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SCMP Reporter

China National Aviation Corp (CNAC) has not withdrawn its application for a certificate to operate its own flights out of Hong Kong - despite the $1.97 billion commitment it made to Hong Kong Dragon Airlines (Dragonair) earlier this year, informed sources say.

  A technical application that was part of CNAC's overall bid for a Hong Kong air operator's certificate still was being processed by the Civil Aviation Department (CAD), the sources said yesterday.

  CNAC applied for the air operator's certificate - the first step in applying to run a Hong Kong airline - in March last year.

  The mainland organisation tentatively named its proposed carrier as China Hong Kong Airlines, and leased a Boeing 737-500 as the next step in plans for its own territory-based airline.

  At the time, the move was seen as a direct threat to the business of both Cathay Pacific Airways and Dragonair.

  CNAC appeared to have shelved the plans to set up its own airline after making its commitment to take a 35.8 per cent stake in Dragonair in April.

  This belief was supported by a joint statement released regarding the multi-billion dollar deal for Swire Pacific's sell-down of its stakes in Cathay and Dragonair to Citic Pacific and CNAC.

  'The CNAC Group will use Dragonair as the vehicle for development of its airline interests in Hong Kong,' the statement released by Swire, Cathay, Citic and CNAC said.

  'After the CNAC Group has acquired the intended shareholding of Dragonair, the only existing aircraft of the CNAC Group and the relevant supporting staff, as well as the expenses incurred in relation to the aircraft will be transferred to Dragonair.'   Wang Guixiang, the chairman of CNAC (Hong Kong), appears to have distanced the organisation from those remarks, yesterday implying the Dragonair purchase and CNAC's pursuit of an air operator's certificate were not related issues.

  'You cannot equate these two matters,' he said.

  The apparent rekindling of CNAC's interest in establishing some form of air operation in its own right reopens the possibility of increased competition for Cathay.

  Cathay spokesman Kwan Chuk-fai would not comment.

  Industry analysts said the joint press release after the Cathay and Dragonair sell-downs was carefully worded and did not eliminate the possibility CNAC could start its own carrier.

  'The wording appeared to suggest CNAC would not start up its own operation - but it is not explicitly stated,' an analyst said.

  CNAC has been operating charter flights since April last year between Chengdu, Nanjing and Hong Kong, but this has been in its capacity as a Chinese airline and not a territory-based carrier.

  The CNAC application through the Civil Aviation Department to obtain an air operator's certificate was originally forecast by officials in the department to take 6-8 months.

  At the time of the application, a CAD spokesman said the bid was to be judged 'solely on the applicant's competence to operate an airline safely'.



CNAC fails to withdraw HK flights application