(Yicai Global) Sept. 17 -- Qingdao Airlines changed its controlling shareholder to Qingdao City Construction Investment Group under the city’s state-owned assets supervision and administration commission from Nanshan Group yesterday, and thus morphed into a state-owned enterprise from a private firm.

This transformation is symptomatic of private Chinese airlines with weak financial strength under huge pressure from the Covid-19 pandemic that embark on strategic restructuring in a bid to stay aloft.

The government of Qingdao, a major port city in China’s eastern Shandong province, still hopes to find outside investors to jointly operate the carrier, as well as its Nanshan Jet and other flight businesses, preferring to partner with experienced aviation companies rather than try to fly solo, informed sources told Yicai Global.

Nanshan announced the sale of its aviation businesses to QCCIG, which is the city’s investment arm, for CNY6.9 billion (USD1 billion). This comprised its stakes in Qingdao Airlines, Nanshan Jet and Shandong Nanshan International Flight, two corporate jets, hotels and land, the firm announced in December.

Qingdao Airlines is a self-described 'boutique' carrier set up by Air China, the Nanshan Group and the Qingdao city government. The Civil Aviation Administration of China gave the go-ahead for its formation in June 2013 and the firm took off on its maiden flight in April 2014. It has 26 aircraft and more than 70 domestic and over 20 international routes.

The company had posted CNY16.2 million (USD2.4 million) in net profit as of December 2018 and CNY130 million in net losses as of the end of September.

Ruili Airlines, which is based in southwestern Yunnan province, and China’s first private airline Beijing-headquartered Okay Airways are also seeking state lifelines.

Mergers and acquisitions of small and medium carriers will become inevitable if a downward spiral sets in where fuel prices are high, exchange rates depreciate and market demand is weak, said civil aviation industry insider Lin Zhijie. Small and medium airlines suffered losses and encountered greater cash flow challenges amid the coronavirus than their burlier peers, and ever more are likely to participate in this round of M&As if the pandemic holds, whether actively or passively.

Formed in 1978 Nanshan Group is a privately-held conglomerate based in Longkou Shandong. One of China's top 500 enterprises, it owns and operates over 40 businesses active in multiple sectors, including education, aerospace, textiles, tourism and infrastructure.

Editors: Zhang Yushuo, Ben Armour