Hong Kong's Cathay Pacific Airways is to acquire a 9.9% stake in Air China, in line with its long-standing efforts to expand its limited presence in the fast-growing Chinese market.

The two airlines announced last week that they had signed a memorandum of understanding (MoU) under which Cathay would acquire the stake at the time of Air China's initial public offering, which is planned for late this year or early next year. The tentative deal with Air China surprised analysts because there were no signs the two were even considering it.

"The MoU also deals with future co-operation between the two companies," say the airlines.

"Both companies consider that the proposed strategic investment will serve as a platform from which to explore further opportunities for developing a closer partnership."

Air China is expected to list its shares in Hong Kong and another international stock exchange, possibly London. It will be the last of the "big three" Chinese carriers to be traded outside China but the first to have another airline as a strategic equity investor.

Source: Flight International