Cathay Avoids Collapse With $5 Billion Government-Backed Plan

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Cathay Pacific Airways Ltd. became the latest global carrier to receive a lifeline to get through the coronavirus pandemic, with the chairman saying its plan to raise HK$39 billion ($5 billion) from the Hong Kong government and shareholders was necessary to avoid collapse.

The beleaguered airline will sell HK$19.5 billion of preference shares along with HK$1.95 billion of warrants to the government. It also proposed a rights issue, reported earlier Tuesday by Bloomberg News, to raise about HK$11.7 billion. The plans are subject to shareholder approval at an extraordinary general meeting around July 13.

A government-connected entity called Aviation 2020 Ltd. also is extending a HK$7.8 billion bridge loan, the carrier said. The government will own 6.08% of Cathay through Aviation 2020 after the deal and have two observers on its board. The airline will cut executives’ salaries and offer more unpaid leave to its workers, and job cuts are possible.

“The reality is that the recapitalization plan announced today is basically the only plan available to Cathay Pacific,” Chairman Patrick Healy said. “The alternative would have been a collapse of the company.”

Airlines around the world have been searching for funds after the coronavirus wiped out passenger demand and grounded fleets. Governments have devoted more than $85 billion to propping up the industry, including the major U.S. carriers and Germany’s Deutsche Lufthansa AG, which secured about $10 billion in state support. Even so, global air traffic may only get back to 50% to 60% of usual levels by year-end.

“With the participation of the Hong Kong government in its capital reorganization, the firm will be kept out of troubles like a cash squeeze at least in the coming months, and both its financial strength and credit rating will get a boost,” said Steven Leung, executive director at UOB Kay Hian (Hong Kong) Ltd.

Cathay and main shareholders Swire Pacific Ltd. and Air China Ltd. suspended trading Tuesday, pending the announcement, and will resume Wednesday. Air China owns about 30% of Cathay, while Swire Pacific has a 45% stake. Qatar Airways holds 9.99%. All three have undertaken to vote in favor of all resolutions for the recapitalization plan.

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