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Air China mulls cargo venture

(China Daily/Agencies)
Updated: 2010-02-24 10:40

Air China is Cathay Pacific's second-largest shareholder with a 30-percent stake. [CFP]

Air China Ltd, the nation's flag carrier, and Cathay Pacific Airways Ltd intend to sign an agreement to form an air-cargo venture before the end of the week, said three people familiar with the negotiations.

The deal will likely be confirmed during talks in Beijing over the next few days, the three said, while declining to be identified, as the discussions are private. Air China will inject seven freighters into the venture, one person said. Cathay will put in five or six planes, two people said.

The carriers plan to form the Shanghai-based venture as Chinese exports rebound amid improving consumer confidence in the United States and Europe. They first began talks in 2006 alongside a larger deal centered on Cathay's acquisition of Hong Kong Dragon Airlines Ltd.

"Shanghai is the most important cargo market amongst Chinese cities," said Jack Xu, an analyst at Sinopac Securities Co in Shanghai. "It's a positive move for both airlines that helps them challenge China Eastern-Shanghai Air."

Despite the sluggish international air cargo transportation market, the joint venture is expected to benefit from Shanghai's growing cargo demand in the medium- to long-term, analysts said.

Shanghai Pudong International Airport currently handles over 60 percent of China's international air cargo and is the world's fastest-growing airport for handling cargo. But overseas carriers control over 70 percent of the international cargo market in Shanghai.

China Eastern Airlines Corp completed the acquisition of neighbor Shanghai Airlines Co last month. The carrier surpassed Air China as the nation's No 2 airline by fleet size following the deal.

Air China Board Secretary Huang Bin and Cathay spokeswoman Carolyn Leung both confirmed that talks were under way. They declined to elaborate further.

Beijing-based Air China will own 51 percent of the new cargo venture, with Cathay owning 49 percent, according to a 2006 announcement.

Air China is Cathay's second-largest shareholder with a 30 percent stake. Cathay Pacific owns 18 percent of Air China, the nation's largest international carrier.

The Chinese government last month approved a 1.5 billion-yuan capital injection into Air China. The Beijing-based carrier used the funds to acquire minority shareholders' equity interests in its cargo unit, Air China Cargo, paving the way for the establishment of a cargo joint venture with Cathay Pacific.

Launched in 2003, Air China Cargo was 51 percent owned by Air China, with CITIC Pacific Ltd holding a 25 percent stake and Capital Airports Holding Co having a 24 percent shareholding. The cargo carrier has become a wholly owned unit of Air China after the airline bought stakes from the two shareholders.