It seems that that Cathay Pacific of Hong Kong has finally have to consider a bailout as it navigates these troubling times.
The bailout – or “recapitalisation plan” is split into three parts
- Tranche A: 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’ approval has been obtained.
- Tranche B: Cathay Pacific will launch an HK$11.7 billion rights issue of shares to existing shareholders after requisite shareholders’ approval has been obtained.
- Tranche C: the HKSAR Government will provide a HK$7.8 billion bridge loan facility to Cathay Pacific, available for drawdown immediately.
Swire’s holdings in Cathay Pacific will drop to 42%, whilst Air China will drop its holding to 28% (a total of 5% – which the Hong Kong Government will take).
In effect, the Hong Kong Government will take a share in the airline.
The airline has not had a good two years – with the unrest in Hong Kong driving tourists and visitors away, followed by COVID-19.
Cathay Pacific is working to the point where it believes it might regain traffic levels by 2023, due to the airlines’ reliance on cross-border travel (as domestic travel within Hong Kong isn’t a thing by airline… unless you have a helicopter pad). With countries putting up barriers to entry, Cathay Pacific insists it is hit badly.
So far, the airline has cut its network by 97%, cutting executive pay deferring new aircraft orders, retiring older aircraft and implemented a special leave scheme to reduce costs
Further cuts are ahead, with the airline management team to recommend the new optimum size and shape of the Cathay Pacific Group – to meet travellers needs and shareholder responsibilities.
Cathay Pacific Chairman Patrick Healy said:
“We are grateful to the HKSAR Government’s capital support, which allows Cathay Pacific to maintain our operations and continue to contribute to Hong Kong’s international aviation hub status. We are also grateful to our shareholders for their confidence in the long-term future of Cathay Pacific and in the ability of Cathay Pacific’s management team to lead our airlines through what is the most challenging period in the Group’s history.”
He goes on to explain:
“Despite all these measures, the collapse in passenger revenue to only around 1% of prior year levels has meant that we have 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 infusion of new capital that we have announced today does not mean we can relax. Indeed quite the opposite. It means that we must redouble our efforts to transform our business in order to become more competitive. Today we have announced a new round of executive pay cuts, and a second voluntary special leave scheme for our employees.”
“We are in a very dynamic situation. We need to make the right decisions to adapt to the new reality of global aviation and secure our long-term future. This will require re-evaluating all aspects of our business model in light of the rapidly changing macro and industry dynamics.
“Inevitably this will involve rationalisation of future planned capacity compared to our pre-crisis plans, taking into account the market outlook and cost structure at that time.”
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