Cathay Pacific and Air China announce cargo merger

Cathay Pacific and Air China have agreed to merge some of their cargo operations through a purchase of 49% of Air China Cargo (ACC) by Cathay.

In a complicated deal, Air China Cargo will remain as a subsidiary of Air China, yet have a substantial shareholding from Cathay Pacific, the investment having a book value of RMB 1.6bn. What was described as a 'framework agreement' was signed on the 25th February, although the deal has yet to be approved by competition authorities.

The logic behind the deal appears to be the ability to offer Air China access to Cathay's global freighter network and strong logistics capability out of its Hong Kong base. In return Air China will give Cathay access to the markets of Shanghai and the Yangtze River Delta. The newly capitalised China Air Cargo will sell capacity on Air China's belly freight as well as freighters, but apparently not on Cathay Pacific's. Indeed Cathay Pacific's cargo operation will continue to compete with Air China Cargo.

Christopher Pratt, Chairman of Cathay Pacific commented that, "The joint venture airline will provide the two most important cargo-generating regions in the Mainland with two highly competitive and efficient home-based carriers – Cathay Pacific in the Pearl River Delta and ACC in the Yangtze River Delta. …As a strong home-based cargo airline with a firm foothold in the Yangtze River Delta, ACC will ensure an efficient capture of cargo movements that may otherwise divert to rival hubs in the region. It makes good sense for Cathay Pacific and Air China to team up for this joint venture."
The two companies have been allying strategically since 2006, when they arranged a cross shareholding whilst Cathay bought Dragonair, the Hong Kong based airline that serves much of the rest of China.

Air China Cargo is the country's largest freight airline, althugh its operations are really orientated towards domestic operations. With strong competition from the likes of Lufthansa on international routes it has struggled to break-out of its domestic focus.

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