Hong Kong acquires stake in Cathay Pacific as part of a $ 5 billion bailout

Hong Kong acquires stake in Cathay Pacific as part of a $ 5 billion bailout

Cathay and its parent company, Swire Pacific, announced plans to raise $ 39 billion of new capital on Tuesday ($ 5 billion) to help the airline recover from the crisis caused by the coronavirus pandemic.

The Hong Kong government would provide most of the new funds by expanding a bailout package of $ 27.3 billion in Hong Kong ($ 3.5 billion) and privileged shares. The rest of the capital will come from issuing new shares.

The deal would leave Aviation 2020, a limited company owned by the Hong Kong government, in Cathay with a 6% stake. City finance secretary Paul Chan told reporters that the government will also appoint two observers to Cathay’s board to protect his investment.

The airline said the government is “grateful” for “capital support,” which allowed Cathay Pacific to continue our operations and continue to contribute to Hong Kong’s international aviation center status.

“Without this plan, the alternative company would have collapsed,” he said.

Hong Kong’s flagship has already experienced a collapse in the business world because widespread protests It hit the city last year when it hit the coronavirus pandemic.

As elsewhere, business and leisure trips have come to a halt to commute to and from the Asian financial center. Healy said on Tuesday that Cathay’s passenger income dropped to about 1% of normal levels. The carrier reduced his wages, laughed at his staff and works at a 3% capacity for cash savings. The minister announced administrative fee reductions of up to 30% on Tuesday.

The global aviation industry was injured by the coronavirus outbreak, and elsewhere, it also prompted governments to rescue large airlines. Germany leads the $ 10 billion Lufthansa recovery process. Meanwhile, the total value of government bailouts for US airlines, Reached $ 50 billion.

Since February, Cathay has burned 3 billion Hong Kong dollars ($ 387 million) a month and fell rapidly from the $ 20 billion ($ 2.6 billion) cash pile it had at the beginning of the year.

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The airline is now re-evaluating all aspects of the business model, and “inevitably, this will require rationalization of future planned capacity compared to our pre-crisis plans.” Said.

Cathay said it was unlikely to return to the same number of flights she had ever performed before the pandemic.

Swire Pacific (SWRAY)One of the richest business empires of Hong Kong’s family, he said, supports the restructuring plan. Cash injection will continue Cathay’s “competitive power and operations amid unprecedented challenges in the global travel market.”
Swire will see that its stake in Cathay fell from 45% to 42.3% after the deal was reached. Other major shareholders Air china (AIRYY) Qatar Airways will remain in Cathay in smaller quantities of about 28% and 9% respectively.
The Hong Kong government is very interested in protecting the city’s aviation center. More than 74 million passengers traveled to the airport in 2018. Before Covid-19It performed 1,100 passenger and cargo flights daily and served approximately 200 destinations worldwide and contributed 5% directly and indirectly to Hong Kong’s GDP.

“Hong Kong is a city compared to the USA or China, Hong Kong will stop when we don’t have international flights,” Chan told the reporters.

Both Cathay and Hong Kong officials said the government does not intend to become a shareholder in the long term.

Dividend payments for the government’s privileged shares are designed to encourage Cathay to pay and use the shares at the earliest opportunity..

The International Air Transport Association said in a report released in May that governments have committed $ 123 billion in financial assistance to airlines around the world. The aviation group said that most of the assistance consisted of loans, credit guarantees and deferred taxes that had to be repaid.

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