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'Deal of the Decade' - China flexes global aviation muscles

5-Jul-2006

Sydney (CENTRE FOR ASIA PACIFIC AVIATION) - In Jun-06, Air China, Cathay Pacific, CNAC Limited, CITIC Pacific and Swire Pacific (SPAC) entered into a long-awaited agreement to restructure the parties' shareholdings in Cathay Pacific and Dragonair.


On paper, the Cathay Pacific-Dragonair union is a match made in heaven, but there are still more shoes to drop from this "centipede".

The ramifications of the deal are significant, but direct benefits for the carriers involed - particularly closer Cathay-Air China ties - could take several years to accrue. The residual uncertainties include: 

  • The ultimate future of Cathay as it builds closer ties with the Chinese mainland;
  • Adjusting the conflicting alliance relationships between Cathay and Air China (eg does Cathay move to the Star Alliance?) and its wider impact on the global alliances;
  • The twin development of the Hong Kong and Beijing hubs; and,
  • The potential for change to China's aviation policy.

But precedents are emerging, for example the Air France/KLM union. Despite their increasing two-way economic interest, Air China and Cathay Pacific still retain vastly different cultures and Beijing will maintain a highly influential overall position, in their evolving relationship.

The deal is already reverberating around the aviation industry. If completed, it has the potential to catalyse further structural changes in the mainland, the wider Asian industry and beyond. Its likely ramifications, for a variety of airline and for the global alliances, give this ostensibly domestic Chinese/Hong Kong development an importance which extends well beyond Chinese borders.

In this report, we review the deal, including some of the unresolved issues, and the ramifications for Mainland, Hong Kong and Macau aviation. We also explore some of the potential implications for international aviation, including the global alliances, as Chinese aviation policy evolves.  

To download the entire report, please click here.

 


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