Cathay Pacific has had its plans approved to raise a staggering HK$39 bn ($5 bn) in funding to help the airline weather the coronavirus crisis. The government-backed rescue deal includes the sale of preference shares, bridging loans and warrants, and was approved during an extraordinary general meeting this afternoon.
Shareholders overwhelmingly in favor
Hong Kong-based airline Cathay Pacific has had a lifeline handed to it today, as an extraordinary general meeting saw a deal approved that could be the rescue the carrier needs. The bailout package, valued at $5 bn, received overwhelming support from Cathay’s shareholders.
As reported in the South China Morning Post, Cathay’s shareholders voted 99% in favor of the package. In contrast to Lufthansa’s extraordinary general meeting discussing its bailout, which took more than six hours, Cathay’s meeting lasted little more than just 15 minutes.
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Following the vote, the company will now undertake something of an overhaul. Cathay will review everything from its fleet to its network and its staffing, in order to present a final plan for a rebirth of the airline in the post-corona world.
Prior to the vote, Chairman Patrick Healy told the SCMP,
“The first priority was to get the recapitalization done and it’s great to get this far and we hope to get shareholder support and then we’ll move onto the deliberations of the restructuring.”
He later indicated that the overhaul of the business would take a couple of months.
The only way to save it
Of all the world’s airlines struggling due to the coronavirus, Cathay has been one of the worst-hit. It had already taken a knock last summer as widespread protests in Hong Kong led to travel warnings and a slump in traffic levels. Since then, it has been coping with border closures, decreased travel demand, and the prospect of the situation persisting for some time to come.
When the recapitalization plan was announced last month, Healy had said it was the only way to save the airline from collapse. Now, with the approval vote, we can add some more color to how the airline will look in the future.
In total, Cathay will sell $2.25bn of preference shares along with $251.2m of warrants to the Hong Kong government. As a result, the government will become a shareholder to the tune of 6.08% of the company.
Simultaneously, the government’s investment vehicle, known as Aviation 2000, will inject $1bn to Cathay in the form of a loan. A further $1.5bn is expected to be raised through sales of shares to existing shareholders, known as a rights issue.
While today’s vote is great news for the airline, it still has a long way to go to get out of the woods. Hong Kong’s restrictions on inbound travel look set to persist a while longer, and many of the countries to which Cathay flies are also subject to similar issues and restrictions.
In a circular sent to shareholders last month, Cathay had said that the bailout would keep it going for at least 12 months. However, it remains to be seen whether the impacts of COVID have been mitigated sufficiently within that time frame.