Announcement Soon??
Cathay Pacific is expected to buy out its 17.8 percent-owned subsidiary Dragon Airlines for at least HK$10 billion to establish a firmer foothold in the fast- growing mainland aviation market, sources said.
Monday, June 05, 2006
Cathay Pacific is expected to buy out its 17.8 percent-owned subsidiary Dragon Airlines for at least HK$10 billion to establish a firmer foothold in the fast- growing mainland aviation market, sources said.
Cathay is understood to be in advanced stages of the discussions, first started in 2004, with Dragonair parent China National Aviation Company to simplify its shareholding in the mainland-owned carrier, a senior source close to the talks told The Standard.
The long-contemplated move may also involve revamping the shareholding structures of major players in the regional aviation sector, including Cathay Pacific, CNAC, Air China and CITIC Pacific.
Cathay Pacific is expected to buy out the stakes held in Dragonair by Swire Pacific, CITIC Pacific and CNAC through a combination of cash and share issues.
A Citigroup report out last month estimated Dragonair to be worth about HK$12.2 billion. Cathay would have to pay HK$3.2 billion for CITIC Pacific's entire 28.5 percent stake in Dragonair, the report said.
A source confirmed that Air China was likely to acquire shares in Cathay Pacific, becoming its third-largest shareholder after Swire Pacific and CITIC Pacific.
Cathay Pacific already holds a 10 percent stake in Air China and the cross shareholding is expected to strengthen ties between the two carriers, helping the mainland-based airline to gain valuable management expertise for competing more effectively in the international market.
CITIC Pacific, which currently owns 25.42 percent of Cathay Pacific, is likely to cut its stake in the carrier.
Earlier this year, the conglomerate said it wanted to trim shareholdings in its non-core businesses and focus on the property and resources sectors.
A recent report issued by CITIC Capital, a unit of the CITIC Group, said any alliance between Cathay Pacific, Air China and Dragonair could be a compelling force in the global aviation market as it would create vast synergies in resource utilization and routes.
The three carriers could form a "triangular cooperative platform" implementing a cohesive domestic, regional and international strategy, the report said. Dragonair flies to 23 destinations in the mainland from Hong Kong.
Cathay Pacific, despite years of trying, has so far managed to secure routes only to Beijing and Xiamen.
The lucrative Hong Kong-Shanghai route has eluded the carrier and, even on the Hong Kong-Beijing route, Dragonair accounts for 88 percent of the flights.
In the past, the tussle for mainland routes between Cathay Pacific and Dragonair turned bitter, with one or both sides threatening arbitration.
Total ownership of Dragonair would make Cathay the top foreign carrier operating in the mainland, far ahead of Japan Airlines, Singapore Airlines and Korean Air, which only have limited access to Chinese skies. "Clearly, Cathay would benefit from controlling Dragonair as it could cut competition and allow Cathay to fully utilize Dragonair as a feeder airline," HSBC's regional transport analyst Mark Webb said in a recent report.
Dragonair's net profits accounted for 52 percent of CNAC's total income last year.
CNAC<01110> - Suspension of Trading
At the request of China National Aviation Company Limited, trading in its
shares has been suspended with effect from 9:31 a.m. today (5/6/2006)
pending announcements of certain notifiable and/or connected transactions
of a price sensitive nature.
AIR CHINA<00753> - Suspension of Trading
At the request of Air China Limited, trading in its H shares has been
suspended with effect from 9:31 a.m. today (5/6/2006) pending
announcements of certain notifiable and/or connected transactions of a
price sensitive nature.