HONG KONG and Australia are to meet on Monday in a final attempt to avert a tit-for-tat aviation battle, estimated to cost Cathay Pacific $436 million a year. Australian authorities have proposed to cut by about 60 per cent the number of passengers Cathay can fly in and out of Sydney as a condition for renewing the airline's operating licence in October. This was in retaliation for the Hong Kong Government's 50 per cent restriction on the number of passengers Qantas Airways may pick up in the territory for other Asian destinations, such as Bangkok and Singapore - the so-called fifth-freedom rights - from July 1. A Cathay spokesman said that if the Australian Government decided to go ahead with its proposal, the company would go to the Federal Court on Monday to seek a judicial review. Chris Pratt, Cathay Pacific's manager for Australia, described the action as unprecedented and unbelievable. 'These restrictions on Cathay Pacific are a crude attempt by Canberra to pressure the Hong Kong Government into allowing Qantas unrestricted access to key Asian routes out of Hong Kong. 'It's political brinkmanship of the worst kind,' Mr Pratt said. Principal Assistant Secretary for Economic Services Andrew Pyne said officials were notified yesterday that the Australian Government was willing to hold more negotiations on Monday. He said the threatened restriction was a 'serious escalation of the dispute and has taken us into a dangerous new phase'. 'There will be a lot of disruption to the travelling plans of individual passengers,' he said. Mr Pyne estimated that, if the new rule went ahead, Cathay would have to offload 106,000 passengers a year at a cost of A$78 million (HK$436.8 million). Of them, 30,000 to 40,000 would be Australians travelling to Hong Kong on route to Europe and other destinations. He said these travellers might now decide to travel via Singapore or other Southeast Asian cities. He said the Government 'very much regretted' that direct flights were drawn into the dispute and that Cathay was given only a very short time to adjust its bookings, while they gave Qantas over two months' notice. Sources said the Secretary for Economic Services Gordon Siu Kwing-chue faxed a letter to Australian Transport Minister Laurie Brereton yesterday expressing his disappointment. He said Hong Kong had been careful not to disrupt direct flights between Sydney and Hong Kong. 'But actions against Cathay announced yesterday if carried into effect will leave me little option but to reconsider my approach,' Mr Siu said. Sources said the Government had put forward a number of 'creative proposals' to solve the protracted dispute. Last week, Mr Siu suggested to Mr Brereton that if Qantas voluntarily restrained its fifth-freedom rights, the Government would drop the conditions imposed on the airline. Sources said the Government was prepared to be 'pragmatic and flexible' but did not rule out the possibility of taking retaliatory action against Qantas and Ansett if negotiations broke down. Cathay Pacific, Qantas and Ansett have been given until lunchtime today to respond to the Australian Government's proposals.