The two companies will use an existing cargo airline, Air China Cargo (ACC), a wholly owned subsidiary of Air China, as the platform for the joint venture.
On completion of the transaction, ACC will continue to be a subsidiary of Air China. Air China will hold 51% equity in ACC while the Cathay Pacific Group will acquire a 25% equity interest directly in ACC and fund an offshore trust, in the form of a loan, to hold another 24% economic interest in ACC.
The total value of the Cathay Pacific Group's investment in the joint venture will be RMB 1.67 billion.
Cathay Pacific will also sell four freighters and two spare engines to ACC.
The joint venture partners established their strategic cross-shareholding relationshipin June 2006, under which Air China made a direct strategic investment in Cathay Pacific, and Cathay Pacific increased its strategic investment in Air China and assumed 100% ownership of Dragonair.
At the same time, both parties signed an operating agreement that also announced their intention to form the cargo joint venture.
Subject to the approval of the relevant authorities and the respective shareholders of Air China and Cathay Pacific, ACC plans to begin operations as a joint venture airline this summer, with Beijing and Shanghai remaining its principal operating bases.
ACC is China's largest all-cargo airline. ACC's current cargo business strength is focused on the northern China and Yangtze River Delta, while Cathay Pacific's core cargo business is the Pearl River Delta. Both of these regions are already two of the world's largest export-generating manufacturing centres. The establishment of this JV will enable ACC to capture air cargo business opportunities in the YRD region.
ACC currently operates seven Boeing 747 freighters, and also procures and sells the cargo belly-space provided by Air China's extensive domestic and international passenger network. The airline operates all-cargo services to fourteen destinations worldwide.
Cathay Pacific operates 25 Boeing 747 freighters together with belly cargo space on 126 passenger aircraft. Scheduled freighter services are operated to 37 worldwide destinations.
