A day before a landmark public hearing is due to start on Cathay Pacific Airways' bid to resume services to the mainland, it remains unclear how the Air Transport Licensing Authority (Atla) plans to deal with Dragonair's legal challenge. Dragonair argued last week that Atla, an independent statutory body tasked with licensing Hong Kong airlines, was not authorised under the Basic Law to license Cathay on lucrative mainland routes not already provided under arrangements negotiated between Beijing and the SAR government. Neither industry observers nor Dragonair insiders would predict yesterday how Atla was likely to rule on the issue. But they said the outcome would be critical to the rest of the hearing. Last week, High Court Justice William Stone, who chairs Atla, ruled against a request by the two airlines to delay the hearing while they worked out a private settlement. But he agreed to spare time during the hearing for Dragonair's lawyers to argue its case and said he would make a procedural ruling on the matter. It is expected Mr Justice Stone's ruling on Dragonair's challenge will open the hearing because it will affect the rest of the proceedings. A senior Dragonair insider acknowledged its submission went against normal procedure by which airlines applied for new routes. 'Usually, Atla only deals with the first step on the Hong Kong side of a dual process. 'The next step is dealt with afterwards through government-level bilateral talks to secure route rights,' he said. But in the case of mainland routes, 'we think the situation is slightly different owing to the Basic Law, as we have stated', he said. Industry observers said Dragonair's argument was 'controversial and had the potential to make the rest of the hearing irrelevant', given its wider effect on the Hong Kong government's autonomy to govern its civil aviation industry under the Basic Law. 'If the judge takes the view that the Atla hearing is not an appropriate venue to hear an interpretation of the Basic Law, he could ask the two parties if they wished to adjourn, or proceed just on the Beijing-portion of the application,' one industry executive said. 'It would then be up to the two airlines to take the next step, as Atla cannot itself take action to ask for an interpretation of the Basic Law.'