Cathay Pacific announced on Tuesday a plan to raise HK$39 billion in recapitalization financing. The Hong Kong-based carrier’s plan is comprised of three tranches including share and rights issues as well as a bridge loan facility.
Today, Hong Kong-based Cathay Pacific announced a HK$ 39 billion (US$5.03 billion) recapitalization plan to help the carrier maintain competitiveness and operations while continuing to support Hong Kong as an international aviation, financial and commercial hub. The recapitalization plan consists of three tranches of funding including the issuance of preferred shares with detachable warrants, rights issues and a bridge loan facility. For the first tranche (Tranche A), Cathay Pacific will issue HK19.5 billion (US$ 2.52 billion) in preferred shares with detachable warrants to the Hong Kong Administrative Region (HSKAR) government, upon approval from shareholders. In Tranche B, the carrier will launch a HK11.7 billion (US$1.51 billion) rights issue to existing shareholders and in Tranche C the HSKAR Government will provide a bridge loan facility of HK$7.8 billion (US$1.0 billion), available for immediate drawdown. In Tuesday’s announcement, Cathay Pacific’s Chairman, Patrick Healy said,
“We are grateful to the HSKAR Government’s capital support, which allows Cathay Pacific to maintain our operations and continue to contribute to Hong Kong’s international aviation hub status. We are also grateful to our shareholders for their confidence in the long-term future of Cathay Pacific and in the ability of Cathay Pacific’s management team to lead our airlines through what is the most challenging period in the Group’s history.”
Even before the global COVID-19 pandemic, Cathay Pacific has faced significant headwinds since 2019, as the social unrest in Hong Kong since the second half of last year resulted in a sharp decline in passenger traffic. With the International Air Transport Association (IATA) predicting an unlikely return to pre-pandemic international passenger demand levels until 2023 at the earliest, Cathay Pacific is particularly vulnerable, because they don’t have a domestic network. Cross-border travel remains highly restrictive, including quarantines such as the UK’s mandatory 14 day arrival quarantine, exacerbating the carrier’s current position.
Throughout the crisis, Cathay Pacific has focused on cash conservation by taking decisive actions such as reducing capacity by 97 percent, implementing executive pay cuts, deferring new aircraft deliveries and retiring older aircraft early. Cathay Pacific has also implemented a voluntary special leave program which has been adopted by 80 percent of their team members. In today’s announcement, Mr. Healy further stated,
“The infusion of new capital that we have announced today 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. Today we have announced a new round of executive pay cuts, and a second voluntary special leave scheme for our employees. We are in a very dynamic situation. We need to make the right decisions to adapt to the new reality of global aviation and secure our long-term future. This will require re-evaluating all aspects of our business model in light of the rapidly changing macro an industry dynamics. Inevitably this will involve rationalization of future planned capacity compared to our pre-crisis plans, taking into account the market outlook and cost structure at the time. Cathay Pacific is built on great service and we remain dedicated to delivering a fantastic experience that out customers enjoy and value. We will continue to maintain this by focusing on our strengths and investing in industry-leading enhancements.”
Despite all the measures taken, Cathay Pacific’s passenger revenue has collapsed year-over-year by around 99 percent and the carrier has been burning cash at a rate of around HK$2.5-3 billion (US$333-387 million) per month since February. By the fourth quarter, Cathay Pacific’s management team will recommend to the company’s board the optimized size and shape of the Group moving forward. The 70 year old Cathay Pacific Group offers world class premium service through their Cathay Pacific and Cathay Dragon subsidiaries. The Group also recently acquired the low-cost carrier HK Express, solidifying the Group’s market position in Hong Kong’s Greater Bay Area.
Source: Cathay Pacific