Saving Cathay: Hong Kong government steps in as airline suffers
Long-struggling Cathay has been hit hard by the coronavirus pandemic and anti-government protests in Hong Kong.
Cathay Pacific Airways Ltd has announced a recapitalisation plan worth 39 billion Hong Kong dollars ($5bn) led by the Hong Kong government to help it weather the coronavirus pandemic.
The government will be issued 19.5 billion Hong Kong dollars ($2.5bn) worth of Cathay preference shares – whose holders are compensated before other shareholders in the event of a company going bankrupt – giving it a 6-percent stake. The government will also receive 1.95 billion Hong Kong dollars ($252m) in warrants, giving it the right to buy more shares at a specified price at a future date.
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In addition, the government will provide a bridging loan worth 7.8 billion Hong Kong dollars ($1bn), Cathay said. The government will also have the right to have two observers at board meetings.
Governments around the world have been helping airlines amid a plunge in travel demand, and in some cases such as Germany’s Lufthansa, they are taking direct equity stakes.
Cathay has grounded most of its planes because of falling demand amid coronavirus-related travel curbs, flying only cargo and a skeleton passenger network to major destinations such as Beijing, Los Angeles, Singapore, Sydney, Tokyo and Vancouver.
Cathay said on Tuesday a fall in passenger revenue to only 1 percent of the previous year’s levels meant the airline had been losing cash at a rate of 2.5-3 billion Hong Kong dollars ($323m-$387m) per month since February.
Cathay has furloughed some pilots at overseas bases and cut cabin crew roles in the United States and Canada since the start of the coronavirus pandemic, but has not announced large-scale permanent job losses.
The airline said on Tuesday it would put in place a further round of executive pay cuts and a second voluntary leave scheme for employees alongside the recapitalisation proposal.
“In the longer term, all aspects of the Cathay Pacific Group’s business model will be re-evaluated,” the airline said.
Even before the pandemic, Cathay was under enormous financial and political pressures as it found itself caught up in the Hong Kong anti-government protests, which affected traffic numbers and led to the exit of the company’s former chief executive officer. Cathay was criticised by China, protesters and its own workers for its response to the demonstrations.