China Eastern, the feeblest of the Middle Kingdom's big three airlines, has two big problems. First is its split operation across two airports in Shanghai, forcing it to maintain two hubs and two sets of spokes. Second is a vigorous competitor on its home patch, Shanghai Airlines. Combined, they've caused CE to lose money at the operating level for the past four years.

Their proposed merger, announced on Monday, solves one problem. Even without synergies through job cuts – CE chairman Liu Shaoyong says there won't be any – an end to their price war could justify the 17 per cent premium to the last traded price that CE is paying in this $1.3bn, share-for-share deal. Not that their share prices mean much. Combined net losses last year were $2.4bn. CE fell into negative shareholders' equity, while SA's net debt to equity hit 22 times. Even with a separate injection of $1bn in capital from CE's state parent in June, goodwill will still account for more than 70 per cent of the combined entity's book value, UBS estimates. That is a shaky platform from which to launch China's new largest airline by fleet size and routes.

Meanwhile, the other structural flaw remains. CE wants to focus operations on the primarily domestic hub of Hongqiao, west of Shanghai. But the government also wants the combined firm to service Pudong, with its mainly international flights, 60km to the east. After the last round of industry consolidation seven years ago, when CE acquired three smaller rivals, the group was left a flabby operator ill-equipped to service its debt. It will remain that after this deal, with about twice as many staff per plane as Beijing-based Air China. CE may get to give its expanded fleet a new lick of paint for next year's World Expo in Shanghai. But it will take more than that to turn the carrier around.