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Cathay Pacific Eyeing China Eastern Airlines Stake: WSJ

Reuters
Sunday, 23 Sep 2007 | 10:04 PM ET

Cathay Pacific Airways is looking to invest in China Eastern Airlines, a move that could derail rival Singapore Airlines's deal to acquire a stake in the mainland carrier, according to newspaper reports.

Shares in China Eastern Airlines opened up 7% to a record high. Cathay's strategic partner, Air China, was suspended on Monday.

The UK's Daily Telegraph said Cathay was expected to announce a bid this week for a large stake in China Eastern, which has a market value of nearly $12 billion.

The Wall Street Journal, quoting a person familiar with the situation, said Cathay would announce plans to acquire a stake in China Eastern after the Hong Kong market closes on Monday. Neither the Telegraph nor the Journal specified the size of the stake.

Trading in shares of Cathay Pacific was suspended on Friday after they jumped 12% to a record high of HK$23.05 on Friday morning on speculation that China would soon kick off a wide-ranging overhaul of its ailing airline sector.

Cathay could not be immediately reached for comment on Monday, but said on Friday it had requested the trade suspension pending the release of news on a proposed transaction.

Singapore Airlines (SIA) agreed early this month to buy a 15.7% stake in Shanghai-based China Eastern, whose share price has more than doubled in the past month. Singapore Airlines' parent, Temasek Holdings, agreed to simultaneously buy an additional 8.3% of China Eastern.

Buying a large stake in China Eastern could benefit Cathay by blocking SIA from grabbing market share on lucrative routes across the world's fourth-largest economy -- Hong Kong-based Cathay's backyard.

Air travel is booming in China, fuelled by double-digit economic growth and growing outbound and inbound travel. But the country's airlines had bled losses for years, pummeled by climbing oil prices.

Brokers said speculation had flared anew in the run-up to China's October Communist Party congress that officials might choose to kick-start a long-expected sector overhaul, which some think would involve mergers or acquisitions.

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