Air China, the country's flag carrier, will increase its stake in Cathay Pacific Airways to nearly 30 percent by buying shares from CITIC Pacific at HK$6.335 billion.
The Beijing-based airline will buy 491.9 million shares of Cathay at HK$12.88 apiece from CITIC Pacific, according to a statement posted on the Hong Kong Stock Exchange.
The deal will make Air China the Hong Kong carrier's second largest shareholder after British conglomerate Swire Pacific.
The British company will also buy 78.7 million Cathay shares from CITIC Pacific at the same price and will hold 41.97 percent of Cathay. CITIC Pacific's shares in Cathay will fall from 17.5 percent to just 2 percent.
The three companies will resume trading in Hong Kong today after being suspended yesterday pending the announcements.
Analysts said the share sale would be an important step for CITIC Pacific to sell off non-core assets that had low returns and restructure its diversified businesses. The investment company was forced to seek a government bailout after HK$15 billion in currency losses last year. The company said in May that it would focus on special steel, mineral resources and real estate sectors in future.
"The global economic crisis has dealt a heavy blow to Cathay as premium travel demand plunged. The situation will still be tough next year," said Li Lei, an aviation analyst with CITIC China Securities.
Cathay reported HK$812 million net profit in the first half of this year, primarily as a result of a HK$2.1-billion fuel-hedging gain. But its revenues tumbled 27 percent year-on-year as its passenger number fell by 4.2 percent and freight amount decreased 15.3 percent.
"But in the medium to long term, this is still a good deal for the two airlines as Cathay is the top carrier in Hong Kong and Air China is one of the most profitable airlines on the mainland," Li said.
"As the second largest shareholder of Cathay, Air China will have a stronger voice in their partnership in future," Li said.
Feng Lei, an analyst from Cinda Securities, said the deal would boost Air China's presence in Hong Kong as it faces rising challenges from China Eastern Airlines' planned acquisition of Shanghai Airlines.
The two airlines signed a cross-shareholding agreement in 2006, which allowed Air China to hold a 17.5 percent stake in Cathay, and Cathay a 20-percent stake in Air China. Air China is exclusively responsible for Cathay's passenger sales on the mainland, while Cathay sells for Air China in Hong Kong, Macao and Taiwan, according to that agreement.