With Air China Ltd (中國國際航空) last week boosting its stake in Cathay Pacific Airways Ltd (國泰航空), the renowned Hong Kong airline has moved a step closer to becoming a mainland company, analysts say.
By increasing its holding to 29.99 percent, Air China bolstered its position to just a hair’s breadth below the 30 percent threshold that would trigger a mandatory takeover offer, while also doubling its presence on the Cathay board to four members.
Yet the move was met with rumblings of disquiet in some corners, amid fears a Chinese takeover may tarnish a carrier regarded as a key emblem of Hong Kong’s “one country, two systems” autonomy from the mainland, and even pose an existential threat to the city.
PHOTO: AFP
“The sale raises the specter of Cathay one day being a mainland-controlled firm,” said Hong Kong’s South China Morning Post, adding that “mainland airlines are not highly regarded here.
“Damage to Cathay’s standards, quality and reputation would be damage to Hong Kong,” it said.
Although Air China has refused comment on whether it plans to launch a formal bid, industry watchers believe that it eventually will.
“I think that an eventual merger is a possibility,” said Corrine Png (方華婷), transport analyst at investment bank JPMorgan.
“This transaction is a positive step towards it,” she added, adding that a deal may occur in two to three years’ time if regulatory hurdles concerning China air traffic rights can be navigated.
SIGNIFICANCE
Yet Png also warned against reading too much political significance into Air China’s stake-building, and argued that little has actually changed.
“People shouldn’t see this as Air China doing national service,” she said. “Citic Pacific (中信泰富), who sold the shares, is a state-owned enterprise in China as well, so the Chinese interest has always been there. Air China will bring synergies, whereas Citic was just an armchair investor.”
Indeed, if viewed as a whole, says Png, the Chinese interest in Cathay has decreased from 35 percent to 33 percent under the new deal. Driving last week’s sale was Citic Pacific’s desire to offload what it considers to be non-core assets in the wake of a foreign exchange scandal that saw its profits plummet last year. The subsidiary of China-based parent company Citic Group therefore sold most of its Cathay stake.
Air China purchased 12.5 percent of it for HK$6.34 billion (US$942 million).
The other counterparty was majority Cathay owner Swire Pacific, a subsidiary of British family-run John Swire & Sons and a remnant of the city’s colonial era, seemingly at odds with Air China’s Communist Party-linked board. It bought an additional 2 percent.
Swire will pay US$1.01 billion to raise its controlling stake to just under 42 percent, a position it says it plans to maintain.
“I would stress that the new shareholding will not mean any change in the current strategy and operational and financial management of Cathay Pacific,” said Swire and Cathay chairman Christopher Pratt.
Yet for how long is uncertain, analysts say.
With Citic’s stake now reduced from 17.5 percent to 2.98 percent, there is still potentially enough up for grabs for Air China to play with — although such a move would need consent from all other parties under the current structure.
“Swire had little choice but to tip in further funds to prevent its stake being diluted and to avoid the mandatory offer trigger,” said Derek Sadubin of the consultancy Centre for Asia Pacific Aviation.
Of the remainder of Citic’s holding, “it will be interesting to see who picks up this stake, given Air China’s position at the limit of its shareholding in Cathay,” he said.
Png notes that any potential combination between the two would create Asia’s largest airline by market capitalization, fleet size, assets and passenger traffic. Air China is already the world’s largest by market capitalization.
However, she adds that further integration “could be an issue given their different management culture.”
Both carriers, which currently cooperate on code sharing for some routes, owned 17.5 percent stakes in each other prior to the deal as part of a 2006 move that also saw Cathay take over smaller rival Dragonair (港龍航空).
RAISED EYEBROWS
The deal may also have raised eyebrows given the financial strife of China’s loss-reporting aviation sector last year, but Hong Kong’s flag carrier has also been hit hard by the global economic slump, and last month reported a 27.1 percent tumble in revenue for the first half of the year.
Air China, on the other hand, said it expects to return to profit in the first half of the year after announcing a net loss of 9.3 billion yuan (US$1.4 billion) for last year, official news agency Xinhua reported recently. Analysts therefore see any potential tie-up as mutually beneficial.
“Cathay Pacific’s assets are attractive to Air China as it can help Air China’s ambition to be an international super carrier,” said Li Lei (李磊), Beijing-based aviation analyst for Citic Securities Co (中信證券).
“[Cathay] reached a bottleneck in development as its businesses targeted at high and medium-end passengers have been dragged down by the global financial crisis,” he said. “A deeper tie with Air China can boost Cathay’s shares of the mainland travel market.”
Stephen Garrett, a 27-year-old graduate student, always thought he would study in China, but first the country’s restrictive COVID-19 policies made it nearly impossible and now he has other concerns. The cost is one deterrent, but Garrett is more worried about restrictions on academic freedom and the personal risk of being stranded in China. He is not alone. Only about 700 American students are studying at Chinese universities, down from a peak of nearly 25,000 a decade ago, while there are nearly 300,000 Chinese students at US schools. Some young Americans are discouraged from investing their time in China by what they see
Taiwan Transport and Storage Corp (TTS, 台灣通運倉儲) yesterday unveiled its first electric tractor unit — manufactured by Volvo Trucks — in a ceremony in Taipei, and said the unit would soon be used to transport cement produced by Taiwan Cement Corp (TCC, 台灣水泥). Both TTS and TCC belong to TCC International Holdings Ltd (台泥國際集團). With the electric tractor unit, the Taipei-based cement firm would become the first in Taiwan to use electric vehicles to transport construction materials. TTS chairman Koo Kung-yi (辜公怡), Volvo Trucks vice president of sales and marketing Johan Selven, TCC president Roman Cheng (程耀輝) and Taikoo Motors Group
MAJOR DROP: CEO Tim Cook, who is visiting Hanoi, pledged the firm was committed to Vietnam after its smartphone shipments declined 9.6% annually in the first quarter Apple Inc yesterday said it would increase spending on suppliers in Vietnam, a key production hub, as CEO Tim Cook arrived in the country for a two-day visit. The iPhone maker announced the news in a statement on its Web site, but gave no details of how much it would spend or where the money would go. Cook is expected to meet programmers, content creators and students during his visit, online newspaper VnExpress reported. The visit comes as US President Joe Biden’s administration seeks to ramp up Vietnam’s role in the global tech supply chain to reduce the US’ dependence on China. Images on
New apartments in Taiwan’s major cities are getting smaller, while old apartments are increasingly occupied by older people, many of whom live alone, government data showed. The phenomenon has to do with sharpening unaffordable property prices and an aging population, property brokers said. Apartments with one bedroom that are two years old or older have gained a noticeable presence in the nation’s six special municipalities as well as Hsinchu county and city in the past five years, Evertrust Rehouse Co (永慶房產集團) found, citing data from the government’s real-price transaction platform. In Taipei, apartments with one bedroom accounted for 19 percent of deals last