Hong Kong government to bail out Cathay Pacific with HK $ 30 billion loan and working stake

  • A HK $ 40 billion restructuring plan for the city’s flagship carrier, with Hong Kong government contributing the lion’s share of the bailout
  • Government financial support shows full support for the city’s status as a regional aviation hub

Cathay pacific will undergo HK $ 40 billion (US $ 5.2 billion) capital restructuring exercise Hong Kong Government takes lead of bailout worth nearly HK $ 30 billion in loans and undisclosed stake, lending full support to the city to remain the hub aviation in the region. This is the first time that the government has injected money directly into a private company.

Hong Kong’s national airline will issue new shares as part of the plan that will see authorities occupy two “observer” seats in the boardroom in an unprecedented upheaval that will allow it to have a say in how the airline is managed, according to sources. said to
To post.

Becoming a “white knight,” the government will offer a loan to be repaid in the future and, more controversially, it will take a stake in the airline without seeking full board member status. Instead, he will have the “two observers” on the board, industry sources revealed.

Exchanges were put on hold Tuesday morning as city leader Carrie Lam Cheng Yuet-ngor met with the Executive Council, her de facto cabinet, to get final approval of a package that is expected to be announced later on Tuesday. .

Cathay Pacific is now majority owned by the Swire Group with a 45 percent stake and Air China with 29.99 percent. The restructuring is well above the airline’s market capitalization of HK $ 34.6 billion.

The International Air Transport Association said the industry supported some 330,000 jobs in the city.

Sources said the government decided to offer the bailout given the importance of maintaining Hong Kong’s status as a regional aviation hub, and given hard-earned aviation rights. and major routes and flights that Cathay has benefited from and provided to residents and international passengers. look alike.

Cathay controls approximately 50% of the runway slots at Hong Kong International Airport and has become one of Asia’s largest international airlines and the fifth largest air cargo carrier in the world. Today it is the only local airline to offer a full range of long-haul flights.

It grew to operate 238 planes and carried 35.2 million passengers last year. Last year, half of the airline’s HK $ 107 billion in revenue came from Hong Kong and mainland China.

The two observers will not have the right to vote on the board of directors but will have a say in important decisions that affect the interests of the public. This could range from banning mass layoffs at the airline, which employs 33,000 people, to ensuring that the company’s values ​​are in line with the city administration’s emphasis on the principle of governance “one.” countries, two systems ”.

At the height of political unrest last year, Cathay found herself embroiled in controversy as employees found themselves in a number of high-profile incidents linked to protests.

The airline came under intense scrutiny from the Chinese Civil Aviation Authority and sweeping changes in senior management soon followed, including the resignation of CEO Rupert Hogg and his deputy Paul Loo Kar-pui, and later the retirement of the long-time president. John slosar.

Sources told the
To post Cathay had tried to secure loans in the private equity market but had been unable to secure offers, given the political sensitivities surrounding her property.
Coronavirus pandemic has forced airlines around the world to increase their cash flow or seek government bailouts to survive the crippling air transport collapse. Cathay Pacific lost HK $ 4.5 billion in the first four months of 2020 due to the pandemic, and as of March 11, she had HK $ 20 billion in unlimited cash before the Covid-19 crisis.

To date, Cathay Pacific has given little indication of its financing needs, but called the financial outlook “very bleak” in mid-May.

Other governments have lined up to help struggling airlines in recent months.

The Lufthansa group is expected to obtain $ 12.3 billion from the governments of its national airlines in Germany, Switzerland, Belgium and Austria, including $ 9.8 billion from Berlin.

The German government will get a 20 percent stake and two board seats held by independent experts. Lufthansa is to forgo certain runway slots and fly in a more environmentally friendly manner as part of the deal.

U.S. carriers have also benefited from a $ 50 billion bailout, while other airlines in the region have filed for bankruptcy, including Latam, South America’s largest carrier.

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