Cathay stake boosts Air China listing
Strategic investment pushes issue forecasts past US$800m
Cathay Pacific Airways' agreement to buy 9.9 per cent of Air China is expected to boost the size of the mainland flag carrier's pending share offering by at least 30 per cent.
Air China had planned to raise up to US$600 million, but the target is now likely to be at least $800 million, with one market source even predicting a target of $1.2 billion, although others said that would be difficult to achieve.
'Cathay's strategic investment will definitely help the offering,' a source said. 'This is a very simple and attractive story. China's domestic travel is surging. As a national carrier, Air China is in the best position to capture the growth.
'Teaming up with Cathay will make Air China a much stronger and bigger player that no other domestic rival can compete with.'
Air China is planning to sell 30 per cent of its shares to the public through a Hong Kong-London dual listing, in which 9.9 per cent of the company would be taken up by Cathay. As a result, Merrill Lynch and China International Capital Corp, which are arranging the listing, would need to sell only 20.1 per cent of the carrier to the public.
Backing up Air China's optimism, Cathay chief executive David Turnbull said buying a stake in the national carrier was just a start to gain greater mainland access.
'Our aim clearly is to make it a much deeper and bigger relationship - this is just the start here,' Mr Turnbull said. 'We want to make it a very strong Cathay-Air China relationship. You don't just buy 10 per cent of a company and then sit there and that's it. You want to do more in terms of product and staff and management and route networks and code share.'
He said Cathay's aim was to make Hong Kong the entry point to the mainland while Air China's aim was to make it the premier carrier in the mainland and also into and out of the country.
Cathay's director of corporate development Tony Tyler did not rule out the possibility of pursuing further traffic rights and working with other mainland airlines.
'This is an investment and getting additional traffic rights is a totally separate issue,' he said at a lunch meeting yesterday.
'We will continue to work with all mainland carriers as we have been in the past ... but clearly we are looking forward to developing our close relationship with Air China, otherwise we wouldn't have been going ahead with this particular investment.'
Mr Tyler also said airline profits were slipping away as they were suffering from the soaring oil prices. 'When the cost goes up, profit goes down,' he said. 'We just hope that the oil prices will alleviate some time very soon. But we have to wait and see what happens.'
He added it was unlikely prices would ever return to US$25 a barrel, probably remaining at $35 to $40 if they did come down.
