But the deal might bring Cathay some financial turbulence, they added.

"This is long-term quite positive for the company," said Timothy Ross, aviation analyst at Warburg Dillon Read.

Both airlines said this week that a conditional proposal by Hong Kong-based Cathay for investment in debt-strapped PAL had been accepted.

The carriers will next draw up a comprehensive rehabilitation plan for PAL to be submitted to the Philippine Securities and Exchange Commission and creditors for final approval.

Analysts gave a cautious nod of approval for the tieup and said it would boost Cathay's traffic, especially on transpacific routes where Cathay was looking to expand its business.

"There is a large Philippine community particularly on the west coast of the United States," said Ross.

Cathaywas expected to route some of this traffic through Hong Kong in line with the carrier's strategy of promoting its home base as a premier Asian hub.

A stake in PAL would also bring operational synergies in areas such as fleet utilisation, analysts said.

But the deal's merit depends on exactly what Cathay will be buying, analysts said.

Cathay chief executive David Turnbull said the carrier has made a provisional offer for PAL of three to four billion pesos, but that it would include a group of foreign investors.

The carrier's chairman Peter Sutch said Cathay was thinking of becoming a shareholder in a group of foreign investors that held a maximum 40 per cent stake permitted to foreign investors.

"I think the price is quite reasonable," said Wendy Wong, aviation analyst at Merrill Lynch, noting that one Boeing 777 aircraft costs about $140 million.

"But we don't know what they are buying," she added.

Analysts pointed out that although Cathay was sitting on a strong balance sheet, the price of thedeal may be only the tip of the iceberg if Cathay has to inject additional capital to get financially troubled PAL back on its feet, they added.

PAL needs substantial restructuring to become a successful investment, including shrinking its business and restructuring its $2 billion in debts.

"I imagine that if you sold all of Philippine Airlines' assets, both tangible and intangible, it would probably just about cover its debts," said Ross.

The deal was also expected to weigh on Cathay's earnings and could hit its share price.

"Where it may be good for Cathay I don't think that it's so great for smaller investors," said John Casey, aviation analyst at Kleinwort Benson.

"I think PAL is going to continue to lose money for sometime."

Cathay's interest in acquiring a stake in PAL was a natural step in the increasing consolidation of the sector under the weight of Asia's financial crisis and had a defensive ring to it, some analysts said.

Cathay's competitor Singapore Airlines Ltd was looking attaking smaller stakes in other carriers, analysts said.

Analysts said Cathay's acquisition may also allow it to bring PAL into a global alliance with British Airways Plc, American Airlines, Canadian Airlines and Qantas that was announced in September.