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Cathay says talks underway to buy stake in HNA's HK Express Airways

HONG Kong flagship carrier Cathay Pacific has revealed that it's in 'active discussions' about an acquisition involving budget airline Hong Kong Express Airways Ltd (HKE), although an agreement has yet to be reached

Cathay says talks underway to buy stake in HNA's HK Express Airways

HONG Kong flagship carrier Cathay Pacific has revealed that it's in 'active discussions' about an acquisition involving budget airline Hong Kong Express Airways Ltd (HKE), although an agreement has yet to be reached

05 March 2019 - 19:00

HONG Kong flagship carrier Cathay Pacific has revealed that it's in 'active discussions' about an acquisition involving budget airline Hong Kong Express Airways Ltd (HKE), although an agreement has yet to be reached.

In a statement released yesterday morning Cathay Pacific said: 'The Company hereby confirms that it is in active discussions about an acquisition involving HKE. No agreement for the acquisition has been entered into and there can be no certainty that any agreement will be entered into. Further announcement(s) will be made as and when appropriate.'



The flagship carrier said it had decided to go public about the discussions in response to media reports suggesting it may be in talks to acquire shares in Hong Kong Express Airways Ltd and full-service sister carrier Hong Kong Airlines Ltd from cash-strapped Chinese conglomerate HNA Group Co Ltd.



It did not detail the potential value of the transaction, nor the size of the stake it would hold, reports Reuters.



A person close to HNA said Cathay was in preliminary discussions with HNA regarding an acquisition of HK Express but that the two parties had not agreed on any terms.



An analyst last year estimated to Reuters that HK Express could be worth about US$300 million.



Such a deal would give Cathay exposure to the growing budget-travel market at a time when a lack of slots at Hong Kong International Airport has constrained its ability to follow peers like Singapore Airlines Ltd and Qantas Airways Ltd and set up its own budget brand.



The Hong Kong carrier has instead shifted some destinations from its main brand to its regional carrier, Cathay Dragon, as part of a transformation plan designed to cut costs and increase revenue. It has ordered 32 Airbus SE A321neos for Cathay Dragon.



Given Cathay's dominance of Hong Kong's aviation market, a deal could attract scrutiny from the competition regulator.



Some analysts have also expressed doubts about the likely benefits of any deal. Daiwa analyst Kelvin Lau said he did not see much value from the acquisition as the two airlines flew similar routes and Cathay would need to undertake significant reform to add a budget wing.



Jefferies analyst Andrew Lee however said in a note to clients it would be 'positive for Cathay Pacific' as it would give the airline greater access to a different passenger segment in the low-cost market.



HK Express operates a fleet of 25 A320 family aircraft to regional destinations around Asia, according to plane tracking website FlightRadar24.


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