South Korea's biggest airline Korean Air Co. said Monday it had signed a preliminary agreement to take over China's Okay Airways to target booming air cargo and passenger demand in China.

The announcement came after Korean Air said in June it was in talks with China’s first private airline on a possible joint venture.

Korean Air would finalize pricing, acquisition terms as well as timing after due diligence, Korean Air said in a statement.

The Korean carrier signed a letter of intent this month to purchase the shares, with the acquisition price to be decided later, the Maeil Business Newspaper reported, citing a person related to Korean Air.

"We have signed a letter of intent to buy a major stake in Okay Airways," Korean Air spokesman Lee Hyoung-woo said.

"The investment is part of our strategy to increase our activity in China," Lee said.

Korean Air is conducting due diligence for three months and plans to complete the purchase by the end of this year to tap the air cargo, passenger and terminal markets in China, the newspaper said.

Seoul-based Korean Air Lines Co., the world’s second-largest airfreight carrier, said June 22 it may form a venture with Okay Airways to deliver cargo in and out of Asia's second-largest economy.

Under Chinese regulations, a foreign company is allowed to buy a stake of up to 25 percent in a Chinese airline, while the combined stakes held by foreign investors are limited to 49 percent.

Okay Airways, based in the northern Chinese city of Tianjin, started flights early this year. It subleased its first two Boeing 737-900s from Korean Air.

China has opened the market to allow private airlines and also to let in foreign investment. The country is now one of the three major aviation markets in the world after the United States and Europe.

The 121 million passengers carried in China last year represented 16 percent annual growth that was twice the world average, according to Chinese statistics.

Korean Air posted a net profit of 472 billion won (US$467 million) in 2004 with sales rising 16.7 percent to 7.21 trillion won thanks to increased demand for air travel and cargo transportation.

(Shenzhen Daily August 23, 2005)