American Airlines Signs Deal With China Southern for $200 Million

On Tuesday, China Southern Airlines announced American Airlines was acquiring a small stake in its airline for $200 million. The deal gives the two carriers more access to the two largest air travel markets in the world.

China Southern is to issue new shares that have a value of HK$1.55 billion or $199.5 million to the American airline making American the second carrier from the U.S. to own part of an airline based in China.

Delta acquired in 2015 acquired a stake of 3.55% in China Eastern Airlines for just over $450 million.

The deal also means the three largest airlines in China now have deals in place with foreign airlines, which is something Beijing encouraged as a means of boosting the global competitiveness of the sector.

Cathay Pacific in Hong Kong and Air China the flag carrier for the country purchased stakes in one another during 2006.

In a regulatory filing with the stock exchange in Hong Kong, China Southern announced it would issue more than 270.6 million shares that represent 2.68% of the share capital for the company.

These shares will be issued at a premium of 4.6% to the close the prior day.

The shares of the carrier listed on the mainland, which resumed trading following a suspension of three days, were up by 4.3% in early China trading to hit a high of over 7 months.

Its shares listed in Hong Kong, which were higher at the open, were off 2.36% in early morning trading at a price lower than the shares just issued.

American Airlines sees the deal as widening its access into China, one of the biggest sources for tourists traveling to the U.S. and will aid it in competing with rivals such as Delta, which has taken stakes in foreign carriers in Brazil, Britain and Mexico.

It announced that the two airlines expect to start interline and codeshare agreements later in 2017 that allows customers to travel to over 70 destinations beyond Shanghai and Beijing and for customers of China Southern access to nearly 80 destinations beyond New York, San Francisco and Los Angeles.

China Southern, based in Guangzhou is the biggest airline in the country based on numbers of passengers and said this deal would help to achieve its strategic goal of making a world class airline.

The two airlines also may increase their cooperation in more areas such as sales, staffing, loyalty programs for passengers and sharing facilities at airports.

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