China Eastern Airlines Corp. rejected an investment offer by rival Air China's owner on Wednesday, and Singapore Airlines said it was still ready to buy a stake in the struggling carrier.
The Chinese airlines are involved in a rare public takeover struggle between state-owned companies that reflects the intense competition for a dominant position in China's booming air travel market.
China Eastern shareholders rejected Singapore's bid to buy 24 percent of the airline in January after Air China parent China National Aviation Corp. offered more money. Analysts say China Eastern is resisting a tie-up with Air China for fear it will lead to the Shanghai-based carrier being absorbed by its larger rival.
"This company's board of directors will give no further consideration to China National Aviation's proposal," China Eastern said in a statement issued through the Shanghai Stock Exchange.
China Eastern said the offer would fail to achieve its goal of attracting a strategic investor that can bring it advanced international management, improve its competitiveness and protect all its shareholders' interests.
"China National Aviation and / or its representative cannot enable this company to achieve the abovementioned expectations," the China Eastern statement said.
China's air travel market is one of the world's most promising, with annual growth forecast at 9 percent in coming years. The Beijing Olympics this summer will add to demand. But Chinese carriers are struggling with low profits amid soaring fuel prices and intense competition.
China Eastern, the country's No. 3 carrier, said Wednesday it still wants a strategic partner to bring in money and skills and that Singapore Airlines is the preferred candidate.
Singapore Airlines said its offer still stood but stressed it was not offering shareholders more money.
"Our proposal for recapitalisation of China Eastern Airlines is still on the table," Singapore Airlines spokesman Stephen Forshaw said in a written statement. However, he said, "there is no new bid."
"We hope that shareholders will appreciate that the offer is a fair and reasonable one, and will help recapitalise China Eastern quickly to meet the competitive demands of the China aviation sector," Forshaw said in the statement.
Singapore Airlines and its parent, the Singapore government investment agency Temasek Holdings Ltd., offered 7.2 billion Hong Kong dollars (US$923.8 million; euro627.5 million), or about HK$3.80 a share, for the 24 percent stake. Foreign investors are allowed to own no more than 50 percent of a Chinese airline.
The takeover battle set off a public lobbying campaign by Singapore and Air China for shareholder support, an almost unprecedented step in the secretive world of Chinese state companies.
Investment by Singapore, one of Asia's most competitive, profitable carriers, would bring China Eastern money and skills while preserving its independence. Singapore would get a foothold in China.
But China Eastern shareholders rejected Singapore's bid after Air China's parent made a last-minute announcement on the eve of the January vote that it would offer at least HK$5 per share.
Chinese regulators are reportedly considering possible plans to restructure the country's airlines to make them more efficient and able to compete with bigger, richer foreign carriers.
Analysts said Air China hoped to use its China Eastern stake to help establish itself as China's dominant airline ahead of any restructuring while keeping Singapore out of its home market.
The credit ratings firm Fitch warned Wednesday that China Eastern needs to conclude its search for a partner quickly.
China Eastern "needs to act quickly to forge strategic ties with a strong partner in order to help it repair its balance sheet and improve operational efficiency," Fitch analyst Jinqing Li said in statement Wednesday.
China Eastern has significant growth opportunities, Li said, but low profit margins and high debt do not "leave it much flexibility to finance its expansion."
Associated Press Writer Gillian Wong in Singapore contributed to this report.