When times are bad, companies are obliged to make provisions for impairment losses against the goodwill of assets they bought in better days. Analysts are now debating whether Cathay Pacific Airways should make such provisions for Hong Kong Dragon Airlines. Dragonair's goodwill of HK$7.78 billion, the premium over book value that Cathay paid for it in 2006, accounts for 20 per cent of the airline's net assets, the company's report on Wednesday showed. The question some are asking now is that when the entire aviation industry is facing turbulence, with Cathay reporting a record loss of HK$8.56 billion last year, is Dragonair still worth that premium? Robert Bruce, a transport analyst at CLSA, raised the question at an analysts' meeting. Cathay management's reply, he recalled, was that since Dragonair was no longer a separate entity there was no need to make provisions for it. Some analysts are satisfied with Cathay's position. 'We think Dragonair's synergies are fairly easy to justify, given the incremental revenue that should be achieved by integrating Cathay and Dragonair,' Damien Horth, a transport analyst at UBS, said in a report yesterday. A Morgan Stanley report said: 'We think Cathay is unlikely to write down its asset value - Dragonair goodwill impairment, lower aircraft fleet value or investment in associates - unless there are huge operating losses.' Mr Bruce does not agree, saying: 'Dragonair is so entwined with Cathay that the goodwill [of Dragonair] has passed on to the entire group. If the outlook of the entire industry deteriorates for a prolonged period, you would have an argument for [an impairment] provision.' Cathay said yesterday its passenger numbers dropped 7.4 per cent last month from February last year, while cargo volume continued to deteriorate, slumping by 16.7 per cent. Brokerage houses have divergent views on Cathay's outlook. Citigroup predicts the airline will continue to post losses - HK$1.85 billion this year and HK$1.11 billion next year. UBS predicts the airline will turn around this year with a profit of HK$3.2 billion. HSBC estimates Cathay will make a HK$139 million profit this year, followed by HK$4.5 billion in 2010. And Merrill Lynch forecasts a marginal profit of HK$67 million for Cathay this year, followed by a HK$1.2 billion profit next year.