Cathay Pacific buying Dragonair

Cathay, which currently has just two passenger routes to China - Beijing and Xiamen - will now be able to add Dragonair's 23 Chinese destinations.

Under the deal, Cathay will also raise its stake in state-run Air China, which is Dragonair's largest shareholder.

Cathay is to pay HK$4.07bn to double its stake in Air China to 20%.

In return, Air China is to pay HK$5.39bn for 10% of Cathay.

'Positive deal'

Cathay and Air China are also to set up a new jointly owned cargo airline based in Shanghai, to be 51% owned by Air China and 49% by Cathay.

Dragonair will keep its current branding for the next six years.

Prior to the takeover announcement, Cathay already owned an 18% stake in Dragonair.

"It is positive for all parties involved," said Peter Drolet, senior analyst at UOB Kay Hian.

"Gaining China access will give unlimited possibilities to Cathay Pacific, and I believe CX [Cathay] will have the ability to turn around any unprofitable routes that Dragonair currently has, and reduce its costs significantly."

It has previously proved difficult for Cathay to gain more routes into China, as the market is highly state regulated.

"Simple logic is Cathay needs a network into China, Dragonair's got one," said CLSA aviation analyst Kevin O'Connor.

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

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