Beijing approves new aviation partnerships
Decision paves way for Cathay's HK$8b takeover of Dragonair
The State Council yesterday approved all elements of Greater China's biggest aviation deal just nine days after independent shareholders in the five public companies involved voted in favour of the proposals, according to Air China chairman Li Jiaxiang.
The quick approval raised hopes that Cathay Pacific Airways' HK$8.22 billon takeover of Hong Kong Dragon Airlines will be completed this month along with its joint shareholding purchase with Air China.
'Our head office in Beijing received notice from the State Council that the framework for the new partnerships have been approved, but there is still some documentation outstanding,' Mr Li said yesterday.
The deal, which originally called for Cathay and Air China to jointly spend HK$9.49 billion to bring their stakes in each other's companies to 20 per cent and 10.16 per cent, respectively, will now move to the ministerial level where the regulatory requirements are expected to be ratified.
Cathay's stake in Air China last month was diluted to 17.45 per cent when the mainland carrier completed its listing in Shanghai.
Air China, the nation's biggest international carrier, yesterday said it intended to pay '15 to 30 per cent of distributable profit' in a one-off dividend by the end of the year. It reported a 22.5 per cent drop in first-half net profit to 458 million yuan, but that was better than industry expectations.
Mr Li remained bullish about Air China's prospects for the second half despite near record jet fuel prices and intensifying competition on the mainland.
He said he expected Air China to better its first-half profit, aided in part by a new tranche of fuel surcharges starting today which will deflect 70 per cent of the carrier's added fuel cost this year.
Regulators have approved two rises in the fuel levies airlines can charge customers this year, which Mr Li said would generate additional revenue of two billion yuan.
'Our fuel costs in the first six months were seven billion yuan and I think we will be spending more in the second half,' Mr Li said. 'We expect our second-half revenue to increase by 20 per cent [compared with the first half], so our costs will also increase.'
Interim revenue grew 17.7 per cent to 19.93 billion yuan.
Chief financial officer Fan Cheng said Air China, which generated 40 per cent of interim revenue from international flights, intended to pre-purchase 50 per cent of its anticipated fuel needs in the second half.
It hedged 39.4 per cent of its first-half fuel needs, resulting in a 330 million yuan gain, said Mr Fan, adding that further efforts to decrease fuel consumption saved the firm a further 180 million yuan.
Shares of Air China rose 1.09 per cent yesterday to HK$2.78.
