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Yunnan government, China Eastern to form JV airline

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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:

"The Yunnan side had proposed to China Eastern for setting up a branch company with independent financial accounting to better secure and develop the local market, but was given a cold shoulder"

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.

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