Hong Kong's Cathay Pacific is holding merger talks with Chinese national carrier Air China in a deal which would give the two airlines unrivaled coverage of one of the world's fastest growing aviation markets, a report said yesterday.
Cathay Pacific would not comment on the report but a company source said it was preparing to make an announcement.
The South China Morning Post said the multi-billion dollar deal would see the newly listed Air China take over Cathay Pacific, and the Hong Kong airline's British parent Swire Pacific would then take a large stake in the Chinese carrier.
"A deal is very close to being completed," a senior unnamed Swire executive told the Post.
The deal would also see Hong Kong's second airline, Dragonair, taken over by Cathay Pacific and folded into the new company.
Cathay Pacific and Swire Pacific currently hold a combined 25.5 percent stake in Dragonair.
Cathay Pacific shares jumped nearly 5.0 percent to HK$15.00 (US$1.92) in a weaker market while Air China was up 3.5 percent at HK$2.925.
Fulbright Securities general manager Francis Lun said such a deal would be good for Cathay Pacific as it would finally get the routes it has been seeking in China.
"If Air China lets Cathay Pacific's management take control, it will give it a world-class management team, which is good for Air China," he added.
However, Sun Hung Kai Securities analyst Gary Zhang said the likelihood a deal would go ahead was "remote due to some legal and structural concerns."
"It could be that Swire Pacific is negotiating to increase its stake in the Air China and, maybe, play a bigger role in the Chinese airline," he said.
"But I don't believe the Chinese government will allow Swire to take control of Air China, which is one of its biggest state-owned companies," he said.
The report said Cathay's HK$3 billion (US$384 million) purchase of a 10 percent stake in Air China when it listed in Hong Kong late last year was the first step in a strategic consolidation of the greater China airline sector.
The Swire executive said Cathay's failure to win more slots on the busy Hong Kong-Beijing route and its inability to secure any passenger services on the lucrative Hong Kong-Shanghai route was partly behind the merger plan.
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