The Hong Kong government will take a stake in embattled local airline Cathay Pacific and offer an immediate bridge loan of HK$7.8 billion as part of a rescue package worth a total of HK$39 billion (USD $5 billion) to save the carrier from potential collapse. Cathay Pacific welcomed the news on Tuesday afternoon, saying the bailout would help it “withstand the industry-wide downturn” caused by the COVID-19 pandemic.
The recapitalisation plan will be made up of three tranches, two of which will be backed by the Hong Kong government. Alongside the HK$7.8 billion bridge loan, the government will also take a stake in the publicly listed airline by snaffling up HK$19.5 billion in shares in the business. A further HK $11.7 billion will be raised through existing shareholders.
Hong Kong’s finance secretary Paul Chan said the government did not intend to hold its stake in Cathay Pacific in the longterm and would not get involved in the day to day running of the airline.
Cathay Pacific’s chairman Patrick Healy said despite efforts to drastically cut costs, the airline had been losing between HK$2.5 billion to HK$3 billion every month since February. “The future remains highly uncertain,” Mr Healy said, pointing to estimates from the International Air Transport Association (IATA) that suggests it could take three years for air travel demand to recover to pre-Corona levels.
“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,” Healy continued.
Cathay Pacific has announced a second wave of executive pay cuts and will once again ask staffers to take unpaid voluntary leave – the initial tranche of unpaid leave had an uptake rate of 80 per cent as part of an effort to avoid redundancies.
Healy said the airline is also currently working through proposals for the “optimum size and shape” of Cathay Pacific in the years ahead. Describing the situation as “dynamic”, Healy said tough decisions would have to be made, although details of those decisions such as changes in fleet size or employee headcount won’t be made until the fourth quarter of the year.
“We need to make the right decisions to adapt to the new reality of global aviation and secure our long-term future… Inevitably this will involve rationalisation of future planned capacity compared to our pre-crisis plans, taking into account the market outlook and cost structure at that time,” he explained.
Cathay Pacific was one of the first international airlines to be slammed by the novel Coronavirus as the outbreak first hit demand in China and across Asia, before grounding flights around the world. Before the pandemic, the airline was already dealing with a massive slump in demand as a result of months of protests in its home of Hong Kong.
The airline has slashed capacity by 97 per cent in the wake of the pandemic but passenger numbers have fallen even further. In April, Cathay Pacific carried just 0.4 per cent of the number of passengers it carried in the same month in 2019. Transit passengers are now allowed to travel through Hong Kong International Airport but its borders remain closed.
