Cathay Pacific has announced a HK$39 billion (£4 billion) bailout plan, claiming it would help maintain competitiveness. The three-part plan, financed by the Hong Kong government, will provide Cathay with sufficient funds to withstand the industry-wide downturn. It will also provide a stable platform to conduct a wholesale review of operations.
The recapitalization plan comprises three parts
In the first, Cathay will issue HK$19.5 billion in preference shares with detachable warrants to the Hong Kong government after the requisite shareholders’ approval. Next, the carrier will launch an HK$11.7 billion rights issue to existing shareholders, while the third will see the Hong Kong government provide a HK$7.8 billion bridge loan facility. The loan will be drawn down immediately.
Cathay has experienced several challenges since 2019
Positive momentum from 2018 resulted in a strong first-half in 2019. Social unrest in Hong Kong has led to a sharp decline in passenger traffic since mid-2019. This was worsened its situation by the Covid-19 pandemic outbreak. Most industry analysts are predicting gradual recoveries. The IATA is forecasting that it will be 2023 at the earliest before international passenger demand returns to pre-crisis levels.
Cathay Pacific is more vulnerable than some of its global peers, as its airlines have no domestic network and are completely reliant on cross-border travel. That travel remains highly restricted, having no potential to return to normal international travel arrangements soon.
“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. It means that we must redouble our efforts to transform our business to become more competitive,” added Healy.