A deal being discussed in Hong Kong could lead to another airline ownership shake-up involving Cathay Pacific Airways and smaller Dragonair – as well as Chinese flag carrier Air China.

Long-standing rumours in Hong Kong say Cathay wants to take over Dragonair, which makes most of its money from services to the fast-growing China market – a market that Cathay is desperate to increase its exposure to.

Last week the South China Morn­ing Post reported that a deal was close to completion that would see Cathay's biggest shareholder, Swire Pacific, hand over its 46.5% stake to Air China and, through a share swap, acquire the biggest single shareholding of around 32% in an enlarged Air China Group.

All parties deny that Swire plans to hand control of Cathay to Air China and that Air China's state-owned parent will agree to Swire taking the biggest single stake. However, they left open the possibility of a smaller but still substantial deal involving a take-over by Cathay of Dragonair.

Industry sources in Hong Kong say such a deal has been under discussion for some time. Alongside this proposed agreement, they say, Air China would be given a minority stake in Cathay. Air China effectively controls Dragonair through its majority ownership of China National Aviation Corporation (CNAC), Dragonair's biggest single shareholder with 43%.

Cathay and Swire are minority shareholders in Dragonair along­side conglomerate CITIC Pacific. Hong Kong-listed, but China-backed CITIC also holds more than 25% of Cathay's shares.

Late last year the already complicated airline ownership links became even more convoluted when Cathay acquired a 10% stake in Air China. That buy-in deal came with a memorandum of understanding for a wide-ranging co-operation agreement and the parties involved say progress is being made in the operational partnership discussions.


Source: Flight International