Cathay Pacific Airways Ltd., Hong Kong's largest carrier, will invest 1.7 billion yuan ($249 million) in affiliate Air China Ltd's cargo unit as a global economic rebound revives exports in the Chinese mainland.
Cathay will control 49 percent of Air China Cargo, including a stake to be held by an offshore trust, following the deal, it said in a statement Thursday. The carrier will inject four Boeing Co 747-400 freighters and two spare engines into the unit to pay for the transaction.
File photo of an Air China Cargo plane. [Photo/Air China Cargo]
The airline jumped the most in two weeks in Hong Kong trading as access to hubs in Beijing and Shanghai may allow it to benefit from rebounding overseas demand for Chinese mainland-made auto parts, electronics and clothes. Air China will get help competing with carriers including FedEx Corp and China Eastern Airlines Corp that fly freight from China."It's the right time to do this as the cargo market looks pretty good," said Kelvin Lau, a Hong Kong-based analyst at Daiwa Institute of Research. "It's particularly important for Air China as the carrier needs to win market share in Shanghai."
Cathay and Air China first proposed a cargo venture in 2006 alongside a larger deal centered on Cathay's takeover of Hong Kong Dragon Airlines Ltd. Volatility in cargo markets over the past two years complicated discussions, Cathay Chairman Christopher Pratt said at a Hong Kong press conference.
Exports Rebounding
"We are very optimistic about the joint venture's success," Pratt said. "Chinese mainland's exports are already rebounding quite robustly in the last three or four months. Will that continue? We are not sure, but it's a long-term trend."
Air China is Cathay Pacific's second-largest shareholder with a 30 percent stake. Cathay Pacific owns 18 percent of Air China, the nation's largest international carrier.
Cathay Pacific may consider increasing its stake in Air China "when the time is right, when the business is good," Chief Operating Officer John Slosar said in an interview with CNBC Asia.
Cathay rose 2.1 percent to HK$14.42 in Hong Kong Friday. Air China, the nation's largest international carrier, was suspended in the city and Shanghai pending an unrelated announcement about a possible share sale.
Cargo Fleets
Air China Cargo operates seven 747 freighters, flying to 14 destinations worldwide, as well as selling cargo space onboard Air China passenger planes.
Cathay's group fleet currently includes 25 Boeing 747 freighters. The airline is also due to receive 10 new Boeing 747-8 cargo plane from early next year.
Chinese mainland's exports rose 21 percent in January, the second monthly advance after 13 declines. The mainland's air-cargo and mail traffic volume rose 9.3 percent to 4.5 million tons last year and may climb to 5 million tons this year, according to the Civil Aviation Administration of China.
Global air-freight traffic surged 23 percent in December, the International Air Transport Association said earlier this month.
China Eastern completed the takeover of neighbor Shanghai Airlines Co. last month. The carrier surpassed Air China as the mainland's No. 2 airline by fleet size following the deal.
