Cathay Pacific to buy out competitor Dragonair

[HenryTo]

With this buyout, Cathay Pacific will now also become a powerhouse in mainland China as well:
--------------------------------------------------------------------------
Cathay Pacific to buy out competitor Dragonair: report
(Kyodo) _ Cathay Pacific is in the final stages of talks on buying out its 17.8 percent-owned subsidiary Dragon Airlines for at least HK$10 billion (about $1.3 billion) to expand its market share in China, Hong Kong media reported Monday.

The Standard, an English-language newspaper, quoted a source close to the talks as saying that Cathay began the talks in 2004 with Dragonair parent China National Aviation Co. aiming to simplify its shareholding in the China-owned carrier.

Cathay and Dragonair are the two major air carriers of Hong Kong. Cathay focuses on international airlines while Dragonair has a much bigger share in China's aviation market, flying to 23 Chinese destinations from Hong Kong, while Cathay only flies to Beijing and Xiamen in southern China.

The buyout would revamp the intertwined shareholding structures of major players in the regional aviation sector, including Cathay, CNAC, Air China and CITIC Pacific, the daily said.

Conglomerate Swire Pacific and Beijing-backed CITIC are major shareholders of Cathay, owning 46.3 percent and 25.4 percent of the carrier, respectively. The two companies also hold 7.7 percent and 28.5 of Dragonair, respectively. CNAC holds a 43.3 percent stake in Dragonair.

"Cathay Pacific is expected to buy out the stakes held in Dragonair by Swire Pacific, CITIC Pacific and CNAC through a combination of cash and share issues," the daily said.

It also quoted a Citigroup report out last month that estimated that Dragonair is worth about HK$12.2 billion. Cathay would have to pay HK$3.2 billion for CITIC Pacific's entire 28.5 percent stake in Dragonair, the report said.

Dragonair's net profits accounted for 52 percent of CNAC's total income last year. The carrier recorded disappointing earnings for 2005, with net profits down 59 percent to HK$270 million -- far below market expectations, the daily said.

Neither one of the companies involved has commented on the report.