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

Cathay and parent company Swire Pacific announced plans to raise 39 billion Hong Kong dollars ($5 billion) in new capital on Tuesday to help the airline survive the crisis wrought by the coronavirus pandemic. The Hong Kong government would provide the bulk of the new funds extending a bailout package worth 27.3 billion Hong Kong dollars ($3.5 billion) consisting of loans and preferred share purchases. The rest of the capital will come from issuing new stock.The deal would leave Aviation 2020, a limited company owned by Hong Kong’s government, with a stake of roughly 6% in Cathay. The airline is “grateful” for the government’s “capital support, which allows Cathay Pacific to maintain our operations and continue to contribute to Hong Kong’s international aviation hub status,” Patrick Healy, chairman of Cathay, said in a statement. Hong Kong’s flagship carrier had already been suffering a slump in business because of widespread protests that rocked the city last year, when the coronavirus pandemic hit. Like elsewhere, business and holiday travel to and from the Asian financial hub has ground to a halt. Healy said on Tuesday that Cathay’s passenger revenue has collapsed to around 1% of normal levels. The carrier has cut executive pay, furloughed staff and has been operating at 3% capacity to preserve cash. Cathay said that it is unlikely to return to the same number of flights it was operating before the pandemic any time soon.The airline is re-evaluating all aspects of its business model, and “inevitably this will involve rationalization of future planned capacity compared to our pre-crisis plans,” Healy said. Swire Pacific (SWRAY), one of Hong Kong’s richest family-owned business empires, said in a statement that it supports the restructuring plan. The cash injection will maintain Cathay’s “competitiveness and operations amidst the unprecedented challenges to the global travel market,” the company said. Swire will see its stake in Cathay decrease from 45% to about 42.3% once the deal is done. Other major shareholders Air China (AIRYY) and Qatar Airways will also be left with slightly smaller stakes in Cathay of about 28% and 9%, respectively.The Hong Kong government does not want to hold its stake in Cathay for the long term, Hong Kong Financial Secretary Paul Chan told reporters on Tuesday. Governments have committed $123 billion in financial aid to airlines around the world, the International Air Transport Association said in a report in May. The majority of the aid consists of loans, loan guarantees and deferred taxes that will need to be repaid, the aviation group said.