China’s crackdown on Cathay Pacific Airways Ltd. has raised questions about the government’s insider at the carrier: Air China Ltd.

State-run Air China has quietly owned almost 30% of Cathay for more than a decade, giving the national flag carrier a ringside view of the Hong Kong airline’s worldwide operations. Restrictions imposed on Cathay by China’s aviation regulator last month—after some pilots and cabin crew supported pro-democracy demonstrations in Hong Kong—have put a spotlight on Air China’s plans for its investment, and its role within the airline.

Several options are open. It could gain more clout as Cathay’s new leadership bows to Beijing, or it could cut ties with a company that has fallen out of favor with investors and drawn the Chinese government’s ire. Either way, analysts say there’s no simple, risk-free path forward.

Below are some of the arguments for Air China to raise, hold or fold.

Buy More

An Air China-Cathay Pacific merger has long been speculated on, but recent weeks have shown where the power lies. Cathay has said it will comply with all of last month’s demands from China’s aviation regulator, its chief executive and chairman have both resigned, and staff have been ordered not to take part in illegal protests.

“It’s a matter of time” before China takes over Cathay completely, and it’s in Air China’s interest to own more Cathay shares, said Shukor Yusof, founder of aviation consulting firm Endau Analytics. The Civil Aviation Administration of China could squeeze Cathay until it capitulates, he said.

“From Air China’s perspective, Cathay is definitely a prize they would want to get hold of,” said Paul Yong, an analyst at DBS Bank Ltd. in Singapore.

But Air China would need to find a seller. Swire Pacific Ltd. owns 45% of Cathay and Qatar Airways owns about 10%, so there are few freely traded Cathay shares available.

“As a long-term shareholder in Cathay Pacific for over 70 years, Swire is firmly committed to the airline,” spokesman James Tong wrote in an email. “We have full confidence in its long-term prospects.”

Air China representatives didn’t reply to emails seeking comment. The South China Morning Post reported Monday that Air China non-executive director Stanley Hui said the Chinese carrier isn’t interested in a takeover and has no desire to get involved in Cathay’s day-to-day operations.

From a financial perspective, Cathay shares are relatively cheap. The stock has more than halved from a 2010 high and is down around 6% since mass protests kicked off in Hong Kong in early June. Cathay rose 0.4% to HK$10.46 at 10:28 a.m. in Hong Kong on Tuesday, still below the HK$12.88-a-share that Air China paid in 2009.

Status Quo

Air China’s stake in Cathay sits just shy of the 30% threshold that would trigger a takeover offer. But it may not need to own more to extract benefits from the company.

“There are still things Air China can learn from Cathay Pacific, especially on the premium product side,” said DBS’s Yong.

Air China and Cathay, which owns 18% of Air China, have said they plan to renew until the end of 2022 a collaborative agreement covering everything from catering and ground support to code sharing and aircraft leasing. The two companies also own a cargo business in mainland China.

“It would make a lot of sense” for Cathay and Air China to be part of the same group and share knowledge of each other’s markets, said Torbjorn Karlsson, a partner specializing in aviation at Korn Ferry International in Singapore. Air China doesn’t need to own Cathay, he said. “Control and ownership is less relevant than the blend of experience, skills and leadership.”

The Emergency Exit

Dumping Cathay stock would allow Air China to cut ties with a carrier in the government’s line of fire. China’s regulator threatened to bar Cathay from mainland airspace, state-owned companies have boycotted flights, and state-backed ICBC International released an unusually bearish report on the airline last month.

But an exit would deprive Air China of leverage over Cathay, and may be the least likely course of action.

“Why would they do that?” said Yusof at Endau Analytics. “They have a vested interest in seeing Cathay civilized, reformed and overhauled.”