Hong Kong is expected to lead a USD 5 Billion rescue package of Cathay Pacific Airways as it has been heavily affected by the coronavirus pandemic. There is no surprise here as all airlines have been affected by the global travel slump due to the COVID-19 outbreak. This follows the Hong Kong political unrest and COVID-19 outbreak where Cathay reported that it was burning through HK$3 Billion or USD 387 Million a month in cash.
Airlines have been bailed out around the world, including Germany’s Lufthansa where it has taken direct equity stakes to keep them running. “The alternative would have been a collapse of the company. Commercial debt markets are effectively closed to airlines today who do not have extensive government shareholder support,” Cathay Chairman Patrick Healy told reporters on Tuesday.
Most of Cathay’s aircrafts are grounded as it has focused on keeping its cargo ships and passenger network to major destinations such as Sydney, Tokyo, Los Angeles and Beijing. Singapore Airlines has received a USD 10.1 Billion rescue package while Cathay has no domestic market to offset the international setbacks. Finance Secretary Paul Chan said, “It is not our intention to become a long-term shareholder of Cathay Pacific,” he told reporters. “It is not our intention to interfere with the operation and management of Cathay.”
The Hong Kong government will be issued HK$19.5 Billion of shares, including HK$1.95 Billion of warrants, giving it a total 6% stake. BOCOM International analyst Luya You said the combined package would provide more than enough funding for Cathay. “A recapitalisation plan of this size bodes well for Cathay’s long-term future,” she said. “Big airlines with sufficient liquidity can actually gain significant market share immediately post-COVID.”