Hong Kong Dragon Airlines may be forced to rethink its planned network expansion in Asia and the United States because of the impact of expanded US cargo and passenger airline operations through Chek Lap Kok. US cargo airlines, especially, were given massively expanded opportunities to operate beyond Chek Lap Kok as a result of the bilateral agreement signed last weekend between Hong Kong and the US, which industry sources said could be detrimental to Dragonair's fledgling cargo operation. As a result of the agreement, US cargo carriers have an eight-fold increase in fifth-freedom rights through Hong Kong to 64 services per week. The biggest portion of the cargo rights was expected to be allocated to express carriers United Parcel Service and Federal Express to operate between Hong Kong and their respective Philippines hubs at Clark Airbase and Subic Bay. But US cargo operators will also be allowed to operate onwards from Chek Lap Kok to most points in Southeast Asia, possibly increasing their appetite for more direct services between US cities and Hong Kong. As an indication of Hong Kong's importance as a cargo hub to US carriers, Kalitta Air - a small cargo airline and charter operation based in Michigan - attended the negotiations for the first time. The carrier was expected to be certified for Hong Kong operations. A Dragonair spokeswoman declined to comment on the deal, saying only that the airline 'welcomed the new agreement'. Robert Adams, a Dragonair director seconded from Citic Pacific, which owns a 29 per cent stake in Dragonair, said it was now up to Dragonair to figure out a strategy to build up its cargo operations in light of the new deal. 'It's now a reality, it's done, so each airline has to live with it. Will it be a real problem for Dragonair? I don't think so, they will just have to work with it,' he said. Mr Adams said the full impact of the deal on Dragonair's plans would only be evident once the US government allocated the new frequencies and fifth-freedom rights to its airlines. He also said that any material effects on Dragonair would probably have the same impact on the profitability of US carriers competing on those routes. This would work naturally to limit the amount of competition on the transpacific freight routes, especially because Dragonair had a better network to the mainland, where the freight originates. But the emergence of additional competition from US cargo carriers is almost certain to have a direct negative impact on Dragonair's plans to operate new cargo and passenger services within Asia, and cargo services to the US. Last month, Dragonair asked the government's Air Transport Licensing Authority (Atla) for rights to operate commercial flights - for passengers, freight and mail - to Sydney, Tokyo, Bangkok, Seoul and Manila. Dragonair was also understood to be assessing the progress of Boeing's 747-400 freighter-conversion programme to measure when it could start cargo operations directly to the US. It held Atla licences on US routes that would allow it to immediately begin serving New York, Los Angeles, San Francisco, Chicago and Columbus, Ohio. The passenger component of Dragonair's planned intra-Asian services is also under threat because of the expansion of passenger fifth-freedoms given to US carriers. An additional daily service from Tokyo has already been granted, most probably to United Airlines, and additional frequencies and destinations to points throughout Southeast Asia form the remainder of the package. Sources said Dragonair's government negotiators had gained the airline some degree of protection from US airline expansion - points in Australia and Japan, Amsterdam and Manchester were excluded from the deal. Osaka, Amsterdam and Manchester form crucial links in its cargo network. 'I think Dragonair and Olivia Lin [Dragonair's representative at the talks] did a good job in the negotiations to give themselves some breathing space,' Mr Adams said.