The saga regarding the future ownership of China Eastern Airlines, China's third largest carrier, continues to play out, as government officials are looking at the viability of merging it with fellow Shanghai-based carrier Shanghai Airlines, the country's sixth largest player.

China Eastern and Shanghai Airlines have both been denying for some time that they are holding talks on a merger, but it has now become clear that talks are in fact taking place between their respective parent companies, which are both state owned.

China Eastern president Cao Jianxiong was quoted as saying at a forum in China that talks are taking place but "only at government level at this point". Rumours of a merger between the two carriers have emerged several times over the years but they have been repeatedly dismissed by both carriers.

Cao is quoted as saying that even if China Eastern merges with Shanghai Airlines, Singapore Airlines could still come in as an equity partner. In September last year China Eastern's board approved a plan to sell a sizeable minority stake to SIA and its parent company but shareholders voted against it in January, after Air China's parent said it would make a better offer.

China Eastern later rejected approaches from Air China's parent and has said it remains hopeful a deal can still be reached for an SIA buy-in.