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Air China, the nation's flagship carrier, said yesterday it is likely to set up a 50-50 cargo joint venture in Shanghai with Cathay Pacific this year.

 

"We are now busy preparing for the joint venture program and hope to realize practical progress in the cargo business partnership with Cathay in the first half of 2007," said Fan Cheng, vice-president of Air China Ltd.

 

The move will come as part of a cross shareholding agreement reached between the two major airlines in June last year and will thus give wing to the largest cargo carrier on the Chinese mainland.

 

"How to significantly improve our cargo transport capabilities is an important task for Air China in 2007. The establishment of the joint venture with Cathay will lay a solid foundation for our cargo business," Fan said.

 

Air China had previously been in talks with Shanghai-based China Eastern Airlines for over six years for the same purpose. But Fan said the two sides had not reached an agreement.

 

Analysts said that finding a compromise between both sides had been a major difficulty in the tie-up negotiations since their parent companies are China's largest aviation groups, making a rivalry evident amongst complementary business goals.

 

Air China's A shares yesterday rose 9.97 percent to close at 6.4 yuan. The carrier had a frosty start to its initial public offering (IPO) on the Shanghai Stock Exchange in August last year, its shares opening lower than its IPO price of 2.8 yuan but things would soon pick up.

 

The share price rise is mainly due to investors' positive expectation for Air China's performance "in the mid term", analysts said.

 

"The expectation of lower international oil prices and further appreciation of the renminbi is good news for the whole airline industry," said Li Lei, an aviation analyst with CITIC China Securities.

 

"Another major boost for investor confidence in Air China is the partnership with Cathay," Li said, adding that Air China could reap stable revenue of at least 600 million yuan annually by holding 17.5 percent in Cathay, which is Asia's second-most profitable airline.

 

Beijing-based Air China recorded net profit of 3.35 billion yuan in the first nine months of last year and its soon to be issued annual report is eagerly awaited.

 

"We are confident that our performance in 2006 will break records," said Zheng Bao'an, the company's board secretary.

 

Air China's net profit reached 2.41 billion yuan in 2005, a slight rise of 0.85 percent from 2004.

 

(China Daily January 10, 2007)