Hong Kong’s de facto flag carrier announced on March 27 a deal to buy the city’s only low-cost carrier, for HK$4.98 billion.

HK Express, headed by executive chairman Zhong Guosong, who indirectly controls 48.6 per cent of the company, opposed the sale by powerful shareholder HNA Group, and immediately launched a bid to contest the sale and scupper the deal.

Zhong is entangled in a separate, more recent courtroom battle with HNA, which is backing the incumbent shareholders of Hong Kong Airlines’ holding company.

The case will resume on June 5, to determine who has the legal right to control the carrier. It is thought that if Zhong wins control he could drive a further wedge into the HK Express sale.

Observers said that was a real danger.

“Depending on the outcome of the court decision [regarding] Hong Kong Airlines, that could have ramifications on the completion of the HK Express deal with Cathay,” said David Yu, finance professor at New York University Shanghai.

“Namely, it could range from nothing to something more extreme, such as potentially scuttling the deal over pricing or other issues if the court decides the shareholder of HKA is deemed to be the same as HK Express,” Yu said.

K Ajith, director of Asia transport research at investment bank UOB Kay Hian, acknowledged the HK Express deal appeared to have elevated risks attached given the manoeuvring of a dissenting shareholder, who is inextricably tied to the fight for Hong Kong Airlines.

“It appears that [Cathay] will have a tough time securing the deal,” Ajith said.

BOCOM International equity analyst Luya You said: “When the news [of the acquisition] first came out, people were optimistic. But as time goes on you can see that there is definitely, on both sides, a lot of negotiating power.”

You said it was clear what Cathay was going to gain from the acquisition, which would allow it to enter the low-cost airline sector for the first time.

Brendan Sobie, chief analyst at CAPA Centre for Aviation, said: “If the legal outcome derails the HK Express-Cathay deal that’s unfortunate but there are always risks in any acquisition that the acquisition won’t go through, for legal or other reasons. Life moves on for everyone and Cathay will have to adjust accordingly.”

At the heart of the Hong Kong Airlines dispute is Zhong’s claim of majority control in mid-April, when he ousted the existing directors and got an injunction to prevent HNA-backed individuals from tampering with the company.

As the legal drama drags on longer than anticipated, it deals another blow to the financially ailing company.

A Hong Kong Airlines insider expected the HK Express sale to be deferred.

Cathay Pacific noted in its announcement of the deal that a shareholder of HK Express had written to the company indicating an intention to contest the sale. The company had the right “to terminate the share purchase agreement if proceedings are commenced to prevent the transaction”, Cathay noted in a filing to the stock exchange.

The US-China trade war and its impact on Cathay’s lucrative cargo business were of more concern for the company, according to the UOB transport expert.

“HK Express would not be critical to Cathay Pacific’s operations,” Ajith said. “Cathay is highly dependent on air cargo ... [and] will be hit by the latest tariff implemented by the US,” he said. “So perhaps management might not need the distraction in the form of a messy [purchase] at this juncture.”