China Southern Airlines Company (ZNH)

China Southern Airlines’ (NYSE:ZNH) shares soared 7.1% in Hong Kong to their highest level since Jun-2008 (as trading resumed after a two-week suspension), following the carrier's announcement of a much bigger than expected capital raising plan – supported by Beijing – to help it improve its balance sheet, according to the Centre for Asia Pacific Aviation. Clearly a return to profitability in 2009 and soaring rates of traffic growth in 2010 were not enough. Beijing is again dipping deeply into its pockets to support the “big three” airlines following a flawed industry consolidation programme and massive debt-fuelled expansion last decade, as well as natural disasters and wrong-way bets on derivatives in 2008 and the global economic morass of 2009.
HSBC Securities raised its rating on China Southern from “underweight” to “overweight”. Beijing is clearly keen to improve the balance sheets of its big three airlines, as the Chinese economy gets back into stride in 2010. But it is not good news for rival private airlines – and it will probably not help the "big three" over the long run. As Beijing sends around the rescue boat every few years, the state-owned carriers lack any real incentive to become efficient.

Mar 12 · 1:57:00 PM · Source: Centre for Asia Pacific Aviation
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by Steve Wieczorek