Hong Kong - China's state-owned flagship airline Air China is to increase its stake in Hong Kong's Cathay Pacific to almost 30 per cent under a deal announced Monday.

Hong Kong based conglomerate CITIC Pacific is to sell a 12.5 per cent stake in Cathay Pacific to Air China and a further 2 per cent stake to Cathay Pacific's British parent company Swire Pacific.

If it goes ahead, the deal will see Air China's stake in Cathay Pacific increase from 17.49 per cent to 29.99 per cent while Swire Pacific's stake will increase from 39.97 per cent to 41.97 per cent.

The deal, which must be approved by shareholders, was announced Monday evening in a joint statement from the two airlines, Swire Pacific and CITIC Pacific.

The statement said: "The changes will strengthen the existing relationship between Air China and Cathay Pacific and serve to further boost the position of Beijing and Hong Kong as key aviation hubs in the region."

The shareholding restructuring follows a strategic investment in Cathay Pacific by Air China in June 2006 which also saw Hong Kong's second biggest airline Dragonair become a wholly-owned subsidiary of Cathay Pacific.

Reacting to the announcement, a spokesman for Air China said: "Air China and Cathay Pacific can form a closer cooperative relationship that will serve as a platform for further cooperation between, and generate greater synergy for, Air China and Cathay Pacific."

A spokeswoman for Cathay Pacific said: "Cathay Pacific is looking forward to working even more closely with Air China to leverage the opportunities that will arise from the strengthening of the ties between two of the world's great international airline brands." (dpa)