Cathay Pacific Airways reached a preliminary agreement on Wednes-day to buy 9.9 percent of Air China, a step that airline experts said signaled the opening of the Chinese aviation market to international competition, and a move by Chinese carriers into global markets.
The alliance, outlined in a memorandum of understanding, ties together two of Asia's more successful airlines, which have profited handsomely from China's extraordinary economic growth over the last quarter of a century. Cathay will buy the stake at Air China's initial public offering, which will be held here late this year or early next year.
The short-term effects on air travelers in and through Hong Kong and China, however, are less clear. Cathay Pacific and Air China said in a joint statement that they planned to coordinate their marketing and sales on service between cities that both carriers serve -- a step that could reduce competition and make lower fares less likely.
Kapil Kaul, a senior vice president in New Delhi for the Center for Asia Pacific Aviation, a consulting group based in Sydney, said that Wednesday's deal would clear the way for similar foreign investment in China's other two major carriers, the China Eastern Airlines Co and the China Southern Airlines Co.
Investments in either carrier are more likely to come from other Asian carriers than from European or American carriers, as Chinese authorities in Beijing are more likely to weigh such deals in geopolitical terms than in financial terms, Kaul said.
The Swire Group of Britain controls Cathay Pacific, but the airline has its hub in Hong Kong. While the carrier used to promote itself here as a British airline, especially before Britain returned Hong Kong to China in 1997, it increasingly portrays itself these days as a Hong Kong company.
Air China has already applied for permission to issue H shares on the Hong Kong Stock Exchange; the two companies gave no hint on Wednesday of how these shares, including the 9.9 percent stake for Cathay, would be valued.
Air China dominates air travel in and out of Beijing and the rest of northeastern China, while China Eastern is strong in Shanghai and east-central China and China Southern dominates Guangzhou and the rest of southeastern China. Cathay Pacific is the dominant carrier in Hong Kong and also flies to Beijing. It received approval earlier this week to increase its flights to Beijing, according to Bloomberg News.
Peter Harbison, the managing director of the Center for Asia Pacific Aviation, said on Tuesday that Beijing appeared close to giving permission for four Chinese budget airlines to begin operations. The arrival of such airlines could force Air China and Cathay Pacific to cut costs, and is part of a general move by Beijing to begin liberalizing air traffic in and out of China.
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