Air China is eyeing Shanghai Airlines and plans to deepen cooperation with its Star Alliance partner following the formal rejection of its bid for Shanghai-based China Eastern Airlines last month. Sun Yu, CA's head of planning, revealed that the carrier keeps "close contact" with SAL and plans to expand their collaboration. "But whether we can reach an agreement with SAL is up to the Shanghai municipal government," the airline's controlling stakeholder. Sun said CA has started talks with authorities but did not reveal the extent or aim of the negotiations.

It has been speculated that CA may make an outright bid for SAL, as the Beijing-based carrier's acting chairman, Kong Dong, noted earlier that CA is committed to enhancing its market position in Shanghai and would look for another domestic partner if CEA rejected its advances (ATWOnline, March 10). But SAL Board Secretary Xu Junmin rejected that possibility yesterday and said it will "go its own way" for the time being.

In response, CA Board Secretary Huang Bin said, "As member airlines of Star Alliance, CA and SAL can deepen cooperation in many respects, such as MRO and aircraft purchasing. But as far as I am concerned, it doesn't [necessarily] involve a stake purchase." He added, "Shanghai is an indispensably important hub for Air China" and said 80% of its international routes start there. As part of CA's "Shanghai strategy," Sun said it will launch a branch company there soon. It held a 12% market share with 31 aircraft at the close of 2007 while CEA and SAL accounted for 35% and 15% respectively.