China Eastern Air sells stake in freight subsidiary

China Eastern Air Holding has sold nearly half of its freight subsidiary to four companies to become the country's first mixed-ownership reform deal in the aviation sector.

CEA Holding, the parent company of China Eastern Airlines, yesterday signed the deal for Eastern Air Logistics with Legend Holdings, Global Logistic Properties, Deppon Logistics and Greenland Financial.

CEA Holding will keep 45 percent of the freight unit. Legend Holdings will hold 25 percent, Global Logistic Properties 10 percent, and courier firm Deppon and Greenland 5 percent each.

Eastern Air Logistics' core employees will take the remaining 10 percent. The first batch of 125 senior officials will share 8 percent of the stake, while the remaining 2 percent will be reserved for future employees, said Li Jiupeng, general manager of Eastern Air Logistics.

Financial terms of the deal were not disclosed. However, CEA Holding said 4.1 billion yuan (US$602 million) of state and non-state capital was invested in the cargo unit, which brought its debt ratio down to 75 percent, from 87.86 percent at the end of 2016.

"Eastern Air Logistics aims to become a world-class air logistics company on par with FedEx, UPS and DHL," said Liu Shaoyong, chairman of the CEA Holding.

"The practice also aims to work out new experience for the reform of China's state-owned enterprises," he said at the signing ceremony in Shanghai.

China has been conducting mixed-ownership reforms in bloated and debt-ridden state-owned enterprises, including bringing in multiple types of investors to central SOEs, exploring flexible and market-based salary systems and selling shares to SOE employees.

The reforms aim to revamp SOEs in the electricity, oil, natural gas, railway, civil aviation, telecommunications and military industries where monopolies lead to low efficiency and poor service.

China Eastern Airlines sold Eastern Air Logistics to its parent in February for 2.43 billion yuan, saying the unit's shrinking market share and debts were crimping the airline's overall operating performance.

Air China is also expected to introduce mixed-ownership reforms in its air freight logistics business after it gained government approval in April.

Eastern Air Logistics said it will work in logistics real estate, cross-border e-commerce and express delivery through its new shareholders.