* Airline encourages customers to avoid non-essential travel
* Brand damage could be severe in mainland China - analysts
* Manager Swire Pacific says it resolutely supports Hong Kong govt
* Second Cathay pilot suspended, airline warns employees
(Recasts, adds Swire statement, employee and analyst comment)
By Jamie Freed and Brenda Goh
SINGAPORE/HONG KONG, Aug 13 (Reuters) - The top shareholder and manager of Cathay Pacific Airways condemned protests in Hong Kong and vowed to follow China's aviation regulations, after the airline suspended a second pilot on Tuesday as deepening unrest hit its operation and stock.
Cathay 0293.HK , whose strong British links make it a symbol of Hong Kong's colonial past, has emerged as the highest-profile corporate target as Beijing looks to quell protests in the territory that have gone on for ten straight weeks.
Shares in the Hong Kong flag carrier sunk to a 10-year low, hit by concerns that Beijing could slap further sanctions on the airline, causing more damage to its brand.
Just last week, China's aviation regulator demanded Cathay suspend personnel who engaged in or supported illegal protests in Hong Kong from staffing flights into its airspace, a directive the carrier complied with by suspending a pilot.
The airline also fired two ground staff and sent out a warning email to its employees.
"We condemn all illegal activities and violent behaviour, which seriously undermine the fundamental principle of 'One Country, Two Systems' as enshrined in the Basic Law," Swire Pacific Ltd 0019.HK said in a statement.
Cathay's manager said it supported the Hong Kong government, CEO and police in their efforts to restore law and order.
The protests began in opposition to a bill allowing extraditions to the mainland for trial in Communist-controlled courts, but have widened to highlight other grievances.
Demonstrators say they are fighting the erosion of the "one country, two systems" arrangement enshrining some autonomy for Hong Kong when China took it back from Britain in 1997.
Swire Pacific's comments supporting Beijing come a day after China's aviation regulator said its deputy director had met with Swire Pacific Chairman Merlin Swire.
While Swire Pacific declined to say what was discussed, its statement on Tuesday underscores the political pressure both it and Cathay are facing.
OPERATIONS IMPACTED
Cathay, which was forced to cancel hundreds of flights after Hong Kong's airport authority took an unprecedented step of closing the airport on Monday, has warned of further flight disruptions at short notice.
It is also encouraging customers to avoid non-essential travel from Hong Kong on Tuesday and Wednesday as protesters plan more anti-government rallies at the airport. The airport authority suspended flight check-ins late on Tuesday.
Cathay also suspended a second pilot on Tuesday, reportedly for encouraging protesters to keep protesting at the Hong Kong airport. Cathay said the action was taken over "misuse of company information" and declined to comment further.
Analysts and employees said there were fears that Beijing could take further action that could hit the airline, such as time-consuming plane checks at airports or even the closure of Chinese airspace and airports to Cathay flights.
The investment banking arm of China's biggest lender, ICBC, has slapped a "strong sell" rating on Cathay and cut its target price to HK$6, below its current price of HK$9.55.
"We believe recent CAAC safety alert, together with management's poor crisis management, will cause irreversible damage to Cathay Pacific's brand perception as a premium quality carrier," it said in a note, referring to the Civil Aviation Administration of China.
EMPLOYEE CONCERNS
Some Cathay employees expressed concerns over what the firm's position could mean for them.
"I think there is an underlying concern now about what this does to Cathay," one of the airline's pilots said of the regulatory scrutiny.
"This could be a storm in a teacup and we'll be back to making lots of money next month. Or this could be the collapse of the airline. No one really knows," the pilot told Reuters.
Another employee said she was concerned about what it could mean for staff liberties.
"I am very worried about the ban on flight attendants' freedom," a cabin crew member, who declined to be named, told Reuters outside Cathay's headquarters on Tuesday.
"I am a bit worried about if I can go to mainland China safely because I protested before, even though it's a legal march," said Andy, a Cathay head office employee who declined to provide his last name. "But who knows?"