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China Eastern, China Southern to Cooperate

China Southern Airlines and China Eastern Airlines have agreed to cooperate in areas such as sales and procurement, the official Shanghai Securities News reported on Wednesday.

A "framework agreement" signed on Tuesday provides for the airlines to help each other in sales, aircraft procurement, ground service, sharing facilities and other areas, the newspaper reported.

The cooperation does not involve equity investment by the companies in each other, and the newspaper quoted China Eastern chairman Li Fenghua as saying it would not affect his firm's effort to attract investment and find a strategic partner.

Liu Shaoyong, chairman of China Southern, the country's largest airline by fleet size, was quoted as saying talks on the agreement had begun more than a year ago, and that the pact did not exclude cooperation with other carriers such as flag carrier Air China.

However, the agreement was signed less than a week after Air China's parent group proposed a strategic partnership with China Eastern that would include cooperation in many of the same areas, as well as an investment of over $1 billion in China Eastern.

China Eastern has insisted it will not accept the Air China group as a strategic investor, and China Eastern's parent group has refused to consider the proposal, saying it is incomplete and lacks legal validity.

China Eastern, the country's third-largest airline, wants instead to take Singapore Airlines as a strategic investor. But a US$920 million plan for this was rejected by China Eastern's minority shareholders earlier this month, after the Air China group offered a much higher price per share.

China Southern's Liu Shaoyong was quoted as saying his airline was willing to propose China Eastern for membership in SkyTeam, the international frequent flyer program that China Southern shares with carriers such as Continental Airlines and Air France-KLM.

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