Cathay Pacific is facing its worst nightmare, the startup of a Chinese-controlled, Hong Kong-based rival backed by powerful friends in Beijing's corridors of power.

Despite complaints that the action breaks the Sino-British joint declaration on the hand-over of Hong Kong to China, the territory's civil aviation director Peter Lock has confirmed that Beijing-owned China National Aviation Corporation will almost certainly get a local Air Operator's Certificate, probably early next year. And CNAC general manager Wang Guixian has confirmed that the new airline, to be known as China Hongkong Airlines, plans to fly on Asian regional routes as well as operating services into China.

Wang says he would like to see the new airline flying by April and 'we hope it would be earlier'. Analysts consider the speed with which CNAC appears to be heading towards gaining clearance suggests pressure has been applied from Beijing, an accusation Hong Kong's Civil Aviation Department strongly refutes. Cathay says that after receiving an AOC the startup still has to apply for and be granted route rights, which normally takes months. But with the 1997 handover fast approaching, clearance may come sooner rather than later.

Cathay says it isn't worried about the competition but is deeply concerned over the fact that CNAC is owned by the Civil Aviation Administration of China.

The carrier had tried to forestall its new competitor by offering CNAC a share of partner airline Dragonair. Surprisingly, CNAC's Wang says talks are continuing with Cathay and its parent, Swire, over the purchase of shares.

China Hongkong's first target of developing a network linking several major Chinese cities with Hong Kong will place it in direct confrontation with Dragonair, in which Cathay and Swire own 43 per cent. China Hongkong is to be run by former Cathay executive Lew Roberts, who played a major role in the startup of Dragonair.

China Hongkong also remains interested in Taiwan traffic and is one of three Chinese airlines permitted to fly to the new airport at Macau - the others are China North- west and China Northern.

In fact Wang is also chairman of startup Air Macau, a Chinese-Portuguese joint venture in which CAAC has a 51 per cent stake. The new operator took delivery of its first Airbus A321 in November.

This somewhat bizarre situation underscores a question Cathay has asked consistently: is CNAC a Hong Kong airline or a Chinese airline? 'From next year the answer could well be both,' says one Cathay insider. 'We will have the ridiculous situation of CNAC flying through Hong Kong as a Hong Kong carrier and through Macau as a Chinese carrier and, on top of that, its chief being chairman of Air Macau,' he says.

Tom Ballantyne

Source: Airline Business