The Yunnan provincial government and the parent company of China Eastern Airlines have reached an agreement to form a new joint venture airline to serve the high-potential but relatively undeveloped Yunnan aviation market, according to a China Daily report.

The company, 65 percent of which will be owned by China Eastern Air Holding Company with the remainder held by the Yunnan State-owned Assets Supervision and Administration Commission, will begin a new chapter in the historically strained relationship between the airline and the Yunnan government.

During a 2005 restructuring of China's domestic aviation industry, Shanghai-based China Eastern took over Yunnan Airlines from the Yunnan government, after which it ceased being an independent company.

China Daily sources said that relations between the two parties soured after China Eastern reallocated most of Yunnan Airlines' capacity to serve the Shanghai market, thus reducing the company's local market share. According to the source:


According to the agreement, the new airline's fleet will reach 40 planes by the end of this year and 50 by 2011. Financial terms of the deal have yet to be disclosed.

The deal's announcement comes as Kunming is building a new airport that is expected to significantly increase its domestic and international air links. The new airport is officially scheduled to launch operations by 2011.

The Yunnan provincial government and Grand China Air – which is partially owned by billionaire financier George Soros – have agreed to establish Yunnan Airlines, a joint venture airline that will challenge China Eastern Airlines' dominance of the Yunnan air travel market, according to a Reuters report.

The announcement comes at a time when air travel in Yunnan and elsewhere in southwest China is expected to continue its rapid growth and Kunming is building what will be one of China's largest airports. The news also came shortly after state regulatory body the Civil Aviation Administration of China (CAAC) stripped Shanghai-based China Eastern of several air routes in Yunnan – including flights to Dali and Xishuangbanna – after an apparent mid-air strike by pilots in March of this year.

The company is still awaiting regulatory approval from the central government - which is likely, given that a provincial government will be a stakeholder in the company.

Despite the potential conflict of interest, the Yunnan government released a statement in which it said that in addition to Yunnan Airlines' plans to establish its hub in Kunming it hopes that other airlines including China Eastern's Yunnan subsidiary will further develop their operations in Kunming, according to a Xinhua report.

Xinhua is reporting that Yunnan Airlines will start out with a fleet of at least 30 planes.

Image: Xinhua

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