Hong Kong Bailout Lets Cathay Pacific Chart New Future Without Air China Takeover

The Hong Kong government’s HK$29 billion (US$3.8 billion) bailout of Cathay Pacific gives needed cash without major shareholder Air China taking over the airline in a move neither carrier or government seems prepared for in the current sensitive political and financial environment.

Hong Kong has been an exception to major governments giving large loans or grants to airlines in the wake of the coronavirus crisis. Cathay was gradually being encircled by competitors, within Asia and further flung, that had fresh cash to steer them through aviation’s worst downturn.

Cathay’s HK$39 billion (US$5 billion) recapitalisation is mostly in the form of new equity and is led by the Hong Kong government. Its future ownership structure will not significantly change as the Hong Kong government gains a 6.1% stake.

Existing shareholders retain balance but with marginal dilution. Swire Pacific’s holding in Cathay will decrease from 45% to 42.3%, Air China from 29.9% to 28.2%, and Qatar Airways from 9.9% to 9.4%. Swire and Air China combined will still own over 70%.

The Hong Kong government will buy new shares and have warrants amounting to HK$21.5 billion (US$2.8 billion), and will also provide a HK$7.8 billion (US$1 billion) loan. The city will not have voting members on Cathay’s board but will have two observer seats. Qatar Airways, which will have a larger stake than the Hong Kong government, has not had a board representative.