HK carrier seeks China Eastern stake; fliers could face less choice Cathay Pacific and Air China are teaming up to block Singapore Airlines' bid to buy a stake in China Eastern, as consolidation in China's airline industry heats up, market sources said last night. Shares of Cathay Pacific rose 10.7 per cent yesterday to a record HK$22.70 before trading was suspended pending an announcement of a price-sensitive proposed transaction. Shares in China Eastern closed at a record HK$9.72, up 12.4 per cent. Sources said Cathay Pacific was trying to acquire a stake in China Eastern. The holding, along with Air China's 11 per cent stake in the Shanghai-based carrier, could allow the two airlines to vote down Singapore's bid for China Eastern at a shareholder meeting in December. The deal requires the support of two-thirds of minority shareholders. The lure is China Eastern's Hong Kong-Shanghai services and Shanghai's possible role as an important international aviation hub for the mainland. China Eastern said it had no comment on the speculation about Cathay Pacific and that its transaction with Singapore Airlines would proceed. Cathay and Singapore Airlines have long been intense competitors. 'Air China may take aggressive actions to derail China Eastern's stake sale to Singapore Airlines,' Citigroup said in a report. Cathay Pacific and Air China own about 17.5 per cent of each other. There is growing speculation that Beijing may finally initiate a long- expected consolidation of airlines. Air China has more than doubled its stake in China Eastern since April. Last month Singapore Airlines and Temasek Holdings, Singapore's investment arm, signed a preliminary agreement to take a combined 24 per cent stake in China Eastern. The Shanghai-Hong Kong route could be monopolised if Cathay buys into China Eastern. Sixteen of the 32 daily flights between the two cities are operated by Cathay and its subsidiary, Dragonair. China Eastern operates 13 and Shanghai Airlines three. 'If Cathay acquires interest in China Eastern and adopts a code-share programme, there is little room for passengers to choose,' said Martin Wong, transport analyst for Guotai Junan Securities. On the other hand, the potential co-operation between China Eastern and Singapore Airlines threatens both Air China and Cathay. Air China's share of traffic to and from regional destinations such as Tokyo and Seoul would be diluted if China Eastern and Singapore adopted code sharing on these routes. Cathay wants to keep Singapore Airlines from Shanghai. The city is the hub that Cathay has been seeking for several years. If the Singapore Airlines deal went through, it could easily become a transit hub for the carrier to connect international passengers into China. Shares of Air China, China Eastern and China Southern have surged 174 per cent, 434 per cent and 327 per cent this year respectively. Cai Jianjiang, president of Air China, said last month he could not rule out the possibility of mergers with other 'brother companies'. An industry veteran said: 'It is only the first step for Air China to consolidate the big three once Cathay [acquires a stake in China Eastern].' The next target would be China Southern Airlines, he said. Shares in China Southern surged 7.6 per cent to a record HK$13.90 yesterday. Many in the industry believe more strategic decisions will be made about consolidation of airlines during October's 17th party congress.