Senior managers at Cathay Pacific are still fighting to prevent the China National Aviation Corporation (CNAC) from invading their home turf. The latest gambit is to offer the potential rival a stake in regional carrier Dragonair, but there are doubts whether this tactic will curb the Chinese operator's ambitions.
A spokesman for Cathay, which together with parent company Swire holds a controlling 43 per cent stake in Dragonair, confirms negotiations are ongoing with CNAC - already a 5 per cent shareholder in Cathay. Sources close to the talks suggest at least 10 per cent of the regional operator is on the table. Whether the offered share comes entirely from Cathay's holding or involves a sell-down by both Cathay and Swire is not clear.
CNAC is also remaining coy, refusing to make any comment on the talks. 'Because of the delicacy of the situation it has been told to maintain a low profile and make no statements,' explains one transport official in Beijing.
CNAC, a division of China's Civil Aviation Authority, sent shockwaves through Cathay ranks earlier this year when it applied to the Hong Kong government for an Air Operators Certificate (AOC) and made it clear that it intended to compete with Cathay on some of its most lucrative routes. A decision is expected by November at the earliest.
Cathay executives were particularly angry because, despite its shareholding in the carrier, CNAC gave them no warning of its plans. They continue to argue that the move runs counter to the Sino-British Joint Declaration on Hong Kong which states that any airline based there must be a Hong Kong entity. CNAC, they contend, is clearly an operator controlled from Beijing.
Until recently CNAC had no aircraft of its own, and instead leased two B737s from US major Southwest Airlines for charter services. But it has now taken delivery of two new Boeing 757s, purchased directly from the manufacturer. These aircraft are currently parked on the tarmac of Chengdu airport in south central China and initially raised fears in Hong Kong that CNAC was aiming to operate them on the busy Taiwan route out of the UK dependency, but those worries are now fading.
Although the recent commercial agreement between Hong Kong and Taiwan allows each side to put two carriers on the route, even a successful application for an AOC would not come in time for CNAC. With Cathay already operating on the route, Dragonair will almost certainly become Hong Kong's second carrier.
But analysts in Hong Kong are sceptical that a stake in Dragonair will curb CNAC's ambitions. The Chinese operator is unlikely to commit to a rider in any share transaction that limits its future freedom to fly from Hong Kong, they suggest.
Source: Airline Business
