China Southern Airlines and American Airlines in cooperation talks

A Southern Airlines plane. [Photo: soso.com]

China Southern Airlines has confirmed American Airlines' interest of a share issue and further cooperation, according to Reuters.

People familiar with the matter told Bloomberg that the stake could be about $200 million and the sale will be private through Southern's H share which is now ￥5.75. American will get a chair on Southern's board of directors but no right to vote.

The two largest carriers by passenger numbers in their own countries were said to be in negotiation before the confirmation. China Southern Airlines has entered a trading halt in its stock since March 23 for a plan involving "important strategic cooperation."

Under China's recent policy support of ownership reforms, airlines are introducing foreign capital to contend for the domestic and also the global market. Two of the three largest airlines in China, Air China and China Eastern Airlines, have both established cooperative relationships with giants in the business: Air China with Deutsche Lufthansa and Eastern with Delta. As for Southern, it has not yet found a partner in the international domain.

Compared with United Airlines and Delta, American is in a bad situation in the Chinese market. The effort to cooperate with Southern may be its strategy to find better access into the emerging market.

Southern also seeks a change in its airline services. Air China has taken a great portion of Southern's market in the southeast by cooperating with Cathay Pacific Airways and by merging Shenzhen. In addition, Guangzhou, base of Southern, is losing its clients to Beijing and Shanghai in international businesses.