Jan. 21 (Bloomberg) -- Air China Ltd., the nation's largest carrier by market value, fell the most in three years in Hong Kong trading after China Eastern Airlines Corp. snubbed a bid to buy a stake.

The airline dropped 15 percent to HK$8.38, after China Eastern said it ``doubted the sincerity'' of an offer from an Air China affiliate to buy as much as 30 percent for at least HK$14.9 billion ($1.9 billion).

China Eastern's opposition may frustrate Beijing-based Air China's attempts to establish a hub in Shanghai and a dominant position in Asia's biggest aviation market. China Eastern's management aims to revive an alliance with Singapore Airlines Ltd. that was vetoed by minority shareholders earlier this month.

``It'll be hard for Air China's parent to get approval from China Eastern's management,'' said Kelvin Lau, an analyst at Daiwa Institute of Research in Hong Kong. Still, China Eastern ``needs to get a better offer, or at least the same price,'' to convince shareholders to reject the Air China deal.

Air China affiliate China National Aviation Corporation (Group) Ltd. will offer at least HK$5 a share, it said in a statement today. The final price is yet to be decided, it added.

China Eastern's minority shareholders rejected the sale of a 24 percent stake to Singapore Air and parent Temasek Holdings Pte at HK$3.80 per share after Air China's parent pledged to make a higher offer.

Today's decline was the biggest since Air China began trading in Hong Kong in December 2004.

Sales Boost

An agreement between Air China and China Eastern would boost the two airlines' combined annual sales by 4 billion yuan while cutting 1 billion yuan of costs, Air China's affiliate said. Air China also plans to form an air-cargo venture with China Eastern, the country's third-biggest carrier.

China Eastern said the bid is ``informal and doesn't conform to legal procedures'' in an e-mailed statement late yesterday. Chairman Li Fenghua opposes cooperation with Air China, saying Singapore Air would be better able to help improve China Eastern's services. Board Secretary Luo Zhuping didn't answer calls to his mobile phone today.

Singapore Air won't raise its offer, which followed at least a year of talks, as ``nothing is a must-have,'' Chief Executive Officer Chew Choon Seng said Dec. 12.

China Eastern halted its Hong Kong shares today, pending a statement on ``developments about strategic investment,'' according to a stock exchange announcement. It didn't provide further details. In Shanghai, the carrier fell 3.6 percent to 19.41 yuan. Air China's Shanghai shares were suspended.

Singapore Air

China Eastern, the largest carrier in Shanghai, wants to sell a stake as it has struggled to turn rising traffic into profits. It posted losses in 2005, 2006 and the first half of 2007. The airline, like larger rivals Air China and China Southern Airlines Co., is ultimately controlled by the central government.

Air China's parent, China National Aviation Holding Co., first considered bidding for a stake in China Eastern with affiliate Cathay Pacific Airways Ltd. at least as early as September. Air China and Cathay Pacific, Hong Kong's largest carrier, own about 17.5 percent of each other following an agreement in 2006.

`Super Carrier'

Air China is aiming to form a ``super carrier'' to compete with Singapore Air and other overseas rivals through expansion and cross-shareholdings. Former Chairman Li Jiaxiang, who used to be an air force general, was recently appointed to lead the country's aviation regulator.

``It's clear that the ex-general will pursue his vision with iron determination,'' said Li Lei, an analyst at China Securities Co. in Beijing.

Shanghai handled a record 51.6 million air passengers in 2007, up 12 percent from a year earlier. Seventy-one carriers were operating routes connecting the city with 179 cities worldwide as of the end of last year, according to the local airport authority. The city is China's most popular air-travel destination after Beijing.

China Eastern aims to expand its share of Shanghai's travel market to more than half from the current 40 percent, Chairman Li said on Sept. 2. Air China has about 15 percent.

To contact the reporters on this story: Irene Shen in Shanghai at ishen4@bloomberg.net

Last Updated: January 21, 2008 04:09 EST