The shareholders of Air China, Cathay Pacific Airways, China National Aviation Company (CNAC) and CITIC Pacific have approved on Tuesday the proposed shareholding realignment which will establish cross shareholdings between Air China and Cathay Pacific, make Hong Kong Dragon Airlines (Dragonair) a wholly owned subsidiary of Cathay Pacific.

The shareholding realignment will create one of the world's strongest airline groupings. The restructuring will also deliver significant benefits for the Chinese aviation industry and its customers, and strengthen the position of Hong Kong and Beijing as key aviation hubs in the region, according to a joint press release from the four airways.

The votes were cast at Extraordinary General Meetings of the four companies involved. The Cathay Pacific, CITIC Pacific and CNAC meetings were held in Hong Kong, and the Air China Extraordinary General Meeting was held in Beijing.

The shareholders' approvals mark an important step towards completing the deal. Upon satisfaction of certain other conditions, including the necessary regulatory approvals, the new arrangements will come into effect on a date to be announced.

After the approval of shareholders, Air China will acquire a strategic stake in Cathay Pacific, Cathay Pacific will increase its strategic investment in Air China, Dragonair will become a wholly owned subsidiary of Cathay Pacific.

In addition, Air China and Cathay Pacific will enter into an Operating Agreement that will include implementing reciprocal sales representation where Air China will be exclusively responsible for Cathay Pacific's passenger sales in the Chinese mainland and Cathay Pacific will be exclusively responsible for Air China's passenger sales in Hong Kong, Macao and Taiwan, the extension of code share arrangements between Hong Kong and the Chinese mainland, and the implementation of joint venture routes.

Swire Pacific will remain the principal shareholder in the enlarged Cathay Pacific group. Dragonair will continue to operate under its own brand, but under Cathay Pacific management.

The stronger shareholding ties between Air China and Cathay Pacific and the Operating Agreement will bring significant benefits to both companies and offer opportunities for a closer operational partnership, said the press release.

Air China Chairman Li Jiaxiang said: "Tuesday's shareholder approvals pave the way for Air China and Cathay Pacific, our passengers and broader stakeholders to realize the exciting benefits of this important transaction."

He said, "The shareholding realignment and Operating Agreement will combine to create a potent new force in the airline industry and help the Chinese aviation industry, as well as the Beijing and Hong Kong hubs, develop to their full potential."

Swire Pacific Chairman Christopher Pratt said: "Tuesday's votes are an important step towards completing an historic and far-reaching deal that will create a formidable airline grouping with enormous potential in the world's most exciting and dynamic aviation market."

Cathay Pacific Chief Executive Philip Chen said: "I am delighted that the shareholders of Cathay Pacific and the other companies involved have endorsed this proposal. Once the deal is completed, Cathay Pacific can move forward with confidence in taking control of Dragonair, and at the same time strengthen its partnership with Air China and reinforce Hong Kong and Beijing as key aviation hubs in Asia Pacific."

CNAC Chairman Kong Dong said: "we thank our shareholders for their support for this historic transaction. This transaction will consolidate and optimize resources, align the shareholding structure of Dragonair, facilitate its healthy development in the long term, and bring increased cooperation between all parties involved to deliver higher value for all shareholders."

CITIC Pacific Chairman Larry Yung said: "CITIC Pacific has long been an advocate of greater cooperation between Cathay Pacific and Dragonair. The transaction will result in the creation of one of the most powerful airline groupings in the world, providing Cathay Pacific with greater access to the Chinese mainland and offering greater convenience and choice to travelers."

(Xinhua News Agency August 23, 2006)