China Eastern Airlines (MU, Shanghai Hongqiao) has announced it will hold a private share placement to raise USD2.2 billion worth of funding for the acquisition of 18 aircraft, 15 aircraft simulators, 20 standby engines, and to provide general working capital.

In a filing to the Shanghai Stock Exchange, the state-controlled carrier said it had entered into a share subscription agreement with each of Juneyao Airlines (HO, Shanghai Hongqiao), its parent JuneYao Group and/or its designated subsidiaries, and the Structural Reform Fund (a “state-level” fund engaged in SOE structural reforms) for 1,616,438,355 A shares. Gross proceeds from the sale are expected to reach CNY11.8 billion yuan (USD1.78 billion).

Separately, China Eastern will place not more than 517,677,777 of its Hong Kong-listed shares with Juneyao Airlines valued at up to HKD3.55 billion Hong Kong dollars (USD452 million).

Juneyao Airlines and JuneYao Group do not intend to own more than 10% of China Eastern's enlarged A Shares and not more than 10% of its enlarged Hong Kong-based holdings post-issuance. For its part, the Structural Reform Fund will hold less than 2% of China Eastern's enlarged total share capital after issuance.

China Eastern said the accession of Juneyao Group & Co. to its shareholding is part of the central government's mixed ownership reforms wherein privately-owned entities will assist in the restructing of state-owned entities in order to render them more commercial viable and nimble.

The tie-up is therefore expected to result in greater synergies between the two carriers given they both have hubs at Shanghai Hongqiao, Shanghai Pudong, and Nanjing.