Hong Kong-based Cathay Pacific Airways - 46 percent owned by property-focused conglomerate Swire Pacific - will buy a 9.9 percent stake in Air China when the national flag carrier launches its initial public offering (IPO), Air China Limited said.

The two airlines jointly announced on Wednesday they have entered into a memorandum of understanding indicating Cathay Pacific's intention to acquire a 9.9 percent ownership of Air China.

"We welcome Cathay Pacific's proposed equity investment and the clear confidence in Air China's future that this investment represents," said Li Jiaxiang, chairman of Air China Limited.

Beijing-based Air China, which is the largest air carrier in the Chinese mainland, is proposing to list its H shares on the Hong Kong stock exchange by way of a global offering, the airlines said.

It has applied to the Hong Kong Stock Exchange for the listing.

Air China hopes to list its shares late this year or early 2005 in an offer that could raise around US$500 million, insiders say.

In fact, the national flag carrier has been stepping up its efforts to be listed in overseas markets to seek additional growth capital.

On September 30, Air China Limited, the predecessor of Air China International Corporation - an airline company with the longest operating history in Chinese aviation industry - was founded with a registered capital of 6.5 billion yuan (US$785 million), which converts to 6.5 billion shares.

This move signifies the airline is speeding up efforts to become listed.

"It's an unchangeable plan for Air China to become listed and preparations are in full swing... we are bidding our time," Wang Yongtao with Air China told Beijing-based Securities Market Weekly.

Analysts say the deal will make Air China's IPO more attractive and will also enhance Cathay Pacific's long-frustrated Chinese ambitions.

"We look forward to becoming Air China's strategic partner and to a mutually beneficial relationship between our two companies," said Turnbull, deputy chairman and chief executive of Cathay Pacific.

The memo also sets out a framework for the airlines to develop a closer partnership, including joint marketing and sales activities as well as better coordination of schedules.

They plan to cooperate in engineering, ground handling, catering, cargo services, information technology, purchasing, safety and security.

The deal was unveiled shortly after Cathay revealed plans to expand in the mainland.

Cathay Pacific said on Tuesday it plans to start operating daily flights to Beijing in December - up from the current three flights a week - as part of a new aviation pact that Hong Kong and the mainland signed last month.

(China Daily October 22, 2004)