Air China raises Cathay stake

       Air China Ltd, the world's biggest carrier by market value,will invest HK$6.3 billion (US$813 million) to raise its stake in Cathay Pacific Airways Ltd to 29.99%, expanding its foothold in Hong Kong after being shut out of Shanghai.
       The carrier will buy 491.9 million Cathay shares at HK$12.88 each from CITIC Pacific Ltd, according to a stock exchange statement today. Swire Pacific Ltd will also buy 78.7 million Cathay shares from CITIC at the same price,retaining its position as Cathay's largest shareholder.
       The price is an 11% premium to the last traded price.
       Beijing-based Air China will boost its stake in Cathay after attempts to build a hub in Shanghai were derailed by China Eastern Airlines Corp's planned acquisition of Shanghai Airlines Co.
       Cathay may benefit from closer ties with China's biggest international carrier as the country has avoided a global slump in air travel because of a government economic stimulus package.
       "Air China must be proactive in expansion, given the fact that it lost the opportunity in Shanghai," said Jack Xu,an analyst at Sinopac Securities Asia Ltd."Hong Kong is a good alternative and with the increased stake, Air China may have more say in operations like route planning."
       Cathay, CITIC and Air China will all resume trading in Hong Kong today after being halted yesterday pending announcements.
       Air China and Swire both bought as much of Cathay as they could without triggering mandatory takeover offers,Swire chairman Christopher Pratt said in a press conference.
       Cathay, which owns 18% of Air China,co-operates with the mainland carrier in areas including cross-selling tickets on each others flights.
       Air China increasing its stake in Cathay would certainly reinforce the partnership,said Damien Horth, an analyst at UBS AG in Hong Kong. He said he was surprised by the transaction.
       "Selling the Cathay shares will let CITIC Pacific better focus on its main operations, Kong Dan," chairman of parent CITIC Group, said.
       The company in May said it would review its operations and sell off assets that werent efficiently managed or that had low returns.
       The move came after the company was forced to seek a state bailout following derivative losses. CITIC bought an initial 12.5% stake in Cathay from China International Trust & Investment Corporation Hong Kong (Holdings) Ltd in 1991, according to its website.
       Air China said last month it expected to report a 50%-plus increase in firsthalf profit. Its passenger numbers rose 14%, as China's economic stimulus spurred domestic travel. Nationwide passenger numbers rose 20% to 100.4 million, according to the Civil Aviation Administration of China.
       Cathay's first-half passenger numbers fell 4.2% and sales tumbled 27%, as the global recession hammered international travel. The carrier made a net income of HK$812 million following a HK$2.1 billion fuel-hedging gain.
       Air China's parent last year made an offer to buy a stake in China Eastern in order to expand its foothold in Shanghai.China Eastern rebuffed the offer and it has now agreed to take over smaller neighbour Shanghai Airlines to gain a 50% market share in China's financial capital.