The Hong Kong government has stepped in to provide beleaguered Cathay Pacific with a financial lifeline, as part of the airline’s group HK$39 billion ($5 billion) recapitalisation plan.
Cathay, which has been hard hit by a collapse in travel demand from the coronavirus outbreak, states that the recapitalisation plan - if approved by shareholders - will comprise three tranches.
In the first, it will issue HK$19.5 billion in preference shares to Aviation 2020 — a limited company wholly owned by the government — for an undisclosed stake. Aviation 2020 will also provide a HK$7.8 billion bridge loan facility to Cathay — the subject of the third tranche.
In the second tranche, Cathay will launch a HK$11.7 billion rights issue of shares to its existing shareholders.
The bailout also marks the first time the Hong Kong government has stepped in to rescue a private company.
Conglomerate Swire Pacific owns 45% of the Cathay Pacific Group, with Air China holding nearly 30%.
Cathay discloses that the recapitalisation plan was drawn up after exploring “available options”, and adds that it was necessary “to ensure it has sufficient liquidity to weather this current crisis”.
“In addition, it is expected to place Cathay Pacific in a better position to compete vigorously and to capitalise on any opportunities that may arise as a result of the current crisis and should position Cathay Pacific for growth when the crisis resolves,” the carrier adds.
Cathay chairman Patrick Healy adds that the carrier has been losing cash rapidly for the past four months, even as it made attempts to conserve cash.
Since February, when the coronavirus outbreak became more widespread, Cathay has lost around HK$2.5 to HK$3 billion in cash a month. Passenger revenue for the period also collapsed to just 1% of what it used to earn in past years.
In May, Cathay disclosed that it and sister carrier Cathay Dragon had jointly made a HK$4.5 billion loss for the first four months of the year. It had earlier flagged a “substantial loss” for the first half of the year, due in large part to the coronavirus outbreak.
Cathay’s announcement of the recapitalisation plan comes the same day as it announced a fresh round of pay cuts for its senior executives and a second round of voluntary special leave scheme for its employees.
In the longer term, Cathay says that its business model “will be re-evaluated”. By the end of this year, Cathay’s management will make recommendations to its board on the “optimum size and shape” of the group.
“Inevitably this will involve rationalisation of future planned capacity compared to the pre-crisis plans, taking into account the market outlook and cost structure at that time,” it adds.
Earlier in the day, Cathay, Swire Pacific and Air China all halted trading on Hong Kong’s stock exchange, pending the release of the announcement.
Cathay’s announcement comes two weeks before it was due to hold its Annual General Meeting, which was postponed from May due to social distancing laws in place in Hong Kong.
