85 b737 and b787 aircraft as of the first half of this year. more than 10 years ago, china eastern airlines and shanghai airlines were competitors and had not yet "entered the same door".

around 2008, under the pressure of international situation and oil price, the performance of china eastern airlines and shanghai airlines, both of which are based in shanghai, almost hit the bottom. china eastern airlines lost 13.9 billion yuan and its asset-liability ratio reached 115%. shanghai airlines was marked as *st and was on the verge of delisting. at the same time, the two companies had a high degree of overlap in business and suffered serious internal friction.

in order to solve this "mess", the central government "changed the team and gave money". at the end of 2008, liu shaoyong left china southern airlines and returned to china eastern airlines, where he served as chairman and party secretary of china eastern airlines co., ltd. and led the reorganization of china eastern airlines and shanghai airlines. by the end of 2009, the reorganization was basically completed. due to avoiding excessive competition and generating synergy effects, the profitability of the new china eastern airlines and shanghai airlines continued to improve.

according to the official introduction, shanghai airlines currently uses shanghai hongqiao international airport and shanghai pudong international airport as its main operating bases, and adheres to the development principle of "based in shanghai, serving shanghai". it focuses on the "beijing-tianjin-hebei, yangtze river delta, guangdong, hong kong and macao, chengdu-chongqing" and other regions to strengthen trunk routes and create high-quality and distinctive routes, thus achieving effective linkage with china eastern airlines' network system.

judging from the financial performance of shanghai airlines, according to jiemian news, shanghai airlines' performance was not good in 2019 before the outbreak of the epidemic. that year, all other wholly-owned companies and holding companies under china eastern airlines were profitable, but shanghai airlines was the only one that suffered a loss, with a net loss of 86 million yuan. china united airlines, another wholly-owned company of china eastern airlines, made a profit of 658 million yuan that year, and china eastern airlines jiangsu, which had a lower profit, also made 308 million yuan. not only that, shanghai airlines' asset-liability ratio was also the highest among many airlines that year, reaching 94.67%.

affected by the epidemic, shanghai airlines' financial situation has taken a sharp turn for the worse, with cumulative losses reaching about 10.4 billion yuan in the four years from 2020 to 2023. however, the losses have been significantly narrowed in the first half of this year, recording a loss of 163 million yuan. however, it is still insolvent, with an asset-liability ratio of 116%.

in fact, since the merger and reorganization, china eastern and shanghai airlines have maintained integrated development, and the two have deeply integrated in many aspects such as resources and business. however, while the two companies are moving forward in synergy, certain problems have also emerged. shanghai airlines is increasingly dependent on china eastern airlines, and its own presence has been greatly weakened, and its brand recognition is also very low.

the turning point came in the first half of this year. in mid-june, china eastern airlines issued the "resolution announcement of the 10th board of directors' 1st ordinary meeting". the announcement stated that the meeting unanimously reviewed and passed five proposals, one of which was the "proposal on the development positioning plan of shanghai airlines co., ltd."

according to the proposal, shanghai airlines will continue to maintain its current "full-service" operating model, and is committed to becoming a "full-service, regional, distinctive" airline with distinct characteristics and unique charm under china eastern airlines by building an domestic and international route network closely linked to shanghai, creating personalized service products, and stimulating brand value.

after shanghai airlines' development positioning is clarified, a series of adjustments to its business management and control model and organizational structure will be carried out around the positioning. the core keywords are to emphasize "relative independence" and "shanghai characteristics", so as to form differentiated and distinctive development with china eastern airlines in terms of route network, product design, brand awareness, resource acquisition and other aspects, and enhance the value of shanghai's local airlines.

in this regard, a relevant person in charge of china eastern airlines revealed to jiemian news that the reason for reshaping shanghai airlines' development positioning is to make its brand characteristics more distinct and prominent. "the company hopes to build the relationship between china eastern airlines and shanghai airlines into the relationship between china southern airlines and xiamen airlines."

xiamen airlines is a holding company of china southern airlines, with a 55% stake. this year marks the 40th anniversary of xiamen airlines. xinhua news agency published a report titled "starting from scratch to achieve leapfrog development - observations on xiamen airlines' 40-year journey to become a world-class airline", which mentioned that xiamen airlines has set a record of 37 consecutive years of profitability in china's civil aviation industry, with its asset size increasing by more than 2,500 times. it has also won the "world class airline" award from the world airline passenger experience association for two consecutive years, and has become one of the "top eight in the world". it has grown from a local airline to a world-renowned aviation group.

it would be a big challenge for china eastern airlines to build a distinctive airline company against the well-known xiamen airlines. china eastern airlines' investment of 4.5 billion yuan in shanghai airlines is also a direct reflection of its real financial support for shanghai airlines' differentiated development and brand building.

china eastern airlines announced that it plans to increase shanghai airlines' capital by rmb 4.5 billion in cash. after the capital increase is completed, shanghai airlines' registered capital will be rmb 10 billion. in the column "impact of capital increase on listed companies", china eastern airlines also clearly mentioned that the company's capital increase in shanghai airlines will help strengthen shanghai airlines' capital strength, optimize its capital structure, reduce its asset-liability ratio, and help enhance shanghai airlines' brand value and resource acquisition capabilities.