China Grounds Debt-Laden East Star Airlines

China grounded East Star Airlines, a small private carrier based in the central city of Wuhan, for being unable to pay back heavy debts and for "poor internal management", a government official told state television.

China's aviation regulator suspended East Star's operating license effective from Sunday, Tan Shizhang, a traffic department spokesman within the Wuhan city government, told China Central Television.

"The main reason is due to the airline not being able to pay back its heavy debts, which has lead to operational difficulties," Tan said.

East Star, which has a fleet of nine aircraft and operates about 20 flights a day, was marked as a potential takeover target by the parent group of Air China, the flag carrier said in a statement in January.

The suspension order came after General Electric's aircraft leasing arm, GE Commercial Aviation Services, sought redress from the Wuhan government after repeated requests to the company for unpaid aircraft leasing fees came to nothing, the spokesman added.

A notice from the Civil Aviation Administration of China said authorities had "already taken emergency measures to coordinate relevant airlines to temporarily fly (East Star's) routes, refund tickets and reschedule flights."

Slumping air traffic due to slowing domestic demand has made it hard for China's small private airlines to compete with state-owned Air China, China Eastern and China Southern.

Since December, China Eastern and China Southern have announced plans to receive a total of CNY10 billion yuan (USD$1.5 billion) in cash injections from the government to help them ride out the slump. Private carriers do not enjoy such support.

China's first private airline, Okay Airways, said in December it had halted its passenger services indefinitely because of the global financial crisis.