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Sun, Aug 27, 2006 - Page 12 News List

Cathay bid for takeover of Dragonair approved


Hong Kong's flag carrier Cathay Pacific came closer to tapping the Chinese market after shareholders of four major players in the aviation sector approved takeover bid of rival Dragonair.

The complex cross-sharing deal will make Dragonair a wholly owned subsidiary of Cathay Pacific, and also see the carrier increase its stake in the China's state-run Air China.

However, the deal still requires the approval from the Chinese government, which is expected to be completed in the next three to four weeks, Cathay said.

"Once the deal is completed, Cathay Pacific can move forward with confidence in taking control of Dragonair, and at the same time strengthen its partnership with Air China and reinforce Hong Kong and Beijing as key aviation hubs in the Asia-Pacific," Cathay's chief executive Philip Chen said in a statement.

The chairman of Air China, Li Jiaxiang, said the deal would help "create a potent new force in the airline industry".

The approval of the deal -- granted on Tuesday by shareholders from Cathay, Air China, its unit China National Aviation Company (CNAC) and CITIC Pacific -- formalized Cathay's long-held ambition to gain greater access to the Chinese market.

Cathay Chairman Christopher Pratt said the airline should begin to see contributions generated from the merger early next year, although he cautioned the second half of the year will continue to be heavily influenced by the price of fuel despite the expected strong passenger and cargo growth.

Under the deal reached in June, which took more than two years to finalize, Cathay Pacific agreed to take over Dragonair for HK$8.22 billion (US$1.05 billion) while Air China and CNAC will get a combined 17.5 percent holding in Cathay. Air China plans to privatize CNAC.

Cathay Pacific will double its stake in Air China to 20 percent.

On completion, Swire Pacific -- which holds the largest stake in Cathay Pacific -- will hold 40 percent of Cathay and CITIC Pacific will hold 17.5 percent, compared with their previous 46.30 percent and 25.40 percent.

According to the deal, Air China and Cathay Pacific will code-share on all routes and operate others under a profit sharing arrangement.

Cathay Pacific currently flies to only two destinations in China -- Beijing and Xiamen -- while Dragonair serves some 23 Chinese cities, including the lucrative Hong Kong to Shanghai route.

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