Air China admits wish to increase stake in Cathay

Air China conceded that it had a long-term ambition to lift its stake in Cathay Pacific for a possible takeover of the Hong Kong airline.

The Chinese flag carrier paid 6.34 billion Hong Kong dollars ($813 million) this month to boost its holdings in Cathay to 29.99%, just below the 30% threshold that would trigger a mandatory takeover offer.

Air China said it had to persuade controlling shareholder Swire Pacific to allow it to increase its stake, as the carrier was bound by an agreement capping its shareholding for three years.

Kong Dong, chairman of the Chinese airline, said, "It is not only up to us but subject to mutual understanding between Cathay and Air China. It will take time. We are quite content with what we’ve achieved now."

The need for Cathay to seek bigger partners is underscored by Shanghai’s threat to Hong Kong as an aviation hub following the merger of China Eastern Airlines Corp and Shanghai Airlines.

AFP reported some industry players are worried that a Chinese takeover may tarnish a carrier regarded as a key emblem of Hong Kong’s "One Country, Two Systems" autonomy from the Mainland. Swire is believed to be reluctant to allow Air China to gain control of the Hong Kong carrier because of the large cultural differences between the two sides.

There is also a problem that a large percentage of passengers are totally dedicated to flying Cathay Pacific. The same could not be said for Air China.