China Eastern Airlines

(CEA) - Get Report

has proposed taking over

Shanghai Airlines

through a share swap,

Dow Jones Newswires

reports, citing a person familiar with the situation.

The deal would finalize the long-anticipated merger between the two struggling state-owned carriers,

Dow Jones

notes. Rumors that China Eastern might merge with Shanghai Airlines or another competitor have been circulating for months.

Under the proposal, China Eastern will raise $1.02 billion via a private placement in both Shanghai and Hong Kong to complete the merger. China Eastern will swap 1.3 of its shares for each Shanghai Airlines share, the person told

Dow Jones

.

The deal offers a 25% share price premium to Shanghai Airlines shareholders. Regulatory approval for the proposed merger is still pending, the report said.