Dhaka: Cathay Pacific Airways announced on June 9 that the Hong Kong government will lead a recapitalisation plan worth USD 5 billion to help the airline survive the coronavirus pandemic.
The move marks the latest public rescue for a troubled airline. Governments around the world have been bailing out airlines amid a plunge in travel demand, and in some cases such as Germany’s Lufthansa, they are taking direct equity stakes.
For Cathay, government intervention followed the double blows of political unrest in Hong Kong last year and the coronavirus which was costing it about USD 387 million a month in lost passenger revenue.
It has grounded most of its planes, flying only cargo and a skeleton passenger network to major destinations such as Beijing, Los Angeles, Sydney and Tokyo.
Just like Singapore Airlines, which received a rescue package up to USD 10.1 billion led by state-investor Temasek Holdings, Cathay has no domestic market to rely on to cushion against the plunge in international travel.
Under the rescue plan announced by Cathay, the Hong Kong government would be issued USD 2.5 billion of preference shares giving it a 6 per cent stake, and USD 251 million of warrants.
It would also provide a USD 1 billion bridging loan and would have the right to two observers at board meetings, Cathay said in a statement.
The deal includes a USD 1.5 billion rights issue to existing shareholders, led by Swire Pacific Ltd and Air China, which had halted trading on June 9 morning alongside Cathay, pending the announcement.
Swire, which holds 45 per cent, Air China which owns 30 per cent and Qatar Airways with 10 per cent plan to participate in the rights issue, Cathay said. Their holdings will fall to 42 per cent, 28 per cent and 9.4 per cent afterward.
Cathay said on June 9 that a fall in passenger revenue to only 1 per cent of the previous year’s levels meant the airline had been losing cash at a rate of USD 322 million to USD 387 million per month since February.
Cathay has furloughed some pilots at overseas bases and cut cabin crew roles in the US and Canada since the start of the coronavirus pandemic, but has not announced large-scale permanent job losses.
The airline said that it would put in place a further round of executive pay cuts and a second voluntary leave scheme for employees as it considered the optimum size for the business in the future.
“The infusion of new capital that we have announced today does not mean we can relax. Indeed quite the opposite,” Patrick Healy, Chairman, Cathay said in a statement.
“It means that we must redouble our efforts to transform our business in order to become more competitive,” he concluded.