China Eastern Airlines and Air China, the country's leading carriers, denied a state subsidy rumor that has fueled their shares this past week on January 11, Beijing Business Today reported.

The rumor circulated on the market that China's aviation industry authority plans to cough up 10 to 20 billion yuan (US$1.28-2.56 billion) to subsidize the two companies as well as China Southern Airlines to increase their profitability.

In response, shares of air carriers staged strong bounces, with Air China, the flag carrier, soaring by 30 percent this week.

However, the air companies reacted with denials of the subsidy report.

Air China's board secretary Zheng Bao'an said he was unaware of the capital injection plan and that the company has never received a notice regarding it.

Despite that, Zheng seemed pleased with the capital rumor, saying," I'm very much glad to hear of it."

Air China's parent, China National Aviation Holdings Company, echoed Zheng's remark. Its publicity minister Chu Chengping confirmed that he had not heard about the plan.

China Eastern also denied the rumor on January 11, as its board secretary Luo Zhuping said there's no such plan.

The subsidy rumor came as the three carriers had reportedly proposed to the State-owned Assets Supervision and Administration Commission for subsidy to offset the rising fuel and operational costs, the report said, citing insiders with China Eastern. But, so far, the state assets authority has not replied.

In the first half of 2006, all Chinese carriers were in the red except for Air China and Hainan Airlines, which reported net profits of 147 million yuan and 20.8 million yuan respectively.

The losses mounted to 1.47 billion yuan for China Eastern, 835 million yuan for China Southern, 163 million yuan for Shanghai Airlines and 135 million yuan for Shandong Airlines.

Analysts blamed poor operation for the disappointing performances, saying that the whole industry will likely fall deeper in the red if income from fuel surcharges and foreign exchange is deducted.

In the first 11 months of 2006, fuel surcharge collection generated 9 billion yuan in profit and benefits from foreign exchange, thanks to the yuan's appreciation, is estimated over 2 billion yuan.

While the fleets increase around 150 planes each year in China, the income growth of the aviation industry will further slow this year, according to International Air Transport Association data.