Cathay Pacific Plans to Buy Into Air China
Cathay Pacific, Hong Kong's leading airline, plans to
buy up to 9.9% of the shares of Air China, China's leading
international airline, when it goes public in Hong Kong.
Cathay Pacific is currently Asia's sixth largest airline.
The memorandum of understanding, which was signed on
Oct. 20, gives Cathay Pacific an entry,as a strategic
partner, into the fast-growing China passenger airline
market. Passenger volume is expected to grow at a rate
of 8.1% annually over the next two decades. Air China
currently operates a fleet of 136 aircraft, and reaches
73 international and 322 domestic destinations.
Increased
competition and rising fuel costs have cut into Air
China's profits, just when it needs to position itself
for its IPO. The company plans to raise up to US$500 million
from the IPO, and has applied to the Hong Kong Stock Exchange
for permission to list. Merrill Lynch and CITIC are advisors
on the offering.
Cathay Pacific has been expanding it routes in China,
and acting as a strategic partner for Air China will give
it added leverage with the Chinese government in its expansion.
Recently it just won permission to fly from Hong Kong
to Xiamen in Fujian province.
Xiamen is located directly opposite Taiwan on the Taiwan
straits, and has been a popular investment destination
for Taiwan businessmen. Since direct flights are not allowed
between Taiwan and China, travelers must go through Hong
Kong. This makes the Hong Kong - Xiamen route highly profitable.
Before you go, did you like this article?
If so, you can receive a free email newsletter version
each weekday. Sign up using the China Business Express
form on this page.
