China Eastern Airlines (CEA), one of the country's leading carrier, announced on Sunday it will sell a 26-percent stake to Singapore Airlines Limited ("SIA").

The two on Sunday signed a "Heads of Agreement" (''HOA'') with China Eastern Air Holding Company and Lentor Investments Pte. Ltd., a wholly owned subsidiary of the Sigaporean-government-controlled investment holding company -- Temasek Holdings (Private) Limited.

The document sets out the framework for a cooperative partnership in conjunction with a proposed strategic investment in CEA by SIA and Temasek, which owns 54.8 percent of SIA.

The HOA identifies several elements, including the financial investment, management participation, commercial partnership and cooperation.

Details of terms identified in the HOA are subject to definitive and legally binding agreements to be discussed between, and entered into by, the parties, and are also subject to approvals by relevant regulatory authorities and shareholders of CEA.

Under the HOA, it is proposed that SIA will subscribe for new H-shares of CEA at a subscription price of 3.80 HK dollars per H-share.

SIA proposes to subscribe for more than 1.2 billion new H-shares for approximately 4.7 billion HK dollars, which is less than five percent of SIA's market capitalisation on Aug, 3, 2007. The transaction will result in SIA's holding of a 15.7 percent stake in the CEA, which is listed in Shanghai, Hong Kong and New York.

Temasek, through Lentor, proposes to subscribe for more than 649 million new H-shares for approximately 2.5 billion HK dollars. The subscription will allow Lentor to hold a 8.3 percent stake in the recapitalised CEA.

CEA Holding will also subscribe for around 1.1 billion new H-shares for approximately 4.2 billion HK dollars. And the subscription will result in CEA Holding having a 51-percent stake in the recapitalised CEA.

Commensurate with its stake in CEA, SIA will be entitled to nominate two representatives to the Board of Directors of CEA. A Board Finance Committee will be established, which will include representation from SIA.

CEA will send executives to SIA for attachments and training programs. SIA will also send management executives to key positions in CEA. These proposed management exchanges will enable both organizations to share proven practices and establish closer cooperation.

SIA and CEA have international route networks that complement each other, with little overlap. CEA also has a big domestic network in China, with hubs in Shanghai, Wuhan, Kunming and Xi'an.

Both airlines will pursue opportunities for cooperation such as co-ordination of flight schedules and joint marketing activities. 　

In the spirit of this commercial partnership, CEA and CEA Holding will not issue new shares nor sell any existing shares to SIA's competitors, and SIA will not invest in other China-based airlines, except for Great Wall Airlines, in which it has an existing interest.