Cathay buys Dragonair
Cathay Pacific Airways confirmed on Friday that it is paying HKD$8.22 billion in cash and shares to take over its rival Dragonair.
As part of the deal, Cathay and mainland carrier Air China will increase their cooperation, with Cathay paying HKD$4.07 billion to double its stake in Beijing-run Air China to 20 percent and in turn, Air China will pay HKD$5.39 billion for 10% of Cathay.
The long-expected deal will expand Cathay, the world’s seventh most valuable airline and give it access to the fast-growing mainland Chinese market, its limited position in mainland China, having frustrated the airline where its only passenger routes are to Beijing and Xiamen.
Dragonair, which flies to 23 mainland cities including the lucrative Shanghai market, has in turn relied on Cathay to feed it international traffic bound for China. “It is positive for all parties involved,” said Peter Drolet, senior analyst at UOB Kay Hian. “Gaining China access will give unlimited possibilities to Cathay Pacific, and I believe Cathay will have the ability to turn around any unprofitable routes that Dragonair currently has and reduce its costs significantly.”
Cathay Pacific and Air China said they planned to set up a jointly owned cargo airline based in Shanghai, to be held 51 percent by Air China and 49 percent by Cathay. The companies also said that Dragonair would keep its current branding for six years.
The tie-up creates a formidable rival for mainland carriers China Southern Airlines and China Eastern Airlines, and forms a powerhouse in the lucrative market between Taiwan and mainland China through Hong Kong, as there are no direct air links between China and Taiwan.
Report by The Mole
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