American woos China Southern, reports say.

China Southern has confirmed it is negotiating “a possible major strategic co-operation” with a third party tipped to be American Airlines.

The statement, released on March 24, comes after media reports said American Airlines was in advanced talks to acquire a stake in China Southern.

China Southern shares have been suspended since March 23 and are due to resume trading in Hong Kong Monday.

According to Bloomberg News, the negotiations focus on an investment of about $US200 million by American in China Southern's Hong Kong-listed shares.

Unidentified sources told Bloomberg the sale would likely take place through a private placement.

China Southern later issued a clarification saying it had noted the recent media coverage about talks with a third party and confirmed it was in negotiations with a third party over a “possible transaction”.

“ The Company wishes to emphasize that the possible transaction is subject to internal approvals by the board of directors and shareholders (if applicable) of each party, the approvals by the relevant governmental authorities (if applicable), and the entering into of certain final legally binding documents by the relevant parties thereto and the terms thereof,’’ China Southern's statement said.

“As of the date of this press release, the company does not have any binding arrangement or definitive agreement in relation to the Possible Transaction. The possible transaction may or may not proceed.’’

A deal with China Southern would give American a foothold in a burgeoning Chinese market in which US carriers have had difficulties obtaining slots and flight frequencies are limited by a bilateral air services agreement.

The move would also give China Southern exposure in the US through an alliance with that country’s biggest airline.

Other Chinese carriers already have minority airline shareholders: Delta Air Lines has a stake in China Eastern and Hong Kong’s Cathay Pacific owns about 18 per cent of Air China.

Some observers have noted American is a member of the oneworld alliance while China Southern belongs to the rival SkyTeam but that is unlikely to be a problem.

American’s oneworld partner Qantas has partnerships with both  China Southern and China Eastern, which also belongs to SkyTeam.

In a separate development, Qantas was last week granted the right to unlimited capacity on the China route by Australia’s International Air Services Commission.

The capacity may be used by Qantas or wholly-owned subsidiary Jetstar or to provide services jointly with China Eastern.

Australia last year liberalised its air services agreement with China to remove all capacity restrictions.