As reported by SCMP, Cathay’s restructuring package marks the first time the Hong Kong government has directly injected money into a private company.
Cathay Pacific will undergo a US$5.2 billion capital restructuring exercise to remain the region’s aviation hub.
It is the first time the government has directly injected money into a private company. Hong Kong’s flag carrier will issue new shares as part of the plan which will see the authorities taking up two “observer” boardroom seats in an unprecedented shake-up that will empower it to have a direct say in how the airline is run, sources have told the Post.
Trading was suspended on Tuesday morning while the city’s leader, Carrie Lam Cheng Yuet-ngor, met with the Executive Council, her de facto cabinet, to get final approval of a package that is expected to be announced later on Tuesday.
Cathay Pacific is now majority-owned by the Swire Group with a 45 per cent stake, and Air China with 29.99 per cent. The restructuring is well above the airline’s market capitalisation which stands at US$4.5 billion.
The International Air Transport Association said the industry supported some 330,000 jobs in the city.
Sources said the government decided to offer the rescue package given the importance of maintaining Hong Kong’s status as a regional aviation hub, and taking into account the hard-earned aviation rights, and important routes and flights, Cathay enjoyed and provided to residents and international passengers alike.
Cathay has control of approximately 50 per cent of runway slots at Hong Kong International Airport and has grown to become one of Asia’s biggest international airlines and the fifth largest air cargo carrier globally. It is now the only local airline to offer a full range of long-haul flights.
It has grown to operate 238 aircraft and carried 35.2 million passengers last year. Half of the airline’s US$13.8 billion revenue last year came from Hong Kong and mainland China.
The two observers will not have voting rights on the board but would have a say on major decisions that affect the public’s interests. This could range from not allowing massive lay-offs at the airline, which employs 33,000 staff, to ensuring company values would be in line with the city administration’s own emphasis on the “one country, two systems” principle of governance.
At the height of the political unrest last year, Cathay had become embroiled in controversy as employees found themselves in a number of high-profile protest-related incidents.
The airline came under intense scrutiny from China’s civil aviation authority and sweeping changes followed soon after among top management, including the resignations of CEO Rupert Hogg and his deputy Paul Loo Kar-pui, and later the retirement of long-time chairman John Slosar.
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Sources told the Post Cathay had tried to secure loans from the private equity market but could not get bidders, given the political sensitivities surrounding its ownership.