Air China, Cathay to exploit Shanghai cargo market

CATHAY Pacific and Air China have unveiled the details of their joint-venture to tap the Shanghai cargo market.

Under the agreement, flight services will largely be operated by Air China Cargo, a subsidiary of Air China, 25 per cent of which is owned by Fine Star Enterprises, which is also a unit of the China National Aviation Corporation (CNAC).

The arrangement will require Cathay to purchase a 25 per cent stake in Air China Cargo for US$125 million, China Economic Review reported. In return, Fine Star would provide the cargo airline with a $38 million capital injection to retain a 24 per cent stake, while Air China will keep the remaining 51 per cent share.

In a related deal, CNAC announced that it would be selling Fine Star to Cayman Islands-based Advent Fortune. To finance the transaction, Cathay said it would provide Advent with a loan of $120 million, $28 million of which will be funnelled back to Air China Cargo via Fine Star's cash injection.

Proceeds from the Cathay and Fine Star investments will allow Air China Cargo to expand its fleet of Boeing 747 freighters to 11, up from a previous seven. The additional jets will be purchased from Cathay itself, as well as its subsidiary, Dragonair.

Commenting on the deal, Flightglobal noted that while Hong Kong remained one of Cathay's most important hubs, the carrier's entry into the Shanghai market was a testament to the growing importance of the mainland in the air cargo industry.

(Source: www.schednet.com)