Shares of Cathay Pacific Airways Ltd and its two biggest owners, Swire Pacific Ltd and Citic Pacific Ltd, were suspended for a second day yesterday amid negotiations over ownership of Hong Kong Dragon Airlines Ltd.

The companies halted trading in their shares on Monday pending announcements on "transactions which constitute price-sensitive information," they said in separate statements. Shares of Air China Ltd and its unit, China National Aviation Co, were also halted for a second day according to the Hong Kong stock exchange.

Cathay Pacific has been in talks with the other four companies about shareholding changes at Dragonair, which has more routes to China than any other Hong Kong carrier. Cathay Pacific may pay at least HK$10 billion (US$1.3 billion) to take complete control of Dragonair, the Standard newspaper reported on Monday.

"Control of Dragonair would offer Cathay the direct China market exposure it has effectively lacked," according to Jean-Louis Morisot, an analyst at Goldman Sachs Group Inc. Goldman Sachs has an "underperform" rating on Cathay Pacific shares and an "outperform" recommendation on Air China.

Cathay Pacific has an 18 per cent stake in Dragonair, as the carrier is also called. Swire, Citic and China National Aviation, 69 per cent-owned by Air China, all hold shares in the carrier.

Carolyn Leung, a spokeswoman for Cathay Pacific, and Swire spokeswoman Maisie Shun Wah, declined to comment. Henry Fan, Citic's managing director, declined to comment, as did Rao Xinyu, head of investor relations at Air China and Daisy Wan, a spokeswoman for China National Aviation.

Economic growth has turned China into the world's second-biggest market after the United States, measured by passenger traffic. China's passenger traffic will grow at a faster rate than the global average until 2009, according to a forecast by the International Air Transport Association.

To tap that market, Cathay Pacific needs to expand beyond its current routes to Beijing and the southeastern Chinese city of Xiamen. It also operates cargo services to the commercial centre of Shanghai. Dragonair, Hong Kong's second-largest carrier, flies to 23 Chinese mainland cities.

Air China has 37 international routes, the most among Chinese airlines. It had 176 planes at the end of last year, making it the country's third-biggest carrier by fleet size.

(China Daily June 7, 2006)