Cathay Pacific Unveils Details of Major Recapitalisation Plan

Cathay Pacific unveiled the details of a major recapitalisation plan on Tuesday.

With cash liquidity of around HK$20 billion at the beginning of the year, and losing between HK$2.5 and HK$3 billion dollars per month since February 2020, the plan is nothing less than a vital lifeline.

Designed to provide Cathay Pacific with sufficient funds to withstand the industry-wide downturn, and a stable financial platform from which it will be able to conduct the wholesale review of operations required to transform its business to reflect the new global travel market dynamics, the three-part recapitalisation plan comprises:

Tranche A: Cathay Pacific will issue HK$19.5 billion in preference shares with detachable warrants to the Hong Kong Government after requisite shareholders’ approval has been obtained.

Tranche B: Cathay Pacific will launch a HK$11.7 billion rights issue of shares to existing shareholders after requisite shareholders’ approval has been obtained.

Tranche C: The Hong Kong Government will provide a HK$7.8 billion bridge loan facility to Cathay Pacific, available for drawdown immediately.

As part of the deal, the Hong Kong Government will also have two advisors on the Board of Directors. Mr. Patrick Healy, Chairman of Cathay Pacific, said the two advisors will not have voting rights and are not expected to have any impact on governance or the management of the company.

“We are grateful to the HKSAR 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,” Mr. Healy said.

Cathay Pacific has experienced a number of challenges since 2019. Positive momentum from 2018 drove a strong first-half result in 2019. However, the protests in Hong Kong became increasingly violent as the year went on and led to a sharp decline in passenger traffic in H2 2019. This challenging environment has been exacerbated by the ongoing COVID19 pandemic.

Most industry analysts are forecasting very gradual recoveries over a protracted period, and IATA believes that it will be 2023 at the earliest before international passenger demand returns to pre-crisis levels.

Cathay Pacific is even more vulnerable than most of its global airline peers, given that its airlines have no domestic network and are wholly reliant on cross-border travel. That travel remains highly restricted and subject to quarantine constraints, with no prospects for a return to normal international travel arrangements anytime soon.

Cathay Pacific has been agile in responding to this unprecedented crisis and has remained focused on cash conservation. The many actions it has taken to preserve cash have included cutting passenger capacity by 97%, implementing executive pay cuts, deferring new aircraft orders and carrying out the early retirement of older aircraft, as well as implementation of a voluntary special leave scheme, which had an 80% employee uptake.

Mr Healy explained, “Despite all these measures, the collapse in passenger revenue to only around 1% of prior year levels has meant that we have been losing cash at a rate of approximately HK$2.5 billion to HK$3 billion per month since February, and the future remains highly uncertain. The infusion of new capital 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.”

By the fourth quarter of this year the Cathay Pacific management team will recommend to the board the optimum size and shape of the Cathay Pacific Group to meet the air travel needs of Hong Kong while keeping the company’s financial status at a healthy level, and at the same time meeting our responsibilities to our shareholders in the coming years.

 “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 and industry dynamics. 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. Tough decisions will need to be made in the fourth quarter of this year to get Cathay Pacific to the right size and shape in which to compete successfully and thrive in this new environment ... Our short-term challenges are significant, but our long-term future remains bright,” Mr Healy concluded.

What Does this Plan Mean to Cathay Pacific?

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