Cathay Pacific unveils US$5 billion bailout plan as it fights crippling downturn due to COVID-19

Hong Kong: troubled Chinese airline Cathy Pacific announced on Tuesday a 39 billion Hong Kong dollar (5 billion dollars) government-led rescue plan as it faces a stagnation caused by the coronavirus.

Like many transportation companies affected by the crisis, the company has witnessed the evaporation of passenger numbers in recent months, leaving most of its fleet on the runway and the company suffering from cash bleeding.

The airline was already under pressure after being hit by months of sometimes violent protests in Hong Kong last year that saw tourism abused.

On Tuesday, the telecoms company announced a radical proposal to inject liquidity and keep it afloat with the help of the Hong Kong government, which would take a small stake in the company.

“Frankly, without this plan, the alternative would have been the collapse of the company,” Cathy President Patrick Healy told reporters.

Most of the capital will come from the new shares issued to Aviation 2020, a government-owned company, in addition to a 7.8 billion Hong Kong dollar bridge loan also from the government.

Under the proposal, Cathy will raise about 11.7 billion Hong Kong dollars in rights issue based on seven rights shares for every 11 shares currently, while government preferred shares will be sold for 19.5 billion Hong Kong dollars and guarantees for 1.95 billion Hong Kong dollars, subject to adjustment.

Shares in Cathay Pacific and its two largest shareholders, Air China and Swire, were suspended in Hong Kong Tuesday morning before the announcement. Cathy said the operations would resume on Wednesday.

Swire, a group from Hong Kong and Britain with roots in the colonial era, has a 45% stake in Cathy, while Air China owns 30%.

Once the recapitalization plan is completed, the airline 2020 will acquire a six percent stake, while Swire shares will drop to 42% and Air China shares to 28%.

Aviation 2020 may also send “observers” to attend board meetings.

Temporary investment

This is the first time that the Hong Kong government has been pumping money directly into a private company, the South China Morning Post reported.

Finance Minister Paul Chan said the government had acted to protect Hong Kong as an international transportation hub after Cathy asked him for help.

“We expect the investment to continue for three years or more, as we have to at least wait until the epidemic passes,” he told reporters, adding that he expected reasonable returns for taxpayers.

He said, “The government will not participate in the daily operations of the company,” as the members of the monitoring board do not have the right to vote.

Cathy said that executives also agreed to cut payments, while all employees would be required to take three weeks of unpaid leave over the next six months, the second time that they had been asked to do so.

Before the epidemic occurred, Cathy was one of the largest international airlines in Asia and the fifth largest air cargo airline in the world.

The virus caused passenger numbers to collapse, and despite its continued shipping business, Cathy has no domestic demand to take refuge in, unlike many other large airlines.

Hailey said that Cathy entered the year with reserves of about $ 20 billion, but the company now spends $ 2.5-3 billion a month.

Cathy also punished Beijing last year when some of its 33,000 employees expressed support for Hong Kong’s pro-democracy protests.

The crisis led to the replacement of both the CEO and head of the airline when Cathy was quick to appease Beijing, while unions complained about the dismissal of some employees because of their political opinions.

Many other major airlines have struggled to get loans, raise capital, or seek rescue in the past few weeks, including Singapore Airlines, Korean Air, the Big Three American Airlines and Lufthansa.