Cathay Pacific, Air China in merger talks
(Agencies)
Updated: 2005-03-16 16:56

A plane flies past a plane-tail shaped Cathay Pacific Airways advertisement at the Hong Kong international airport March 16, 2005. Air China Ltd. may merge with Hong Kong's Cathay Pacific Airways Ltd. in a deal that would create a Chinese aviation powerhouse, a newspaper said on Wednesday. [Reuters]

Hong Kong carrier Cathay Pacific is in talks on a merger with Air China in a deal that will give the combined airlines unrivalled coverage of China, one of the world's fastest growing aviation markets, a press report says.

The multi-billion dollar deal would see the newly listed Air China take over Cathay Pacific in return for the Hong Kong airline's British parent Swire Pacific taking a large stake in the mainland carrier.

"A deal is very close to being completed," a senior, unnamed Swire executive told the South China Morning Post.

The deal would also see Hong Kong's second airline, Dragonair being folded into the new company. Cathay Pacific and Swire Pacific currently hold a combined 25.5 percent stake in Dragonair.

The report said Cathay's 3.0 billion Hong Kong dollar (US$384 million) purchase of a 10 percent stake in Air China stock when it listed in Hong Kong late last year was the first step in a strategic consolidation of the greater Chinese airline sector.

The Swire executive said Cathay's failure to win more slots on the busy Hong Kong-Beijing route and its inability to secure any passenger services on the lucrative Hong Kong-Shanghai route was partly behind the merger plan.

"Cathay has successfully fought for a small share of the (routes) but that is not enough," the source told the newspaper. "It knows that it will need full integration into the market."

The report said a deal could be announced within two weeks.

A Cathay Pacific spokeswoman would not comment on the report when contacted by AFP.

In the SCMP report, the company was quoted as saying it was happy with its ties with Dragonair and "there are no plans to change the existing relationship" with Air China.

Cathay Pacific is one of the largest and top ranked airlines in the world but the comparatively small Air China has the network in China, the rapidly developing business and tourism market that the Hong Kong carrier views as the future core of its operations.

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