Cathay Pacific to buy Air China stake
Financial Times

By Francesco Guerrera and Justine Lau in Hong Kong
Published: October 20 2004 14:04 | Last updated: October 20 2004 14:04

Cathay Pacific is to buy a 9.9 per cent stake in Air China for about $200m in a move that could provide the Hong Kong airline with further access to the country’s tightly-regulated skies and help the Chinese carrier’s $500m overseas listing.

The move could see Air China join the Oneworld Alliance, led by British Airways and Cathay, in a blow to the rival Star Alliance, which had been courting the state-owned Chinese company.

The stake purchase highlights the growing importance of Chinese routes to foreign airlines, which are jostling to capitalise on Beijing’s decision to gradually open up its skies.

Cathay’s decision to buy a holding in Air China before its initial public offering, scheduled for the end of this year, is a setback for rival China Eastern, which last year held talks over selling a minority stake to the Hong Kong company.

In February, Anthony Tyler, Cathay’s director of corporate development, told the Financial Times the airline was “keen to develop a close working and commercial relationship with China Eastern”.

Air China and Cathay, which also owns a stake of more than 17 per cent in its Hong Kong rival Dragonair, said Wednesday the equity holding would lead to joint marketing and sales and coordination of schedules.

The two companies would also exchange staff and cooperate in engineering, ground handling and cargo operations.

Cathay’s shareholding will help Air China market its IPO, to be managed by Merrill Lynch and local firm CICC, to foreign investors. The IPO is likely to take place in Hong Kong and London, .

Analysts said the company’s growing domestic business would be complemented by its partner’s strength on international routes.

Air China and Cathay declined to comment on code-share agreements on Wednesday but industry experts said the Hong Kong airline was likely to push to get more access to China.

Until last year, Cathay was banned from flying to China partly because Beijing considered its controlling shareholder, the Hong Kong conglomerate Swire Pacific, as a product of British colonial rule.

But following its first flight to Beijing in 13 years last December, Cathay has been lobbying to be allowed to compete with regional rivals such as Singapore Airlines on Chinese routes.

The Hong Kong-based airline announced this week it had won rights to expand its service to Beijing, run new cargo flights to Shanghai and passenger services to the southern city of Xiamen.

Separately, Shenzhen Airlines and Lufthansa of Germany are on Thursday expected to announce a joint venture cargo airline.

The Chinese group, which is based in the southern city of Shenzhen, will take a 51 per cent stake in the venture, according to a person familiar with the deal. Lufthansa Cargo, the carrier’s cargo unit, is expected to hold 25 per cent and a German investment group will control the remaining shares.