Cathay Pacific Airways is expected to report a net earnings rise of between 60 and 70 per cent for the first half tomorrow on the back of a large exceptional gain, but analysts say true earnings growth figures will be modest. They said the territory's de facto flag carrier should report earnings to June 30 of between $1.58 billion and $1.65 billion, including an exceptional gain of between $400 million and $500 million from the sale of shares in Hong Kong Dragon Airlines (Dragonair) to China National Aviation Corp (CNAC). Some analysts forecast a larger exceptional gain, though, with at least one forecast topping $630 million, but most agreed core earnings growth would be between 10 and 17 per cent. Minus the exceptional, forecasts for core earnings vary between about $1.08 billion and $1.15 billion, with a rise in revenue of about 10 per cent and about the same percentage rise in airline operating expenses. While not negative, the analysts said investors would not be very pleased with the figures, as Cathay last year reported a 24.7 per cent increase over 1994's first half to $983 million. They said Cathay was hurt in the first half by the impact of a weaker Japanese yen pushing down passenger yields. Last year's strong yen was cited by management as a positive factor behind the earnings rise. The airline was also hit by a rise in fuel prices, as well as tough competition in the previously strong cargo sector, forcing down rates and bringing down yields. DBS Securities analyst Philip Tulk said: 'They've done a good job at cutting costs, but there have been detrimental effects of the currency movements. 'Cargo yields are off - I'm estimating by about 3.5 per cent, and passenger yields are off about 1 per cent.' Cathay will benefit from Hong Kong Aircraft Engineering Co (Haeco), which has faced tough times in the past two years because of strong competition in the industry reducing rates. Although Haeco's core business has not improved, it will book a large exceptional in the first half from a new joint venture with Rolls-Royce to overhaul engines. Mr Tulk said Haeco would report net earnings of $315.3 million, 81 per cent up from last year's first-half 174.1 million. Stripping the exceptional, he forecast a decline in core earnings of 3.5 per cent. The second half was traditionally better for Cathay, and fuel costs were dropping, another analyst said. The impact of a dilution through the issue of new Cathay shares to Citic Pacific would be realised in the second half, having an impact on earnings per share. A smaller share of earnings input from Dragonair because of Cathay's reduced holding in the regional carrier would also have an impact in the second half. On June 10, Swire Pacific reduced its shareholding in Cathay to 43.9 per cent from 52.6 per cent through the issue of new shares to Citic, which increased its holding to 25 per cent from 10 per cent for $6.3 billion. At the same time, CNAC became the single largest shareholder in Dragonair, after it bought a 35.86 per cent stake from Swire, Cathay and Citic for $1.97 billion.