Cathay Pacific Airways may gain air rights from Dragon Airlines

Flights to Shanghai near

Cathay Pacific Airways may gain air rights from Dragon Airlines to Shanghai this year after it buys out the rival, according to Air China's senior management.

Cathay Pacific Airways may gain air rights from Dragon Airlines to Shanghai this year after it buys out the rival, according to Air China's senior management.

"We are cost sharing, profit sharing and route sharing after the buyout deal," Air China chairman Li Jiaxiang said right after a press conference.

"It is not an important issue who flies the Shanghai route," he added.

Cathay, which resumed flights to the mainland in 2003 after a 13-year absence, has been slow in getting access to the world's most populous nation.

It flies only to Beijing and Xiamen in the southeast, and has cargo flights to Shanghai.

In the first round of talks with the mainland on April 10, Cathay did not obtain approval to open its third mainland destination.

Dragonair and China Eastern Airlines are the only carriers that fly passengers between Hong Kong, which is Asia's third busiest airport, and the mainland's commercial center of Shanghai.

"We badly wanted a significant presence in the mainland," Cathay chairman Christopher Pratt said. Dragonair's network "fits very, very well."

Dragonair flies to 23 destinations in the mainland from Hong Kong.

Cathay will buy all the shares of Dragonair it does not own for HK$8.22 billion in stock and cash, and pay HK$4.07 billion in cash to raise its Air China stake to 20 percent, the companies said in a statement Friday.

Credit Suisse analyst Karen Chan said the route arrangement mostly depends on a coming second round of talks

with the mainland.


Ian Callendar, general manager of Cathay's international affairs department, said earlier his airline hopes to tap into an important hub such as Shanghai so that it can handle passenger traffic on its own instead of passing them to its partners such as China Eastern Airlines.

The understanding was scrapped in 2003 and Hong Kong's Air Transport Licensing Authority allowed Cathay to resume flights to the mainland.

Cathay earlier estimated that the mainland routes could boost its passenger numbers by 420,000 a year.

China Eastern said the move would narrow its profit margin.

Meanwhile, under the Dragonair buyout deal, the board of Cathay will consist of five executive directors and four non-executive directors to be nominated by Swire Pacific, and two non-executive directors nominated by each of CITIC Pacific and Air China.

CITIC Pacific managing director Henry Fan Hung-ling said his company will support the Cathay board under the leadership of Swire Pacific.

CITIC Pacific will own 17.5 percent of Cathay, down from 25.4 percent, after the deal.

Amid market concern over the management reshuffle of Cathay and Dragonair, Dragonair chairman Kong Dong said the arrangement of the reshuffle will be handled by Swire.