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Cathay Pacific said to be close to deal for Dragonair

A Cathay Pacific plane prepares to land at Hong Kong airport yesterday. Trading of shares in the airline and its major owners were suspended yesterday amid reports of a shake-up in the complicated shareholdings between it and rival Dragonair. PHOTO: AFP

Trading of shares in airline Cathay Pacific and its major owners was suspended in Hong Kong yesterday amid reports of a shake-up in the complicated shareholdings between it and rival Dragonair (港龍航空).

The Hong Kong Stock Exchange announced the suspension ahead of the market opening following a report in the Standard newspaper that Cathay Pacific would alter its ownership structure to give it access to the key Chinese market.

It follows reports last year that Cathay Pacific, Dragonair and China National Aviation Company (CNAC, 中國航空公司) -- the parent of Air China (中國航空) -- which all have complicated cross-shareholding arrangements, were looking at a radical restructuring that could see the complete absorption of the smaller Dragonair.

Cathay Pacific currently owns 17.8 percent of Dragonair. The newspaper said the proposed changes could see Cathay Pacific buying out the Swire Pacific, CITIC Pacific and CNAC holdings in Dragonair for some HK$10 billion (US$1.28 billion).

A Cathay spokeswoman would offer no comment on the report, saying only that there would be an announcement "soon."

In 2004, Cathay Pacific took a 10 percent stake in the mainland's flag carrier, Air China, in order to gain greater access to the booming Chinese market.

It has made no secret of its desire to make greater inroads into the mainland which is dominated by Air China and heavily regulated.

As a result Cathay Pacific currently only serves passenger routes between Hong Kong and Beijing and Xiamen.

The absorption of Dragonair, which flies to 18 Chinese cities -- including the lucrative Hong Kong-Shanghai route -- would extend Cathay Pacific's reach deep into China.

Citing senior sources close to talks between all parties, the Standard said the deal would tidy up Cathay Pacific's shareholdings and result in the formation of a major and influential new group in the industry.

The deal would also see CNAC take a share in Cathay Pacific, making it the company's third largest shareholder, while CITIC is expected to reduce its 25 percent holding in the Hong Kong airline.

Analysts said such a deal, if it went ahead, was likely to be welcomed by the market.

"The shareholding arrangement in these companies is so complicated it really is confusing," said Asian aviation industry consultant Jim Eckes.

"This story has been bubbling along for a couple of years now but to suspend trading suggests there's something more to it than just speculation," Eckes said.

Even if Dragonair was swallowed up by either of its shareholding airlines, Eckes believes the carrier would continue flying.
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