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August 18, 2009

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Air China to increase stake in HK airline

AIR China has agreed to increase its stake in Cathay Pacific Airways to 29.99 percent from 17.49 percent to boost its international competitiveness and branding.

China's flagship international carrier will spend HK$6.34 billion (US$818 million) to acquire a 12.5 percent stake in Cathay Pacific from CITIC Pacific at HK$12.88 apiece, Air China said in a statement to the Shanghai Stock Exchange yesterday.

The stake move will allow the two carriers to cooperate even closer and will generate a greater synergy effect, as well as boost the international competitiveness and brand value of Air China, the statement said.

"The deal reflects Air China's confidence in the Hong Kong market and its ambition to develop its international markets," said Li Lei, an analyst at China Securities Co.

"The international market is a key business for Air China, so it needs to choose a good partner in order to boost its profitability and brand," Li said.

The deal can cement Air China's presence in two major international hubs - Beijing and Hong Kong, and Hong Kong is the most profitable air hub in China, said Citigroup which suggested investors buy shares of the carrier.

Swire Pacific, parent of Cathay Pacific, has also agreed to acquire 78.68 million shares from CITIC Pacific to increase its stake in the airline from 39.97 percent to 41.97 percent for HK$1 billion, according to the statement.

CITIC Pacific will hold 2.98 percent of Cathay Pacific, Hong Kong's biggest carrier, upon completion of the deals.

The deals came after the announcement by two Shanghai-based carriers of a merger in which China Eastern Airlines plans to take over its smaller rival, Shanghai Airlines, in a share swap. The merger, if realized, will raise their market share in Shanghai to more than 50 percent.


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