HONG KONG — The government of Hong Kong will lead a $5.02 billion recapitalization of Cathay Pacific Airways under a plan unveiled on Tuesday to tide the city’s ailing flagship carrier through the impact of the coronavirus pandemic.
The airline said the government aid package will consist of HK$19.5 billion from the issuance of preferred shares and HK$7.8 billion in bridge loans. Existing major shareholders Swire Pacific, Air China and Qatar Airways will join the capital call by subscribing to a HK$11.7 billion rights issue.
“Cathay Pacific has explored available options and believes that a recapitalization is required to ensure it has sufficient liquidity to weather this current crisis,” the carrier said. “Travel restrictions imposed by various governments have led to significantly reduced inbound and outbound passenger traffic for the Cathay Pacific Group and uncertainty over the Cathay Pacific Group’s future prospects and operations.”
The company, which was already hurting from extended political protests in Hong Kong last year, said that despite slashing passenger operations by 97% and other operating cost cuts since February, it “has been losing cash at a rate of HK$2.5 billion to HK$3 billion per month.”
Upon accepting the bailout, the airline “intends to implement a further round of executive pay cuts and a second voluntary special leave scheme for employees” while coming up with a plan by year-end to revaluate its long-term development.
The government is to place two observers on Cathay’s board under the bailout plan. Bernard Chan, a member of Hong Kong Chief Executive Carrie Lam’s Executive Council, is already an independent director of the company.
Trading in Cathay, Swire and Air China shares in Hong Kong was halted Tuesday morning and is expected to resume on Wednesday. Cathay shareholders are to vote on the recapitalization plan on July 13.
Additional reporting by Zach Coleman in Hong Kong.