Singapore Airlines' negotiations for a stake in China Eastern are increasingly unlikely to succeed.

The ever-profitable southeast Asian carrier is rethinking the wisdom of investing in the weakest of China's big-three airlines because it finds the asking price far too high and is uncomfortable with conditions attached to the deal, says a source who has been briefed on the talks, which Singapore Airlines described in May as being at an advanced stage.

The Chinese initially asked for US$700 million for a 25% stake in their airline, says the source, who has detailed knowledge of the negotiations. The asking price has since come down to less than US$500 million, but the Singaporeans aren't willing to pay that, either.

Investment banks earlier calculated that a 25% stake in China Eastern would be worth US$1 billion, but Singapore Airlines has never contemplated paying so much for a stake in the struggling carrier.

China Eastern is currently in the black only because appreciation of the yuan is devaluing its dollar-denominated debt, generating gains that are booked to profit in its accounts. Credit Suisse earlier this year described it as technically almost broke.

If Singapore Airlines bought a stake, it would do so in partnership with Temasek Holdings, a big Singapore government investment fund that is its major shareholder.

Among the difficult conditions that are deterring Singapore Airlines is a refusal by the Chinese side to allow strong management control over China Eastern. The Chinese want foreign know-how but without great foreign influence over the running of one of their main airlines.

Within Singapore Airlines' management, CEO Chew Choon Seng himself is now particularly unenthusiastic about the deal, even allowing for the greater access to the Chinese market that he might hope for in return for recapitalizing China Eastern and lending Singaporean expertise to turn the company around.

Experience with Singapore Airlines' earlier airline investments is probably on Chew's mind. He said last month that Virgin Atlantic, in which his company has a 49% stake, hadn't performed as Singapore Airlines had hoped. Importantly, analysts say Singapore Airlines has never been able to exercise as much control over Virgin Atlantic as it would have liked -- so the prospect of unusually constrained management rights at China Eastern must be quite unappealing.

Even if Singapore Airlines and Temasek got all the influence normally expected for a 25% shareholding, they would still be minority players overshadowed by China Eastern's majority government shareholder. And they would face the challenge of trying to influence airline managers who have strong and long-established political connections.

Before buying into Virgin Atlantic, Singapore Airlines took in a stake in Air New Zealand and lost its money when that company ran into trouble and had to be recapitalized. That experience included the bankruptcy and closure of Ansett, an uncompetitive subsidiary of Air New Zealand.