China Eastern Airlines Director, Luo Zhuping, stated late last month that to form a strategic partnership with Singapore Airlines "was and has always been our wish - but so far, it is still just a beautiful wish".

Almost 12 months ago, China Eastern Airlines agreed to sell a 24% stake to Singapore Airlines (SIA) and Temasek for HKD3.80 per share, in a deal that would have raised USD920 million in much-needed fresh equity for the most indebted Chinese airline. It would have also given the Shanghai carrier access to insights from a partner recognised as one of the world’s best to significantly raise its competitiveness.

That deal lapsed on 09-Aug-08, as SIA stayed true to its word not to raise its offer for China Eastern. In any event, with Beijing's administration thoroughly focused on the Olympic Games, the prospects of communicating any deal in the past few weeks would have been minimal.

Since the rejection of the deal by shareholders in Jan-08, China Eastern's passenger traffic growth has slumped into negative territory.

Passenger load factors have also plummeted, as the airline has been unable to match its capacity to the slowdown in demand.

The airline's share price has also been steadily falling, after speculators sent the airline's shares above HKD10 last September. It is now trading some 32% below SIA's original offer price, making that offer much more attractive - for China Eastern's shareholders.

For SIA, the romance with China Eastern was not a case of unrequited love. SIA saw – and still sees – significant opportunity in China. But China Eastern's parents had other ideas and, as CEO Chew Choon Seng has said, "nothing is a must-have" at any price.

SIA too may be more than relieved to be free of this relationship. On the other side of the coin, reviving this offer in the current environment would probably have a depressing impact on SIA's own share price.

The two sides are set to discuss the issue after the Olympics. In a statement, SIA noted, it would explore "other means of developing the relationships", and that it "continues to be optimistic about the prospects for China's airline industry". China Eastern could take some comfort from these words.

Air China and the CAAC, headed up by former Air China Chairman, Li Jiaxiang, will also switch their attention back to structural issues facing the sector after the closing ceremony in Beijing. SIA knows that fanning the embers of the China Eastern deal would only inflame the CAAC/Air China desire for a "domestic solution". Air China's parent successfully thwarted SIA in the past, and they would be likely to step in again.

The outcome could ultimately lie with China Eastern's excitable shareholders.

CEA's shareholders scuppered SIA's offer at the start of the year, in the hope that Air China's parent would offer more. When concrete proposals from Beijing failed to emerge, China Eastern slammed shut the Air China option.

Investors are likely to be much more sceptical of Air China's intent a second time, if SIA were to renew its intentions. A second push by SIA would at least force the issue, and allow China's aviation industry to get on with overdue restructuring.

But SIA would have to have some very solid grounds for re-entering negotiations. After two months of negative traffic growth in China, things could be posed to get ugly in China's domestic market.