The Chinese city of Wuxi in the country's southern Jiangsu province is setting itself up to have its first home-based carrier through a plan to buy a stake in low-cost carrier Ruili Airline. The city plans to initiate the stake purchase through the government-owned company Wuxi Communications Industry Group.
On Tuesday, Wuxi Communications Industry Group signed a framework agreement with Yunnan Jingcheng Group to purchase the latter's stake in Ruili Airlines. Wuxi officials had revealed that the stake purchase is its first step to achieve its goal of fully acquiring the privately held airline.
The statement released earlier in the week did not specify the size of the stake that would be purchased or the price that would be paid. However, data from financial services firm Wind Information reveals that Yunnan Jingcheng Group does own a 70 percent stake in Ruili Airlines. It is not yet clear if Wuxi Communications would purchase the entire stake or only a portion of it.
The stake purchase is likely the final nail in the coffin of the city's failed negotiations with embattled conglomerate HNA Group to buy its stake in Hong Kong Airlines. Both parties had started negotiations on the proposed stake purchase last year. However, the on-and-off talks failed to result in a deal, despite strong support from Chinese authorities. Wuxi reportedly did not agree to HNA Group's proposed prices for its stake in the airline.
Industry experts have noted that the Wuxi government had been mainly searching for an airline that had most of its operations located in its city. The plan is part of a much wider strategy to transform the city into a key transport hub in the region. Ruili Airlines' substantial operations in Wuxi city seems to perfectly fit the government's needs, which is likely why officials had pushed for the stake purchase. Guangzhou Civil Aviation College associate professor Qi Qi mentioned that going with HNA Group on the deal wouldn't really achieve the city's aim.
The deal does come at a very opportune time for the city of Wuxi as most major airlines, including state-owned carriers, are still struggling to recover from operating disruptions caused by the coronavirus pandemic. The purchase of the stake also comes amid a growing scandal involving one of Yunnan Jingcheng's major shareholders. Dong Shijie, who owns a 30 percent stake in Yunnan Jingcheng, is currently at the center of a corruption and bribery investigation in Kunming.
