Cathay 'close to Dragonair deal'

A deal would give Cathay Pacific lucrative Chinese routes

Hong Kong airline Cathay Pacific is said to be close to a HK$10bn ($1.3bn; £0.7bn) deal to buy rival Dragonair.

A deal would win Cathay, which owns 17.8% of shares in Dragonair, access to much-coveted routes between Hong Kong and mainland China.

Hong Kong newspaper The Standard said a deal is due, as a Cathay spokesman said any announcement would be made "soon".

In 2004, Cathay Pacific took a 10% holding in Air China, to win greater access to mainland China.

However, mainland routes, where Air China is the major player, are heavily regulated.

Fuel costs

Cathay Pacific currently only serves passenger routes between Hong Kong and Beijing and Xiamen.

A takeover of Dragonair, which flies to 18 Chinese cities, including the lucrative Hong Kong-Shanghai route, would extend its reach deep into China.

The Standard said the proposed changes could see Cathay Pacific buying out holdings in Dragonair held by Swire Pacific, CITIC Pacific and CNAC.

"Simple logic is Cathay needs a network into China, Dragonair's got one," said CLSA aviation analyst Kevin O'Connor. "The devil will be in the details."

In March, Cathay reported a 25% drop in annual profits as higher passenger numbers failed to offset a surging fuel bill.