It is no more than a coincidence that China should start tinkering with its bloated aviation sector on the day that Iata, the global trade body, doubled its estimate of full-year losses across the industry. The $9bn figure that ricocheted around Iata's annual meeting in Kuala Lumpur probably caused mere shrugs in Beijing: the top three Chinese carriers alone lost almost half that last year.
While China is not content to put up with big losses indefinitely, it is questionable whether it has the appetite to tackle the radical restructuring that the industry so badly needs. So far the regulator has done the easy stuff, including scrapping fuel surcharges and encouraging carriers to scale back international routes. But that does not address the core problem of domestic over-capacity. And neither does Monday's terse disclosure after the market close from China Eastern, the weakest of the three, that it was exploring “material restructuring” and “proposals for further lowering the gearing ratio”.
The assumed deal – a merger with local rival Shanghai Airlines – makes sense. Not only does China Eastern face direct competition in its primary hub – Air China and China Southern have Beijing and Guangzhou to themselves, respectively – it has two international airports to service, doubling its costs. But with total liabilities exceeding total assets by about $1bn, the merged entity would need a big state dowry just to get started, on top of the $1.5bn injected into both companies since late last year.