The proposed link up would create a Chinese cargo conglomerate able to compete with the world's biggest carriers.

Rao Xinyu, board secretary of Air China Ltd, Air China Cargo's parent company, said that CITIC Pacific plans to sell its stake, "but we haven't reached any agreement yet."

Rao declined to reveal yesterday whether Air China would buy the stake from the Hong Kong-based company. CITIC Pacific was unavailable for comment.

By selling its stake in Hong Kong's Dragonair and reducing its shareholding in Cathay Pacific earlier this year, CITIC Pacific has indicated its intention to pull out of the aviation business.

Launched in 2003, Beijing-based Air China Cargo is 51 per cent owned by Air China, with CITIC Pacific holding a 25 per cent stake and Capital Airports Holding Co having a 24 per cent shareholding.

Air China is widely expected to buy the shares from CITIC Pacific, which could make the cargo carrier's shareholding system less complicated and pave the way for its merger with China Cargo Airlines, analysts said.

"Air China should be the natural choice to take over the stake. The result is that Air China Cargo would have only two shareholders, and that could make the negotiation with China Cargo Airlines less complicated," said Li Lei, an aviation analyst with CITIC China Securities.

Shanghai-based China Cargo Airlines, in which China Eastern Airlines holds a 70 per cent stake, was established in 1998 as China's first company specializing in air cargo transportation. Shipping firm COSCO holds the remaining 30 per cent stake in the firm.

Facing heated competition from international rivals, China's two leading cargo carriers have been in talks for more than half a year to create an air cargo conglomerate by merging their fleets and networks.

But finding a deal that suits both sides has proved a major sticking point during the negotiations.

"Their parent companies are China's largest aviation groups. Neither side wants to give up its decision-making power," Li said.

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