Hong Kong government to initiate US$5 billion COVID-19 bailout plan for Cathay Pacific
Cathay Pacific Airways Ltd unveiled last week a recapitalisation plan worth HK$39 billion (US$5.03 billion) funded by the government of Hong Kong to help it survive the COVID-19 virus pandemic.
The government will be issued preference shares worth HK$19.5 billion, giving it a 6 per cent stake, warrants worth HK$1.95 billion, and will provide a bridging loan worth HK$7.8 billion, Cathay said. For board meetings, the government will also have the right to two observers.
Governments around the globe have helped support airlines in the face of a decline in travel demand, and in some situations, such as Germany’s Lufthansa, direct equity stakes are being taken.
The Cathay deal involves a HK$11.7 billion rights issue to current creditors, headed by Swire Pacific and Air China, which had suspended trade on Tuesday morning alongside Cathay, awaiting the announcement.
Swire, which owns 45 per cent, Air China which owns 30 per cent and Qatar Airways with 10 per cent are planning to partake in the rights issue, Cathay said. Their holdings will drop to 42 per cent, 28 per cent and 9.4 per cent after that.
Cathay has grounded most of its aircraft due to falling demand amid coronavirus-related travel restrictions, flying only cargo and a skeleton passenger network to major destinations such as Sydney, Singapore, Tokyo, Beijing, Los Angeles and Vancouver.
Very much like Singapore Airlines Ltd, which received a rescue package of around US$10.1 billion headed by state-investor Temasek Holdings, Cathay has no domestic market to depend on to absorb the impact of the fall in international travel.
“Hong Kong needs to protect its position as a hub given all the investment in expanding Hong Kong International Airport and the competitive landscape following Singapore’s big move over two months ago,” said independent aviation analyst Brendan Sobie.
BOCOM International analyst Luya You said the combined package would offer Cathay more than sufficient funding to survive the remainder of 2020.
“This size of this recapitalisation plan bodes well for the long-term future of Cathay,” she said.
“Big airlines with adequate liquidity can gain significant market share straight after COVID.”
On Tuesday, Cathay said a drop in passenger revenue to just 1 per cent of the previous year’s levels meant that since February, the airline had lost cash at a rate of HK$2.5 billion to HK$3 billion per month.
Since the onset of the coronavirus pandemic, Cathay has furloughed some pilots at overseas bases and retrenched cabin crew roles in the United States and Canada, but has not confirmed large-scale permanent job losses.
The airline said a further round of executive pay cuts and a second voluntary leave arrangement for employees would be put in place on Tuesday as it considered the optimum size for the business in future.
“The influx of fresh resources that we revealed today does not mean we should relax. Rather, quite the contrary,” said Patrick Healy, chairman of Cathay, in a statement.
“That means we need to redouble our efforts to transform our company and become more competitive.”