China Southern Rises on Talks to Sell Shares to American Air (1)

(Bloomberg) -- China Southern Airlines Co. advanced to a seven-month high after saying it is in negotiations to sell a stake to American Airlines Group Inc., the world’s biggest carrier.

The negotiations are over “a possible major strategic cooperation with American Airlines Inc. involving, among others, proposed issue of shares of the company and other business cooperation,” Asia’s largest airline by passengers said in an exchange filing Sunday. The stock, which resumed trading Monday in Hong Kong, gained 0.7 percent to HK$5.49, the highest closing level since Aug. 16.

Trading in the Guangzhou-based operator had been suspended since March 23 after Bloomberg News reported that Fort Worth, Texas-based American Airlines will likely make an investment of about $200 million in China Southern’s Hong Kong-listed shares through a private placement. American Airlines would nominate an observer without voting rights to the Chinese company’s board, according to people familiar with the matter.

The companies haven’t reached a binding or definitive agreement, and the cooperation may or may not proceed, China Southern said in its statement. American Airlines spokeswoman Polly Tracey declined to comment.

For American, a deal would strengthen its presence in the Chinese market after rival Delta Air Lines Inc. acquired a minority stake in China Eastern Airlines Corp. in 2015. China Southern would be the last of the nation’s top three airlines to bring in a non-mainland Chinese strategic investor. Cathay Pacific Airways Ltd., based in Hong Kong, owns about 18 percent of flag carrier Air China Ltd.

Network Nature

“All big U.S. carriers will be making deals of one kind or another with major airlines all over Asia and certainly within China,” Robert Crandall, former chairman of American, told Bloomberg Television on Monday. “These things are going to grow and because of the network nature of the airline industry, everybody is going to play and everybody needs to play.”

An agreement will help boost the expansion plans of China Southern, which indicated in January that it was considering bringing in strategic investors. The carrier has been adding routes to Australia, New Zealand and countries in Southeast Asia as it competes with China Eastern and Air China. A tie-up will increase China Southern’s visibility in the U.S., said Will Horton, a senior analyst at the CAPA Centre for Aviation in Hong Kong.

“China Southern may be the largest airline in Asia but it’s relatively unknown in the U.S.,” Horton said. “U.S. consumer mindset changes if American is putting cash in: China Southern isn’t just another airline or partner, it’s a carrier American believes in.”

Biggest Market

Shares of China Southern will remain suspended in Shanghai until further notice, the carrier said separately.

China Southern and its subsidiaries have ordered more than $15 billion of new aircraft from Boeing Co. and Airbus Group SE since 2015 as more people fly in the world’s most populous nation. The International Air Transport Association predicts China will surpass the U.S. to become the world’s biggest air travel market in terms of passengers by 2024.

Any stake sale by China Southern may be part of the government’s efforts to diversify ownership of state-controlled enterprises. Authorities in Beijing have urged firms in industries including power, energy, defense and aviation to take measures this year to broaden ownership.

China Southern, Delta and China Eastern are members of the SkyTeam global airline alliance. American is in the competing Oneworld group, which doesn’t have a mainland China-based partner. Such alliances make it easier for passengers to fly around the world by combining schedules through one carrier and allowing travelers to accrue and use frequent-flier miles across airlines.

(Updates with closing share price in second paragraph.)

--With assistance from Ben Sharples Jonathan Browning Steven Yang Kyunghee Park Betty Liu and Haidi Lun

To contact Bloomberg News staff for this story: Dong Lyu in Beijing at dlyu3@bloomberg.net.

To contact the editors responsible for this story: Sam Nagarajan at samnagarajan@bloomberg.net, Kenneth Wong

©2017 Bloomberg L.P.