Maintaining Fair Value Estimates for Chinese Airlines Pending Crash Investigation

We keep our fair value estimates unchanged for China Eastern and its peers, China Southern and Air China, pending details on the cause of the China Eastern plane crash. But we note the potential downside risk for China Eastern, if the investigation implies maintenance or other process shortfalls. We think most of the impact will be in the near term. The indemnity alone will not have a material impact on our fair value estimates. The potential regulatory actions including fines, additional security requirements, or even grounding of aircraft could make a bigger difference. This crash might also have mid- to long-term implications for China Eastern as the airline could be in an unfavorable position when applying for routes and slots over the next few years if it is found to be at fault.