Singapore Airlines, the world's biggest airline by stock market value, has started to negotiate the price of a share sale from China Eastern Airlines, the third-largest mainland carrier, after talks between the two carriers had been confirmed in July 2006.

The two airlines have started negotiations on the price of a stake sale, the China Securities Journal reported on May 10, 2007, citing an unidentified person close to the Shanghai-based carrier. China Eastern may issue shares to Singapore Airlines through a private placement, it added.

Despite worse than expected 2006 results - a net loss of 3.3 billion yuan - shares of China Eastern have surged 30.7 percent over the last month, as the market speculated that Singapore Airlines would soon become a strategic investor.

Talks between the carriers were confirmed last July, but no further progress has been announced since then.

"From time to time, we have general discussions with other airlines about possible opportunities, including China Eastern Airlines. China is a very important market in its own right for Singapore Airlines," Stephen Forshaw, the airline's vice president for public affairs, said.

He added that the "airlines are talking about possible cooperation, but there have been no decisions to pursue any other relationship at this point in time." Forshaw declined to comment on the areas for cooperation.

Officials at China Eastern could not be reached for comment.

Sinopac Securities analyst Jack Xu wrote in a report that "As stated-owned China National Aviation Corp is aggressively buying China Eastern shares, Singapore Airlines taking a 20 percent to 25 percent stake in China Eastern could take place soon."

He added that CNAC's move to increase its stake in China Eastern is probably due to Beijing wanting to keep a 50 percent control over the country's three largest carriers.

"CNAC needs to increase its shareholding given the potential share dilution should Singapore Airlines indeed decide to take an equity stake," Xu said.

However, other analysts are cautious about the deal especially regarding the pricing.

"We think a strategic partnership between Singapore Airlines and China Eastern Airlines makes sense, but we are concerned that talks could fail if China Eastern continues to insist on capital injection at the A-share price," UBS head of Asian transport research Damien Horth said in a report.