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.

Cathay Pacific Boeing 777-300. Picture by Steven Howard of Click to enlarge.

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.

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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