Cathay, Air China may team up

A spokeswoman for Cathay Pacific, Carolyn Leung, said Monday that the airline planned an announcement later in the day.

“I’ve seen this in the media. But I have no comment and no information on this right now,” said Luo Zhuping, secretary of the board for Shanghai-based China Eastern Airlines, the nation’s third biggest airline.

China Eastern’s Hong Kong-listed shares surged by as much as 8 percent early Monday. By late afternoon, though, they were down 10.5 percent from Friday at 8.70 Hong Kong dollars. China Eastern’s Shanghai-listed shares fell 3.8 percent Monday to 21.94 Chinese yuan.

Cathay Pacific shares were suspended from trading in Hong Kong Friday afternoon.

“With Air China also suspended trading today, it looks very much like Cathay and Air China are joining hands to buyout China Eastern,” said Martin Wang, an analyst at Guotai Junan Securities Ltd.

Like other state-owned airlines, China Eastern has suffered from soaring jet fuel prices and intensifying competition. But it is the dominant carrier in China’s biggest city, Shanghai, and both Cathay and Singapore have been maneuvering to tap into China’s double-digit economic growth.

China Eastern reported net losses in 2005 and 2006 and in the first half of this year, according to international accounting standards.

Reports in Chinese and overseas media, citing unnamed airline sources, said Cathay and Air China were seeking to scupper a deal between China Eastern and Singapore Airlines. The deal, announced earlier this month, would give the Singapore carrier and Singaporean government investment arm Temasek a combined 24 percent stake in China Eastern.

Cathay and Air China would presumably offer a higher premium for China Eastern’s shares. Air China affiliate China National Aviation Corp. already holds an 11 percent stake in China Eastern.

It would be unusual for the rival airlines to engage in such market-based dueling — both are state-controlled and the Singapore-China Eastern alliance had obvious government support.

The plan by Singapore Airlines to take a 15.7 percent stake in China Eastern, and for Temasek to buy another 8.3 percent, was approved by the State Council, China’s Cabinet. The plan involves a share offering of HK$7.2 billion (US$920 million; euro655 million).

The plan was approved by the Shanghai carrier’s board but requires the support of two-thirds of minority shareholders at a shareholder meeting in December.

Cathay Pacific and Air China own 17.5 percent of each other’s shares. Britain’s Daily Telegraph reported that Cathay would pay about US$4 billion (euro2.9 billion) for a China Eastern stake.

“That amount is more than enough to buy all H-shares of China Eastern, so it’s not likely that Cathay is buying a small portion, it should be planning a buyout to block the Singapore Airlines’ bid for China Eastern,” Wang said, referring to the Telegraph report. H-shares are Hong Kong-listed shares of China-based companies.

“We don’t comment on speculation,” Singapore Airlines spokesman Stephen Forshaw said, when asked about Monday’s media reports.

Shares in Singapore Airlines were down 1.1 percent late afternoon on the Singapore Exchange at S$18.50.

Subscribe to The China Post and save 25%. Click here

PrintEmail

Write a Comment

Terms

Enter your comments - 3000 characters max

Type in image code

Submit

 Receive China Post promos
 Respond to this email