Air China Ltd. Chairman Li Jiaxiang will step down to become the state civil-aviation regulator, part of a government plan for the chief of the most-profitable Chinese carrier to boost the nation's airline industry.

"The official announcement may come after the New Year's holiday," Air China Board Secretary Huang Bin said in a telephone interview from Beijing on Dec. 29. "It'll take a few days to complete the procedure."

Li, a 58-year-old former air force major general, led the Beijing-based carrier to become the world's biggest by market value after joining the company in 2000. Third-quarter profit at Air China, which has the lowest debt among local rivals, almost doubled to 2.19 billion yuan (US$300 million), after excluding one-time gains from a year earlier.

"Li will be the best candidate to lead China's airlines," said Li Lei, an analyst at China Securities Co. in Beijing. "He's got some sharp ideas and iron hands to realize them."

Li, who will replace Yang Yuanyuan as head of the General Administration of Civil Aviation of China (CAAC), managed Air China's sale of shares in Hong Kong, raising 13.5 billion yuan to renew and expand the carrier's fleet. Air China last year sold its Hong Kong assets for US$1.58 billion to Cathay Pacific Airways Ltd., forging a partnership with Asia's second-most profitable carrier to glean management and technical expertise.

Cathay Pacific

Shareholders last year approved Cathay Pacific's plan to double its Air China stake to 20 percent and a takeover of Hong Kong Dragon Airlines Ltd.

Air China rose 1.1 percent to 27.44 yuan in Shanghai on Dec. 28. The yuan-denominated shares have more than doubled in the past year, compared with a 169 percent gain in the key CSI 300 Index. The stock rose 1.9 percent to HK$10.86 in Hong Kong.

Li aimed to build a domestic "super carrier" to provide stable earnings and compete internationally with Singapore Airline Ltd. and Japan Airlines Corp. He suggested domestic carriers adopt cross shareholdings for "consolidation" in the aviation industry.

As president of Air China parent China National Aviation Holding Co., Li also insisted on the company's voting rights as a minority shareholder in rival China Eastern Airlines Corp., which plans to sell a stake to Singapore Airlines. China National Aviation may vote against China Eastern's plan on Jan. 8, Li said on Dec. 12.

"Li's promotion is a big crisis for the deal between China Eastern and Singapore Airlines," said Jack Xu, an analyst at SinoPac Securities Co. in Shanghai. "Li won't interfere in the deal as a regulator, but his new position will have a psychological impact on the rival."

Singapore Airlines

Singapore Airlines and its parent Temasek Holdings Pte agreed to buy a 24 percent stake in China Eastern on Sep. 2 for HK$7.16 billion (US$917 million), after more than a year of talks. China Eastern's parent company will also invest HK$4.2 billion to maintain its majority holding. The three will all buy new Hong Kong shares of China Eastern at HK$3.80 apiece.

"It's the best way forward for China Eastern," Singapore Airlines spokesman Stephen Forshaw said by e-mail on Dec. 29. "It provides recapitalization and strengthens China Eastern's ability to compete against other airlines, both in China and outside." He declined to respond to queries about Li's appointment.

Counter Offer

Air China's parent and its partner Cathay Pacific Airways Ltd. suspended their plan to make a counter-bid for three months until Dec. 25. The two companies previously considered making an offer for the stake to add a hub in Shanghai to their existing operations in Beijing and Hong Kong.

"China Eastern's plan is more likely to fail given this change in power," said China Securities' Li.

On Dec. 29, China Eastern's Board Secretary Luo Zhuping declined to comment on the appointment's possible impact on the voting.

Yang has been China's aviation regulator since May 2002. A career pilot at China Southern Airlines Co. before he was assigned to CAAC as a deputy director, Yang was promoted to replace Liu Jianfeng after two air crashes had killed 241 people within a month that year.

During Yang's tenure at the CAAC, China's government stepped up safety checks, banned take-offs and landings between 10 p.m. and midnight, offered concessions and surcharges to help airlines survive record fuel prices.

Chinese airlines flew for 33 months, or a combined 8.7 million hours, without reporting any accidents as of Sep. 9, according to a CAAC statement.

Yang also spurred Chinese airlines, which had merged from more than 30 carriers into five large groups, to renew and expand their fleets, including buying the latest A380 plane from Airbus SAS and the 787 aircraft from Boeing Co.