Paul Lewis/HONG KONG
Cathay Pacific Airways is close to finalising a wide-ranging alliance with British Airways, which could extend to the UK company acquiring an equity stake in the Hong Kong carrier. The airlines are also believed to be talking about swapping aircraft.
According to industry sources, discussions with BA have been elevated in London to the level of Cathay's parent group Swire Pacific. Talks are understood to include the possibility of the UK flag carrier purchasing a stake in Cathay from Swire, which holds 43.9% of the shares and exercises management control.
Cathay is the past has voiced scepticism about alliances and the sale of equity to other airlines. The carrier has been forced to shift its position on alliances as the result of a sizeable downturn in traffic and other regional rivals joining partnerships such as Star. Swire would not give an "official position" on the subject of equity.
It is unclear how large an investment BA wishes to make in Cathay, but it is thought to be confined to Swire's existing interest to avoid any change in the balance of power with 25% mainland Chinese shareholder Citic. BA, suggest analysts, would be seeking a minimum of a 10-15% share to secure seats on the Cathay board and be able to exert meaningful influence.
Talk of BA taking a stake could help explain a 20% rally in the value of Cathay's depressed stock over two days of trading on the local Hang Seng exchange. The stock is now trading around HK$6 per share, compared to the heavily discounted $11 per share paid by Citic in 1996. Analysts suggest any share purchase price would have to at least match Cathay's estimated asset value of HK$7.50 a share.
At an airline level different working groups have been established to discuss detailed alliance arrangements between BA and Cathay. The partnership will probably include Cathay's associate carrier and Chinese majority-owned Dragonair, with its valuable Hong Kong-China network.
The two sides are also considering the possibility of swapping aircraft to better match their current requirements. One option would see BA Boeing747-400s heading to Hong Kong in exchange for 777s.
It is also likely that the alliance would involve BA's international partner Qantas, which is looking to strengthen its "Kangaroo" route to Europe in the face of growing competition from Singapore Airlines (SIA) and its new Australian partner Ansett. A BA buy into Cathay is also viewed as a counter to any successful bid by SIA to acquire a 25% stake in Star Alliance partner Thai.
The timing of any announcement is as yet unclear, but is has been suggested it could come as soon as October when Cathay says it will unveil its new frequent flyer programme (FFP). This replaces the Passages partnership with SIA and Malaysia Airlines (MAS), to be discontinued from 31 January, 1999, freeing up the three Asian carriers to pursue new bilateral FFPs with their alliance partners.
SIA says it is working on a new arrangement to be launched in February 1999 with alliance partners Air New Zealand, Ansett and Lufthansa. Meanwhile, MAS is looking at expanding its relationship with KLM Royal Dutch Airlines, including a joint FFP, following agreement to operate code-share services between Kuala Lumpur and Amsterdam.
Source: Flight International
