Yesterday's agreement between Swire Pacific, the China National Aviation Corporation (CNAC) and CITIC Pacific has cleared the uncertainty over Cathay Pacific's future. With an increased mainland stake in its own success and the assurance that neither Dragonair nor a third China-controlled airline will be in a position to drive it out of profitable markets, the Hong Kong flag-carrier can look to the post-1997 era with renewed confidence. Dragonair, despite CNAC's large stake, will still be controlled by Cathay's major shareholders. And CNAC has indicated it will drop plans for a new airline.
In an industry where even near-term plans are measured in years, Cathay can now push ahead with long-term strategic planning and investments. Meanwhile, Dragonair should be able to resume its expansion in China.
The real coup, however, has been to engineer an end to British domination of Hong Kong's aviation industry and push Swire Pacific's stake in Cathay to below 50 per cent. Perhaps this was inevitable with the change of sovereignty. However, the way it was pulled off is cause for concern. Whether there was collusion between CITIC and CNAC is a matter for conjecture. But it does appear that CNAC's use of mainland muscle to set up in Hong Kong created the conditions for CITIC to make Swire relinquish its overall majority in Cathay.
Certainly, questions will be asked, if only whether CNAC and CITIC are satisfied or will they be back for a bigger slice of the cake? This should not set a precedent for other mainland state concerns to elbow their way into control of other major Hong Kong companies.
Whatever the wider implications, there can be no doubt the deal provides powerful new underpinning for the territory's vital and profitable airline industry. However, the lack of new competition in the industry may not be to the benefit of the consumer. It is hard to see CNAC competing with Cathay when Cathay's two major shareholders are also substantial shareholders of Dragonair. Even without the threat from its rivals, Cathay owes it to its loyal passengers to improve its standards and comforts.
