(Bloomberg) -- Air China Ltd. has been sounding out advisers in recent months on the possible merits of raising its nearly 30% stake in Cathay Pacific Airways Ltd., according to people familiar with matter, rekindling a long-running idea as the 77-year-old Hong Kong carrier rebounds from the pandemic.

While it has flirted with the possibility in the past, including before Covid, state-run Air China’s need to boost profitability has added fresh momentum, some of the people said, though nothing is likely to happen imminently.

Air China suffered a total loss of about 70 billion yuan ($9.7 billion) in the three years through 2022 and is set for a deficit of as much as 1.3 billion yuan for 2023. Cathay, meanwhile, expects net income of at least HK$8.6 billion ($1.1 billion) for last year, which would be the highest since 2010. The airline and its HK Express arm flew 2 million passengers in January, an average of more than 70,000 a day. In the depths of Covid, its daily traffic was just a few hundred.

Read More: How Cathay’s Calamitous Year Unraveled After Covid Struck

Another Air China investment could further tilt control of Hong Kong’s primary airline and one of its most recognized brands toward Beijing, a concern already expressed by Cathay staff and dismissed by the company’s senior leadership. 

The Chinese government has been expanding its influence in Hong Kong, a key Asian financial hub and gateway to the mainland, and Cathay is well set as a link with the rest of the world. It is also subject to unique pressures among international carriers, partly due to its corporate history and the shifting political landscape in its city. On a purely operational basis, an Air China and Cathay combination would create one of the world’s biggest airline groups.

Air China has spoken to lenders to gauge the availability of financing should it eventually decide to proceed with a deal, the people said, asking not to be identified because the information is private. Considerations are still at a very preliminary stage, and it’s unclear whether they will lead to any transaction. 

There are sensitivities around a potential deal. One major hurdle would be convincing Swire Pacific Ltd. to give up more control: the British colonial-era conglomerate, Cathay’s biggest shareholder, hasn’t publicly shown any willingness to reduce its 45% stake. 

“Swire Pacific remains completely committed to Cathay Pacific,” Patrick Healy, Cathay’s chairman and a Swire Pacific executive director, told Bloomberg News this month. Healy became Cathay chairman in 2019, replacing John Slosar, who left as criticism rained down from China over the involvement of some Cathay staff in pro-democracy protests and unrest in Hong Kong that year.

Beijing-based Air China didn’t respond to requests for comment on this article. 

Air China raised its holding in Cathay to 29.99% from 17.5% in 2009, and it has four seats on Cathay’s board of directors. As part of a plan to save the airline from collapse during Covid, the Hong Kong government also took two observer spots on the board and a 6.08% stake in the company, which has since been halved. Cathay has a market value of about $6.7 billion. Air China’s is nearly $15 billion.

For Swire, which gave up part of its Cathay stake to buy now-defunct Dragonair, reducing exposure to airlines could aid its financial performance. Earnings from its aviation interests have lagged property and beverage segments, especially during the pandemic.

Another alternative for Air China could be to buy from Qatar Airways QCSC, which has an almost 10% stake. The architect of that deal, Akbar Al Baker, left his post at the Gulf carrier last year.

Cathay’s January passenger traffic was 66% higher than a year earlier, the airline said Thursday. It is also one of the world’s biggest cargo carriers, flying 114,790 tons of freight last month, up 21% from January 2023. As a member of the oneworld alliance, its partners include British Airways Plc, American Airlines Group Inc., Qantas Airways Ltd. and Qatar Airways. 

--With assistance from Anthony Palazzo.

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