Jan. 9 (Bloomberg) -- China Eastern Airlines Corp. fell to the lowest in almost two weeks in Shanghai after shareholders vetoed the sale of a stake to Singapore Airlines Ltd. and the carrier said it would oppose a combination with Air China Ltd.

China Eastern, the country's third-largest carrier, dropped 1.8 percent to 20.27 yuan, after earlier declining as much as 8.9 percent. Its Hong Kong stock closed little changed at HK$6.65.

The airline's Chairman Li Fenghua said yesterday that an alliance with Air China would be less beneficial than one with Singapore Air as the carrier needs overseas expertise. Rejection of the Singapore Air deal will force the unprofitable carrier to postpone development plans, he added.

``The longer the sale is delayed, the worse it is for China Eastern,'' said Ma Ying, an analyst at Haitong Securities Co. in Shanghai. ``They need a partner to help to improve their operations.''

Shanghai-based China Eastern's minority shareholders vetoed Singapore Air and parent Temasek Holdings Pte's plan to buy a 24 percent stake in the carrier for HK$7.16 billion ($918 million) yesterday after Air China's parent proposed a higher offer.

``Air China has already won by derailing its rival's recovery plan,'' said Kelvin Lau, an analyst at Daiwa Institute of Research in Hong Kong. ``It may take years instead of months to reach another agreement.''

Singapore Air

Li opposes a partnership with Air China as the carrier is ``no stronger'' than China Eastern, he said yesterday. Instead, the airline will continue to seek cooperation with Singapore Air, he added.

Singapore Air is ``very keen to continue our discussions with China Eastern,'' spokesman Stephen Forshaw said at a media event in the city today. Still, the airline's current offer ``is the maximum justified by the business fundamentals'' and ``we won't be getting into a bidding war.''

Air China's parent, China National Aviation Holding Co., has said it will offer at least HK$5 a share for a stake in China Eastern. Singapore Air offered HK$3.80, a 43 percent discount to today's closing price.

Air China's parent and affiliate Cathay Pacific Airways Ltd. previously considered making a joint bid for a stake in China Eastern to add a hub in Shanghai, China's commercial capital, to their operations in Beijing and Hong Kong.

Air China rose 0.7 percent to 28.46 yuan in Shanghai and fell 1 percent to HK$10.10 in Hong Kong. Singapore Air gained 1 percent to S$16.86 in Singapore.

Consolidation?

The veto of the government-approved Singapore deal and the appointment of Air China's former chairman Li Jiaxiang to head the nation's aviation regulator suggest that China may now favor tie-ups between its airlines, said Hong Kong-based Bear Stearns analyst Adam Clark.

``It does seem that consolidation is the trend,'' Clark said. ``But consolidation takes time because these are big companies.''

Yang Yuanyuan, the former head of the regulator, had said that he ``personally wouldn't agree'' with a merger between Air China, China Eastern and the country's largest carrier, China Southern Airlines Co. Li said last year that he wanted to turn Air China into a ``super carrier.''

China's three largest airlines are all ultimately controlled by the country's central government.

China Eastern needs ``to take quick actions to remedy its poor operating results,'' Fitch Ratings Associate Director Jinqing Li said in a statement. ``It will be difficult for China Eastern's management to take strategic decisions until there is a clear outcome over its shareholding structure and, consequently, on the industry structure itself.''

Fitch reaffirmed China Eastern's B+ rating, the fourth grade below investment level, as this already factored in the airline's operating weakness and the carrier's willingness to find a strategic investor, according to the statement.

To contact the reporters on this story: Irene Shen in Shanghai at ishen4@bloomberg.net; Clare Cheung in Hong Kong at scheung4@bloomberg.net

Last Updated: January 9, 2008 04:53 EST