Cathay Pacific fulfilled a long-held ambition on Friday to gain greater access to the key Chinese market when it announced a deal to take over its smaller local rival Dragonair and cement ties with Air China, the mainland’s flag carrier.
The complicated cross-sharing deal that took over two years to finalise sees state-run Air China and Cathay Pacific code-share on all routes and operate others under a profit share arrangement.
The agreement will not only give Cathay Pacific greater access to the booming Chinese market but will also enhance Beijing and Hong Kong as major Asian aviation hubs, allowing both parties to compete in a global marketplace.
”This heralds a new era for our growth and the development of the aviation industry in China and Hong Kong,” said Christopher Pratt, chairperson of Swire Pacific which holds a major stake in Cathay Pacific.
”We will reinforce Hong Kong and Beijing’s position as primary avaiation hubs in the Asia Pacific region and provide a platform for growth an expansion into the mainland, the region and internationally,” he said.
Air China chairperson Li Jiaxiang said the airline will maintain its status as a substantial shareholder in Cathay Pacific, adding that both parties also intend to establish an air cargo joint venture based in Shanghai, China’s business top.
Under the deal, Cathay Pacific will take over Dragonair for $1,05-billion while Air China, together with its parent China National Aviation Company (CNAC), will hold a combined 17,50% in the Hong Kong flag carrier.
Cathay Pacific in turn doubles its stake in Air China to 20%, cementing the tie-up.
The buy-out values Dragonair, in which Cathay Pacific already has a 17,8% stake, at $10-billion.
The much anticipated restructuring of complicated shareholdings opens up the prospect of cost savings and cooperation benefits in an industry struggling for profits against a rising tide of fuel and other costs, with booming China a prized market.
Cathay Pacific currently flies to only two destinations in China — Beijing and Xiamen — while Dragonair serves about 23 Chinese cities, including the lucrative Hong Kong-Shanghai route.
Dragonair will remain as a separate entity within the Cathay Group and will maintain its brand and identity.
Li said the Chinese government is supportive of the deal, seeing it as part of the overall reform and develoment of the country.
”It’s a good change … As long as it’s good for the aviation [industry], the economy, Chinese authorities hold a very open and encouraging attitude towards this,” said Li.
Under the terms of the deal, Cathay Pacific will buy out the other shareholders in Dragonair — CITIC Pacific and Swire Pacific, its own parent companies, and CNAC with a combination of shares and cash.
As a result of the deal, Swire Pacific will end up holding 40% of Cathay Pacific while CITIC Pacific will have 17,50%, compared with 46,30% and 25,40% previously.
CITIC Pacific said it intends to hold its Cathay Pacific shares as a long-term investment ”because we are optimstic about the coopoeration.” Swire said it has no plans to reduce its stake.
Swire Pacific’s Pratt said it will take two months for shareholders of all five companies to approve the deal. – AFP