Hong Kong govt takes stake in Cathay Pacific though $7bn rescue

A government-backed lifeline lands in the lap of Cathay Pacific, but there are strings attached...

By David Flynn, June 9 2020
Hong Kong govt takes stake in Cathay Pacific though $7bn rescue

Cathay Pacific will embark on a HK$39 billion (A$7bn) recapitalisation plan as it battles through unprecedented difficulty brought on by a slump in traffic due to the coronavirus outbreak and the travel restrictions that ensued.

However, the Hong Kong government will take a 6% stake in the airline and two seats in its boardroom in exchange for covering the lion's share of financial support.

A newly-created government entity dubbed Aviation 2020 will put forward a HK$7.8 billion loan and also buy HK$19.5 billion in preferential shares, with scope to buy a further HK$1.95 billion in shares at a later date.

Aviation 2020 will "have the right to appoint two observers to attend board meetings" until the loan is repaid, according to Cathay Pacific's statement to the Hong Kong stock exchange. Although those board appointees will be non-voting, they will nonetheless have a voice in how the airline is run.

In a statement issued today, Cathay Pacific said its recapitalisation plan "will help it maintain its competitiveness and operations, while continuing its commitments to Hong Kong as an international aviation, financial and commercial hub."

The airline will also undertake a "wholesale review of operations required to transform its business to reflect the new global travel market dynamics."

Most industry analysts forecast a very gradual recovery of air travel demand over a protracted period, and the International Air Transport Association (IATA) predicting it will be 2023 at the earliest before international passenger demand returns to the 'pre-crisis' levels of 2019.

Cathay Pacific has been made especially vulnerable, given it has no domestic network and is wholly reliant on international cross-border travel, which now remains highly restricted and subject to quarantine constraints.

Cathay Pacific, founded in 1946 by Australian Sydney de Kantzow and American Roy Farrell, is majority-owned by British trading conglomerate Swire Pacific through a 45% stake, which the new plan will reduce to 42%, with Beijing-based Air China holding 30% (coming down to 28%) and Qatar Airways 10% (shrinking to 9.4%).

Downsizing and right-sizing

"This infusion (of capital) does not mean we can relax, indeed, quite the opposite," says Cathay Pacific chairman Patrick Healy. "We must must redouble our efforts to transform our business to be more competitive."

"What is certain is that our future will be very differing form our recent past. We will re-evaluation all aspects of our business model in light of this rapidly-changing environment."

"By Q4 the Cathay Pacific management team will recommend the optimum size and shape of the group," Healy added, warning that "tough decisions will need to be made to get Cathay Pacific to the right shape."

Additional reporting by Bloomberg


David Flynn is the Editor-in-Chief of Executive Traveller and a bit of a travel tragic with a weakness for good coffee, shopping and lychee martinis.

Qantas - Qantas Frequent Flyer

02 Sep 2018

Total posts 153

Probably the best scenario that Cathay could have expected out of the crisis.

Qantas - Qantas Frequent Flyer

11 Nov 2015

Total posts 38

A long overdue public recognition that Cathay needs to reconfigure it's business model. Singapore is in the same boat. With utd long legged overflying traditional hubs, CV 19 has brought forward an inevitable disruption to the traditional model. Long legs with fuel and staff efficiency must be the new model. There will still be a market segment for cheap sardine domestic stuff imho... Austin

Qantas - Qantas Frequent Flyer

13 Jan 2018

Total posts 44

"However, the Hong Kong government will take a 6% stake in the airline and two seats in its boardroom in exchange for covering the lion's share of financial support."

Hmmm...that should read the "Dragons Share". A "Lions Share" would surely involve SQ. Haha.

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