Plan includes support from HKSAR govt
Published: Jun 09, 2020 02:43 PM Updated: Jun 09, 2020 06:43 PM

The Cathay Pacific Airways Ltd logo is displayed atop a building at Cathay Pacific City, the company's headquarters, in Hong Kong in August, 2018. Photo:VCG

Cathay Pacific Airways on Tuesday announced a recapitalization plan worth HK$39 billion ($5.03 billion) which includes support from the Hong Kong Special Administrative Region (HKSAR) government, a move that's widely seen as keeping the financially troubled carrier flying.

The three-part plan which includes Cathay Pacific will issue HK$19.5 billion in preference shares with detachable warrants to the Hong Kong Special Administrative Region (HKSAR) government after requisite shareholders' approvals have been obtained.

The HKSAR government will provide Cathay Pacific with a HK$7.8 billion bridge loan facility, available for drawdown immediately.

The pact also includes a HK$11.7 billion rights issue for existing shareholders, led by Swire Pacific Ltd and Air China Ltd, which both halted stock trading on Tuesday morning alongside Cathay.

The HKSAR government will inject a total HK$27.3 billion into Cathay Pacific, including HK$19.5 billion in preference shares, putting the HKSAR's holdings in the carrier at 6.08 percent, said Hong Kong Financial Secretary Paul Chan Mo-po. But Chan stressed that the HKSAR government did not intend to be a long-term investor.

The move is designed to provide Cathay Pacific with sufficient funds to withstand the industry-wide downturn, and a stable financial platform from which it will be able to conduct the wholesale review of operations required to transform its business to reflect new global travel market dynamics, according to a release the company sent to the Global Times on Tuesday. 

"Cathay Pacific must remain alive, not only for its shareholders, but also for Hong Kong," market watcher Qi Qi told the Global Times on Tuesday. "It looks like the Hong Kong government is trying to save Cathay Pacific, but in fact the Hong Kong government is saving Hong Kong."

Cathay Pacific, which holds more than 80 percent of aviation market in Hong Kong, has an irreplaceable strategic significance in ensuring Hong Kong's global connectivity and international financial center status, he added. 

Cathay Pacific has experienced a number of challenges since 2019. Positive momentum from 2018 drove a strong first-half result in 2019. However, since mid-2019, the social unrest in Hong Kong has led to a sharp decline in passenger traffic and the challenging environment was exacerbated by the outbreak of COVID-19 early this year.

Cathay Pacific Chairman Patrick Healy said it has been losing cash at a rate of approximately HK$2.5 billion to HK$3 billion per month since February, and the future remains highly uncertain.

The group reported an unaudited loss of HK$4.5 billion from January to April, and it said its financial outlook continues to be bleak for the coming months.

Cathay Pacific and Cathay Dragon carried a total of 13,729 passengers in April, a decrease of 99.6 percent compared to April 2019. The two airlines carried 84,634 tons of cargo and mail last month, a decrease of 48.3 percent compared to April 2019.

The company said it operated only a skeleton passenger flight schedule, serving only 14 destinations in April and carrying fewer than 500 passengers per day. 

Cathay Pacific's previous record loss was HK$8.56 billion in 2008, also due to fuel hedging contracts, as well as the global financial tsunami that impacted the travel business.

However, experts said that despite the injection of funds, the company still faces challenges.

The economic status of Hong Kong is declining, along with an unstable business environment. The airline also faces a challenge as there will be more direct intercontinental flights from the Chinese mainland, squeezing Cathay's market, Lin Zhijie, a veteran market watcher, told the global Times on Tuesday. 

The International Air Transport Association said in an analysis in April that the COVID-19 crisis will see airline passenger revenues drop by a staggering $314 billion in 2020, a 55 percent decline year-on-year. Airlines in the Asia Pacific region will see the largest revenue drop of $113 billion and a 50 percent fall in passengers.

Cathay Pacific is even more vulnerable than most of its global carrier peers, given that its airlines have no domestic network and are wholly reliant on cross-border travel, the company said in its release.