Cathay Pacific Airways Ltd announced on Tuesday a recapitalisation plan worth HK$39 billion ($5.03 billion) led by the Hong Kong government to help it weather the coronavirus pandemic.
The government will be issued HK$19.5 billion of preference shares giving it a 6% stake, HK$1.95 billion of warrants and will provide a HK$7.8 billion bridging loan, Cathay said. The government will also have the right to two observers at board meetings.
Governments around the world have been helping to aid airlines amid a plunge in travel demand, and in some cases such as Germany’s Lufthansa, they are taking direct equity stakes.
The Cathay pact includes a HK$11.7 billion rights issue to existing shareholders, led by Swire Pacific Ltd and Air China Ltd, which had halted trading on Tuesday morning alongside Cathay, pending the announcement.
Swire, which holds 45%, Air China which owns 30% and Qatar Airways with 10% plan to participate in the rights issue, Cathay said. Their holdings will fall to 42%, 28% and 9.4% afterward.
Cathay has grounded most of its planes because of falling demand amid coronavirus-related travel curbs, flying only cargo and a skeleton passenger network to major destinations such as Beijing, Los Angeles, Singapore, Sydney, Tokyo and Vancouver.
Cathay said on Tuesday a fall in passenger revenue to only 1% of the previous year’s levels meant the airline had been losing cash at a rate of HK$2.5 billion to HK$3 billion per month since February.
Cathay has furloughed some pilots at overseas bases and cut cabin crew roles in the United States and Canada since the start of the coronavirus pandemic, but has not announced large-scale permanent job losses.
The airline said on Tuesday it would put in place a further round of executive pay cuts and a second voluntary leave scheme for employees alongside the recapitalisation proposal.
“In the longer term, all aspects of the Cathay Pacific Group’s business model will be re-evaluated,” the airline said.