AviationAirline receives financing from Hong Kong government to keep operations afloat and Asian aviation hub competitive

Cathay Pacific: The battle has only just begun

Analysts says Hong Kong considers Cathay integral to the city’s future growth and economic health.”
Analysts says Hong Kong considers Cathay integral to the city’s future growth and economic health.”

HONG KONG - Cathay Pacific will receive a three-part financing plan from the Hong Kong government to the tune of HK$39 billion (US$5.032 billion), including a HK$27.3 billion (US$3.5 billion) lifeline, while the government takes a 6.08% stake.

The move, welcomed by the Airport Authority Hong Kong (AA), is designed to help the airlines’ brands – Cathay Pacific, Cathay Dragon and HK Express – recover from the travel industry’s current pandemic-related downturn and the city’s social unrest, and the subsequent decline in passenger traffic.

The strategic step by the government is to safeguard the city’s global aviation hub status, economic development and maintain flights, routes and independent air traffic rights. In addition, the airline provides approximately 330,000 jobs and, during sunnier times, is worth around 10% of Hong Kong’s GDP.

“If this challenge is not properly addressed, it would harm Hong Kong’s international aviation hub status, and adversely impact other economic activities, to the detriment of the overall interest of Hong Kong,” said Hong Kong financial secretary Paul Chan Mo-po.

Now the pressure is on Cathay Pacific to get back on track, which will include winning back the all-important mainland market.

“Cathay has received possibly the biggest vote of confidence from the Hong Kong government during the most challenging year in its history,” said Luya You, transport analyst at brokerage Bocom International.

“It’s a big signal to the rest of the market that Hong Kong considers Cathay integral to the city’s future growth and economic health.”

The Hong Kong government plans to hold the shares it has acquired in Cathay Pacific for the medium-term (three to five years). It will not participate in daily operations although two observers will attend board meetings.

Throughout the downturn in the travel industry Cathay Pacific has focused on preserving cash by initiating executive pay cuts and implementing a voluntary leave scheme, delaying new plane orders and retiring older planes, and cutting passenger capacity.

“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 (US$322.5 million) to HK$3 billion (US$387 million) per month since February, and the future remains highly uncertain,” said Patrick Healy, chairman of Cathay Pacific.

“The infusion of new capital 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.

“We have announced a new round of executive pay cuts, and a second voluntary special leave scheme for our employees,” he added.

Mr Healy said without the rescue plan the alternative could have been the collapse of the company.

“Tough decisions will need to be made in the fourth quarter of this year to get Cathay Pacific to the right size and shape in which to compete successfully and thrive in this new environment.

“But once we have right-sized the airlines to adapt to our new reality, our long-term prospects remain as bright as ever.”

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