Cathay Pacific Asia Miles - CA to take over most of CITIC's shares in CX

According to http://www.cathaypacific.com/cpa/en_HK/aboutus/pressroomdetails?refID=a56aa03d90823210VgnVCM62000 007d21c39____, CITIC will sell 12.5% of CX's share to CA and the remaining 2% to Swire. After the transections, Swire will hold ~42% of CX's share, and CA will hold ~30%.

what do you guys think about this take over? Will it affect or influence how CX is going to work in the future?
I am scared that this may change the service standard of CX, since they have a larger influence in the airline

what do you guys think about this take over? Will it affect or influence how CX is going to work in the future?
I am scared that this may change the service standard of CX, since they have a larger influence in the airline
I think there won't be super big change as

1. Swire still hold majority share
2. Cathay has been a contributor to CA's revenue sheet under current management, so they probabaly just let CX do whatever they doing

Nothing big but just an emergency exit for CITIC due to their "accumulator" damage

42% isn't a majority. But Swire does have the majority of the voting rights.

CITIC doesn't have "Accumulator" damage - they made a single large bet on the Australian dollar which made their books look bad for a while, not least due to "mark to market" accounting rules. But they sold that off to their Chinese parent months back anyway. This is just them refocusing their strategy a bit as all conglomorate holding companies do from time to time.

I don't see any significant change to CX's business though.

nothing for now.... but who knows down the road...

well if anything happens there is nth to do with this deal: the net chinese influence went down as swire had some 2.5% extra...

besides, i can bet on anything that CITIC and CA are ganged up anyway

Judging by CX's performance in the past five years with its hard product development and online booking engine, I am not sure if a Chinese take over is a bad thing. At least the Chinese carriers are moving forward, CX on the other hand..........

Air China shares tumbled nearly 10 percent Tuesday as investors feared China's biggest airline may have paid too much and taken on debt in raising its stake in Hong Kong carrier Cathay Pacific.

Source: http://news.airwise.com/story/view/1250586549.html

The Leader in today's SCMP:

"Damage Cathay and you will harm Hong Kong

Updated on Aug 19, 2009
Cathay Pacific is a symbol of Hong Kong. There are few companies as highly respected or brands as closely associated with our city. The airline vies for the title of the region's best, being hailed for its managerial expertise, quality of service and profitability.

There is understandably unease in some quarters that the mainland carrier Air China will boost its stake to within a hair's breadth of making a takeover bid.

Beijing-based Air China announced on Monday it would increase its shareholding in Cathay to 29.99 per cent by buying a 12.45 per cent stake from the Beijing-controlled Citic Pacific. Cathay's parent company, Swire Pacific, will lift its holding to 42 per cent by taking another 2 per cent of shares from Citic. Both companies will buy as much of Cathay as they can without triggering mandatory takeover offers. The sale raises the spectre of Cathay one day being a mainland-controlled firm.

No state-owned airline on the mainland makes an operating profit. China Eastern's latest results are, like Cathay's, in the black because of hedging on fuel futures. The private, Shanghai-based Spring Airlines is one of the few operators across the border that is genuinely profitable. The key to viability is skilled management and a sound business model - which state airlines are still grappling to acquire.

The "one country, two systems" arrangement that assures Hong Kong's separate identity from mainland China guarantees the city its own flag carrier. Swire, a British company closely associated with Hong Kong's colonial roots, held majority ownership until 1996. That year, with the handover of Hong Kong's sovereignty to China looming, its interest in Cathay dropped below 50 per cent with the sale of a stake to Citic. The questions being raised then have re-emerged with Air China's boosted shareholding.

A sharp dip in Air China's stock value yesterday highlighted concern about its finances. Its resources will be stretched to buy the agreed 491.9 million Cathay shares at the 11 per cent premium of HK$12.88 each. It has to be remembered, of course, that state companies can make financing deals with the government.

With Hong Kong drawing ever closer to the mainland, it appears highly likely, if not inevitable, that Cathay will one day come under state control. When this may happen is a matter of guesswork; the financial instability of mainland airlines would seem to indicate that this could be later rather than sooner. Regardless, Cathay needs the mainland market for development and growth. Air China's moving closer to the airline will further help it with training and understanding of international standards and boost access to global routes.

Swire is reluctant to lose control of Cathay. There would be a good deal of disquiet in Hong Kong if it did; mainland airlines are not highly regarded here. Their safety has improved immeasurably since the 1990s through strict government controls. Nevertheless, management skills and service fall short of the region's market leaders, Cathay, Singapore Airlines and Qantas.

Acquiring Cathay is Air China's goal. From a business and operational perspective, its moving closer makes good sense. But it or any other company eyeing a controlling stake has to be careful. Damage to Cathay's standards, quality and reputation would be damage to Hong Kong."

Air China shares tumbled nearly 10 percent Tuesday as investors feared China's biggest airline may have paid too much and taken on debt in raising its stake in Hong Kong carrier Cathay Pacific.


we are talking about state-owned entities, both Air China and CITIC, for which the concept of debt is somewhat foreign. In spite of claims of neutrality CITIC has always been marching to the sound of trumpets in Beijing, and for sure money is the least concern for Air China pursuing the patriotic aim of returning CX to its rightful owners in the mainland.
My guess is, within two years Swire will be "gently" forced to cede control to mainlanders, this period may be significantly shorter if CX were to post significantly bad results. Following, in no strict order will be a new Air China hub in HK, rearranging CX as subsidiary a la Dragonair, and joining *A, of course with a quick route guaranteed by the mammasantissima from Cologne. OW would be at this point effectively dead as a competitive alliance and * will be the absolute ruler of the world skies, with all the consequences.
The only way out of this situation for CX is to do what HSBC did: join forces with another carrier (QF or perhaps MH) and move main headquarters out of HK, whose usefulness to CX is rapidly waning.

we are talking about state-owned entities, both Air China and CITIC, for which the concept of debt is somewhat foreign. In spite of claims of neutrality CITIC has always been marching to the sound of trumpets in Beijing, and for sure money is the least concern for Air China pursuing the patriotic aim of returning CX to its rightful owners in the mainland.
My guess is, within two years Swire will be "gently" forced to cede control to mainlanders, this period may be significantly shorter if CX were to post significantly bad results. Following, in no strict order will be a new Air China hub in HK, rearranging CX as subsidiary a la Dragonair, and joining *A, of course with a quick route guaranteed by the mammasantissima from Cologne. OW would be at this point effectively dead as a competitive alliance and * will be the absolute ruler of the world skies, with all the consequences.
The only way out of this situation for CX is to do what HSBC did: join forces with another carrier (QF or perhaps MH) and move main headquarters out of HK, whose usefulness to CX is rapidly waning.

I keep finding myself in this situation where I have to defend Cathay over and over again... everybody keep saying... oh, the Chinese government want to take over control of Cathay Pacific, so that's why Air China has increase the shareholdings of CX... Is it really only me that disagree on this? I think people need to wake up on this mainland government taking over CX conspiracy... if the mainland Chinese government truly want to take over control of CX, they will not sell the 2% share of CX to Swire... both Air China and Citic are mainland chinese government control entity... before this share transfer... the mainland government entity control 34.97% of CX... and Swire control 39.97% of CX... however, after this share realignment, the mainland government entity (Air China + CITIC) controls only 32.97% of CX, so it is actually a decrease... while Swire increases share holdings to 41.97%...

So is it really the Chinese government plan to take over CX? It simply does not make sense (in the short to medium term, long term, 10 to 15 years down the road, who knows, too far in the future to look at it from that perspective)... people are reading too much into quotes by Air China Chairman and CEO and all the media speculation... Air China Chairman is probably trying to put a good spin on the over priced stock that they have just purchased (and you know who forces them to buy, the mainland government, they want Air China to do it to help out on the finance of CITIC which was badly hit by bad investment on foreign exchange hedging and swap)... So to offload the bad press, Air China need to come across as a predator, who one day might want to take over CX, it offload all the bad press on the 11% premium that they pay for CX (they could have simply purchase CX stock cheaper in the open market where the public still hold 25.05% of CX stock)... and this way, they redirect all the attention onto this speculation for a possible take over in the future...

The mainland government knows things well enough that they don't want to kill something that is good for the sake of pride... they will not allow any mainland entity to take over CX unless they know for sure such entity can managed CX properly and that people within CX and Hong Kong will not revoke over such decision... Just think about it for a second, since Swire provide management service to CX, all CX directors and CEO and most of the senior managements and top managers are all Swire employee... Imagine if Swire decided to pull out and retract all of their management service to CX... CX will become an empty shell... Do Air China or the mainland government really want to buy an empty shell without all the experience, unless they can fill in those management positions immediate? My guess is no, they don't want to do that... and my guess is that they can never replace all upper management all in one go, unless Air China starts to forces Swire to hire some of their employees to be permanent manager at CX... however, I can never see Swire or CX ever allow that to happen, it is a strategic disadvantage for them if they do that... however Swire might try to please Air China by allowing more management interns that work at CX for 2 to 3 months at a time... which seem like exactly what they are planning to do...

So all I can say is... stop dreaming of an Air China take over of CX... it ain't happening...

Judging by CX's performance in the past five years with its hard product development and online booking engine, I am not sure if a Chinese take over is a bad thing. At least the Chinese carriers are moving forward, CX on the other hand..........

Moving forward, the Chinese carriers? Their hardware may be improving, but their service is still at the same level as they were 10 years ago. Which is, not good. At a customer's perspective, all Air China cares about is receiving money and have no goals to improve the customer's comfort.

Air China or any other mainland airline is currently not able to manage a company like Cathay and will not be for years to come.

As many others on this board, I have seen quite a few Chinese companies from the inside, and their management can be described as extremely poor apart from sales and purchasing where Chinese people have an almost natural talent.

So if it were a trading company that Air China was acquiring I think the new ownership would only bring benefits. But an airline or any other company that requires strong management skills in matters like quality control, financial controlling and planning and business development would suffer enormously from mostly incompetent and corrupt mainland managers.

Some other analysis.

http://www.economist.com/businessfinance/displaystory.cfm?story_id=14270169&fsrc=rss

Some other analysis.

http://www.economist.com/businessfinance/displaystory.cfm?story_id=14270169&fsrc=rss

This is more of a Chinese tie-up but in many joint ventures the story has been along the lines of: The Chinese partner copying knowhow, hiding profits and making secret deals with end customers to the fullest extent possible.

And then the whole co-operation breaking up once either the Chinese side has acquired enough technological understanding or the other partner has had enough of the aforementioned.

A bit of a cultural gap still to be bridged. ;)

This is more of a Chinese tie-up but in many joint ventures the story has been along the lines of: The Chinese partner copying knowhow, hiding profits and making secret deals with end customers to the fullest extent possible.

And then the whole co-operation breaking up once either the Chinese side has acquired enough technological understanding or the other partner has had enough of the aforementioned.

A bit of a cultural gap still to be bridged. ;)

Very true. It's already happening to many Taiwanese companies. China attracted them in on the cheap (discounted energy price, taxes, etc.) Get them to hire a bunch of locals to be mid-management, they watch, they learn, and now China amend the laws that basically forces Taiwanese companies to either give up more power to the local management or leave.

Perhaps they are doing the same to CX - first learn from CX management on how to run a world-class airline, and put the dagger in later.

Bumping up this thread. I just read a very interesting book [2008] (My Way The Eight Strategies of Air China Towards Success) from Chairman Li Jiaxiang of CA. He discusses how Air China is so profitable and emphasizes the relationship between CX and CA in a way like he's proposing a merger (co-running a university together [for training i suppose?]). At the same time, he mentions Star Alliance quite a lot.

e.g.
Moreover, it has enhanced its presence in the international market through the integration with Cathay Pacific Airways and joining the Star Alliance group
Cathay Pacific Airways, ranking 13th among the world's airlines and the most powerful airline in Hong Kong, is without doubt Air China's most valued partner.
Then, there's a discussion (pg. 175) of "Air China having a large presence/business advantage in the Northern Hemisphere (gives examples like Europe and North America)" while Cathay Pacific has a a large presence in the South (Southeast Asia, South Africa, South America???!!) and combined, they would be the ultimate carrier. <= Actual phrase: "If the two sides joined hands, they would connect the two global networks! This strategic blueprint was very attractive to both sides." He also says there will be a super-carrier in Asia very soon like what has happened with Air France-KLM in Europe.

This is really starting to heat up.:(

and so it has begun. China flex its muscle against the Brits once more. :)

Source: http://www.tradingmarkets.com/.site/news/Stock%20News/2581498/

Thu. October 15, 2009; Posted: 07:40 AM

HONG KONG, Oct 15, 2009 (SinoCast Daily Business Beat via COMTEX) -- The recovery of the Chinese airfreight market has sped up the negotiations between Cathay Pacific Airways Limited (SEHK: 0293), Hong Kong Dragon Airlines Limited (Dragonair) and Air China Limited (SHSE: 601111 and SEHK: 0753) upon the establishment of a joint venture.

The headquarters of the venture will be located in Shanghai, so as to make use of international direct routes in the city, disclosed James Tong, CEO of Dragonair, a Hong Kong-based international airline under Cathay Pacific Airways.

Earlier, Air China Board Chairman Kong Dong revealed that his company was also talking with China Cargo Airlines Limited under China Eastern Airlines Corporation Limited (NYSE: CEA, SEHK: 0670 and SHSE: 600115) about the establishment of a joint venture.

The venture among Cathay Pacific Airways, Dragonair and Air China will be set up on the platform of Air China Cargo Co., Ltd., which has become a wholly owned subsidiary of Air China, after the latter acquired the Air China Cargo shares held by CITIC Pacific Limited (SEHK: 0267) and Beijing Capital International Airport Co., Ltd. (BCIA and SEHK: 0694).

Both sides are now discussing how Cathay Pacific Airways will take a stake in Air China Cargo. The plan of Air China is that Cathay Pacific Airways will inject its freighter assets into Air China Cargo and take a 49% stake.

Three years ago, Cathay Pacific Airways acquired the stake in Dragonair held by former shareholders including Air China, turning the latter into a wholly owned subsidiary.

By far, they have completed their route integration as a whole. Formerly, Dragonair mainly operated flights to Mainland China and other Asian countries, while Cathay Pacific Airways international transshipment via Hong Kong.

On October 13, 2009, Cathay Pacific Airways released consolidated operation data with Dragonair, indicating that their passenger capacity dipped 2.0% from a year earlier in September and freight traffic slipped 5.8%.

James Tong points out that the hardest time was May and June, when the passenger capacity dived 40% and freight traffic fell 50%. Generally, the recovery of freight will be faster than passenger transportation.

Since Cathay Pacific Airways and Dragonair mainly carry passengers from Hong Kong to other places around the world and mainland airways have opened more international direct flights, they are facing the reduction of passenger sources. To resolve the problem, Dragonair opened new routes from Hong Kong to Guangzhou in September, carrying passengers from Europe and the US to the Pearl River Delta.

Besides, Cathay Pacific Airways and Dragonair mainly focused on big customers in previous time. After the financial crisis, James Tong found out that a potential market existed in small and medium companies. Hence, Dragonair has gradually changed its customer orientation.

(USD 1 = CNY 6.83)

Source: dycj.ynet.com (October 15, 2009)

please dont merge. please dont merge.

please dont merge. please dont merge.

Wasn't the Chinese plan to have two domestic supercarriers dominating Star Alliance and Skyteam and kick OneWorld out of the market? ;)

Actually, according to the Air China book. Mr. Li said there was a need for the major Chinese airlines to all join global airline alliances, otherwise they will "miss out". So I don't think it's domestic (or do you mean MU and Shanghai Airlines?).

Anyway, I really hope Air China will come to OW (but not merge with CX), but on one condition, improve their product. They really have an extensive, but partly messed up (way too many weird combinations, e.g. Beijing-Kunming-Singapore, I believe was one on a 2-weekly basis) network. Position themselves to a 4-star airline at the minimum.

Actually, according to the Air China book. Mr. Li said there was a need for the major Chinese airlines to all join global airline alliances, otherwise they will "miss out". So I don't think it's domestic (or do you mean MU and Shanghai Airlines?).

Anyway, I really hope Air China will come to OW (but not merge with CX), but on one condition, improve their product. They really have an extensive, but partly messed up (way too many weird combinations, e.g. Beijing-Kunming-Singapore, I believe was one on a 2-weekly basis) network. Position themselves to a 4-star airline at the minimum.

Air China and Cathay merging? I can say I won't be surprise if it does happen. Chinese government is only doing things the way it knows best: with government owning a stake of every and all things.

Air China and Cathay merging? I can say I won't be surprise if it does happen. Chinese government is only doing things the way it knows best: with government owning a stake of every and all things.
It's going to be a gigantic mess if this really does happen. A330-200s, 744M, 767, 757 here and there. CX already doesn't really want to "fully" merge with KA because of commonality costs (i read somewhere).

But then again......the announcements onboard HKG-PEK will be a whole lot shorter.:D No more "Thank you for flying Air China flight CAXXX, codeshare with Cathay Pacific Airways and Dragonair Airlines (i heard this once) we have now arrived at XXX Airport at XX:XX, wish you a pleasant journey......" or the PhoenixMiles announcement at the beginning of the flight. Uhhh, you don't hear CX making long announcements to welcome MPO members to every flight to the entire plane, I understand the objective, but it's a nuisance after a while.