The Hong Kong government is acquiring shares and providing a loan to Cathay Pacific as a part of a HK$39 billion—about US$5 billion—recapitalization plan for the carrier.
Under the plan Cathay Pacific will issue HK$19.5 billion in shares to the Hong Kong government, pending shareholder approval, and the Hong Kong government also will provide a HK$7.8 billion bridge loan. That will give the government a 6 percent stake in Cathay Pacific and the ability to have two non-voting attendees at board meetings. The plan also includes an HK$11.7 billion rights issue of shares for existing shareholders, pending shareholder approval.
While Covid-19 has depleted airline demand globally, Cathay Pacific has faced the double whammy of protests within Hong Kong since the middle of 2019. Additionally, Cathay Pacific has a network that is fully international and will see demand recover more slowly than those carriers that are buoyed by a domestic network.
Passenger revenues for Cathay Pacific currently are about 1 percent of what they were last year, and the carrier has been losing between HK$2.5 billion and HK$3 billion per month since February, according to Cathay Pacific chairman Patrick Healy.
Since the onset of the Covid-19 crisis, Cathay Pacific has cut passenger capacity 97 percent, cut executive pay, deferred aircraft deliveries, sped up retirement of older aircraft and put a voluntary leave plan in place for employees, 80 percent of whom participated. It now has begun a second round of pay cuts and a second voluntary leave plan, according to Healy.
"The infusion of new capital that we have announced today does not mean we can relax," Healy said in a statement. "Indeed, quite the opposite. It means that we must redouble our efforts to transform our business in order to become more competitive."
Healy added that the carrier would be making "tough decisions" in the fourth quarter "to get Cathay Pacific to the right size and shape."