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Cathay buys into Air China Cargo
Published on: 2010-02-26
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Cathay Pacific, the Hong Kong airline, has reached an agreement to invest in a Chinese air cargo operation after almost four years of negotiations with its partner, Air China.

Cathay, ultimately controlled by John Swire & Sons of the UK, will pay Rmb1.67bn ($245m) for a 49 per cent stake in Shanghai-based Air China Cargo, complementing its Hong Kong operations serving the Pearl River delta manufacturing region in southern Guangdong province.

“The joint venture will provide the two most important cargo-generating regions on the mainland with two highly competitive and efficient home-based carriers – Cathay in the Pearl River delta and Air China Cargo in the Yangtze River delta [around Shanghai],” Christopher Pratt, chairman of Cathay Pacific, said in a statement.

Air China Cargo flies seven Boeing 747 cargo freighters and also sells “belly space” on the flag carrier’s passenger aircraft. The joint venture will use the proceeds from Cathay’s investment to acquire four more freighters.

“Through fleet expansion, we efficiently set a platform for future growth,” said Kong Dong, Air China chairman. Air Cargo China operates cargo-only services to 14 global destinations, compared to 37 destinations served by Cathay.

The joint venture, based in Shanghai, is one of the biggest prizes stemming from a cross-shareholding deal negotiated by the two airlines in June 2006. Under that arrangement, Cathay regained control of Dragonair, a Hong Kong regional carrier, while Air China took a 17.5 per cent stake in Cathay. Beijing-based Air China has subsequently boosted its stake to 29 per cent, while Cathay holds 20 per cent of the Chinese flag carrier.

A joint venture cargo operation in China was held out as one of Cathay’s greatest gains from the 2006 transaction. Subsequent negotiations, however, were complicated by Air China’s rivalry with China Eastern, which operates out of Shanghai, and the global economic recession.

The agreement is subject to regulatory approval and endorsement by both airlines’ shareholders.

Air China will appoint four of the joint venture’s directors, including the chairman, with another three seats reserved for Cathay nominees.

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