[photopress:air_china_eastern_1_2.jpg,full,alignright]Cathay chief executive Tony Tyler said has said that Cathay Pacific Airways will be willing to help fund any bid by Air China for China Eastern Airlines. It will probably do this for two reasons. The first is to make it happen and the second is to avoid dilution of its 17.5% stake in Air China. If the deal goes through it automatically strengthens Cathay’s presence in Shanghai where China Eastern Airlines is based.
Tony Tyler said that Cathay Pacific is discussing closer co-operation with Air China including a Shanghai cargo joint venture.
He said Shanghai is an important market and it’s only going to get more important. He added better management would have little difficulty in turning around unprofitable China Eastern.
This is undoubtedly true. But note that Cathay Pacific has been working with Air China in improving areas such as its cabin service and has not found this an easy task.
Singapore Airlines, the opposition in this case, is currently sitting on a US$3 billion cash pile and almost certainly is going to make another bid for China Eastern Airlines. China Eastern Airlines (some cabin crew in the illustration) is openly hostile about the prospect of an alliance with Air China which makes the situation more than somewhat intersting.
Any move by SIA would re-ignite the currently stalled ‘Battle for Shanghai’ (that is e control of China Eastern Airlines.)
Global equity market weakness could help deflate Chinese airline stock prices which might give a second SIA bid a better chance of success. On the other hand, neither Air China nor Cathay Pacific would have any problems in raising the cash to meet or better such a bid.