Hong Kong government bails out Cathay Pacific with a $5 billion capital infusion

Cathay Pacific gets some relief as the Hong Kong government has committed to bail out the airline by infusing HKD39 billion or USD5 billion, in exchange of a minor stake in the airline.

The airline has been badly hit by the coronavirus crisis and was also greatly affected by the Hong Kong protests.

Once approved by shareholders, the recapitalisation will come in three tranches:
  • Tranche A: Cathay Pacific will issue HK$19.5 billion (USD 2.5 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 a HK$11.7 billion (USD 1.5 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 (USD 1 billion) bridge loan facility to Cathay Pacific, available for drawdown immediately.
In a statement, 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.”

Hong Kong protests already affected the airline

Even prior to the covid-19 pandemic, Cathay Pacific was caught in the middle of protests in Hong Kong against the extradition agreement with China just last year. This led to a sharp decline in passenger traffic. Cathay Pacific's position was even worsened by the coronavirus outbreak which started in Wuhan, China.

In order to address the crisis, Cathay Pacific had to implement measures to conserve cash which include slashing capacity by 97%, implementing executive pay cuts, deferring new aircraft orders, decommissioning older aircraft, and implementing a special leave scheme.

Not a time to relax

Patrick Healy said, "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.”

Hong Kong government not interested in long-term stake

Financial Secretary of Hong Kong, Paul Chan, said that the government is not interested in a long-term stake on the airline. However once in place, the Swire Group which presently owns 45% will drop to 42.3% while Air China which has a 30% stake will drop to 28% and Qatar Airways stake will drop to 9%.

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