Battle for Shanghai: Cathay Pacific, Singapore Airlines, in acquisition dogfight over China Eastern

24 September 2007

The Hong Kong-based Cathay Pacific and its ally Air China are expected to make a combined offer for a significant stake in China Eastern Airlines as part of what airline industry veterans are calling 'The battle for Shanghai'.

Cathay was widely expected to confirm its intention to buy shares in China Eastern after close of the Hong Kong stock market on Monday 24 September.

The bid is being seen as a blocking gambit against a $1 billion stake-building exercise launched this month by Cathay rival Singapore Airlines. Cathay's move, which will build on Air China's existing 11 per cent stake in China Eastern, is expected to trigger a bidding war for effective control of the routes owned by China's third-largest carrier.

Sources close to Temasek, the holding company for Singapore Airlines that has jointly bid for a 24-per cent stake, said the company would "inevitably" respond to any blocking move by Cathay.

Cathay and Singapore are both desperate to expand their operations into mainland China, the world's fastest-growing aviation market. Both see China Eastern, which dominates flights in and out of Shanghai, as vital to that gambit.

Since Singapore announced its intention to build a stake in China Eastern three weeks ago, analysts have indicated the possibility that Air China would respond robustly. Sources close to the Swire group, which owns 40 per cent of Cathay, indicated that the HongKong-based carrier was not going to sit around while an asset like China Eastern was in play.