Hong Kong okays US$5b bailout for Cathay Pa­cific Air­ways

Jamaica Gleaner - - FINANCE -

THE HONG Kong gov­ern­ment on Tues­day ap­proved a HK$39 bil­lion (US$5 bil­lion) re­cap­i­tal­i­sa­tion plan for Cathay Pa­cific Air­ways, the lat­est fi­nan­cially bat­tered air­line to re­sort to gov­ern­ment sup­port to sur­vive the coron­avirus pan­demic.

The plan calls for a new gov­ern­ment-con­trolled en­tity called Avi­a­tion 2020 to buy HK$2.6 bil­lion of an up to HK$33 bil­lion share of­fer­ing by Cathay Pa­cific.

The air­line also would re­ceive a HK$7.8 bil­lion (US$1 bil­lion) loan from Avi­a­tion 2020.

Hong Kong-based Cathay Pa­cific pro­posed the bailout as it strug­gles to sur­vive the nearcol­lapse of re­gional travel due to the pan­demic.

“The ob­jec­tive is to help pro­tect Hong Kong’s role as a lead­ing in­ter­na­tional avi­a­tion hub in this re­gion, as well as the long-term, over­all eco­nomic devel­op­ment of Hong Kong, while gen­er­at­ing a rea­son­able re­turn for the gov­ern­ment,” Hong Kong Fi­nan­cial Sec­re­tary Paul Chan told re­porters.

Chan said that the gov­ern­ment had no in­ten­tion of be­com­ing a long-term share­holder in Cathay Pa­cific, and would not in­ter­fere in the op­er­a­tions and man­age­ment of the air­line. If it ex­er­cises its rights to the shares it will hold up to a six per cent stake in the air­line.

The gov­ern­ment stands to earn a re­turn of about four per cent to seven per cent from the in­vest­ment, com­pared to an aver­age 3.7 per cent re­turn for the port­fo­lio of Hong Kong’s sov­er­eign wealth fund, the Ex­change Fund, he said.

“We hope that dur­ing these dif­fi­cult times that this can help (Cathay Pa­cific) re­cover, and when they do so, they can pay off the loans and buy back the pre­ferred shares,” said Chan, adding that de­fend­ing Hong Kong’s flight routes was cru­cial for main­tain­ing the city’s sta­tus as a avi­a­tion hub.

Cathay Pa­cific, one of Asia’s big­gest air­lines, was founded in 1946 by two for­mer Air Force pi­lots to help trans­port goods from Aus­tralia to China. It has been ham­strung by the re­cent col­lapse of re­gional travel on top of a de­cline in traf­fic to Hong Kong fol­low­ing months of antigov­ern­ment protests.

The air­line has grounded most of its flights as travel re­mains re­stricted across much of the re­gion.

“Cathay Pa­cific has ex­plored avail­able op­tions and be­lieves that a re­cap­i­tal­i­sa­tion is re­quired to en­sure it has suf­fi­cient liq­uid­ity to weather this cur­rent cri­sis,” the air­line said in the fil­ing.

IN FULL SUP­PORT

Cathay Pa­cific’s cur­rent largest share­holder, Swire Pa­cific, is­sued a state­ment say­ing it “fully sup­ports” the re­cap­i­tal­i­sa­tion plan.

Swire, a con­glom­er­ate de­scended from a trad­ing house set up in Liver­pool in 1816, holds a 45 per cent stake in Cathay Pa­cific. Air China, China’s state-owned flag car­rier has a 30 per cent stake and Qatar Air­ways holds 10 per cent.

All three are com­mit­ted to sub­scrib­ing to an HK$11.7 bil­lion (US$1.5 bil­lion) rights is­sue as part of the bailout pack­age.

Cathay Pa­cific said it plans ex­ec­u­tive pay cuts and a sec­ond vol­un­tary leave scheme for em­ploy­ees on top of ear­lier cost­cut­ting mea­sures.

In the first four months of the year, the num­ber of pas­sen­gers car­ried by Cathay Pa­cific plunged nearly 65 per cent amid a halv­ing of ca­pac­ity. The air­line has been op­er­at­ing a skele­tal net­work of flights to ma­jor des­ti­na­tions such as Sin­ga­pore, Beijing, Los An­ge­les, New York and Tokyo.

Cargo, mea­sured by weight, fell nearly 27 per cent in the first four months, against about a 25 per cent de­crease in ca­pac­ity, the air­line said.

Chan pointed out that Hong Kong, un­like the United States and main­land China, lacks a do­mes­tic avi­a­tion mar­ket.

“If we don’t have in­ter­na­tional flights, then ev­ery­thing comes to a grind­ing halt,” he said.

Cathay Pa­cific and Cathay Dragon, the group’s two main car­ri­ers, re­ported a com­bined HK$4.5 bil­lion unau­dited loss in the first four months of 2020.

AP

Cathay Pa­cific Air­ways air­craft line up on the tar­mac at the Hong Kong In­ter­na­tional Air­port.

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