Cathay Pacific Airways passenger jets 09122018
Cathay Pacific needs new funds to see it through the current crisis. A $5b rights issue would help. Image Credit: AFP

Hong Kong: Cathay Pacific Airways has announced a HK$39 billion ($5 billion) recapitalization plan that includes preference shares and a rights issue as it battles through unprecedented difficulty brought on by the coronavirus pandemic and protests in Hong Kong.

The rights issue proposal is on the basis of seven rights shares for every 11 existing shares held and would raise about HK$11.7 billion, Cathay said in a statement to the Hong Kong stock exchange. The preference shares would raise HK$19.5 billion and warrants HK$1.95 billion, subject to adjustment.

Aviation 2020 Ltd., a Hong Kong government-connected entity, is extending a HK$7.8 billion bridge loan.

"Cathay Pacific has explored available options and believes that a recapitalisation is required to ensure it has sufficient liquidity to weather this current crisis," the airline said in the statement.

A slump pre-empts COVID-19

Air China, Cathay Pacific and Swire Pacific suspended trading their shares, pending the announcement. The suspensions come as Cathay contends with a slump in traffic brought on by the coronavirus outbreak and the travel restrictions that ensued.

Even before the pandemic, Cathay was under enormous financial and political pressures as it found itself caught up in the Hong Kong anti-government protests, which affected traffic numbers and led to the exit of the company's former chief executive officer. Cathay was criticized by China, protesters and its own workers for its response to the demonstrations.

Bleeding cash

Cathay also will implement another round of executive pay cuts and a second voluntary leave program for employees. The airline is losing as much as HK$3 billion a month.

"In the longer term, all aspects of the Cathay Pacific Group's business model will be re-evaluated," the company said.

The International Air Transport Association last month said the global airline industry's debt could swell by 28 per cent to $550 billion this year, which includes $123 billion in financial aid from governments. The industry group expects airlines to burn through about $60 billion of cash in the second quarter alone.

Need for cash
Airlines around the world have been searching for funds after the coronavirus slammed their operations.

In Asia, Singapore Airlines Ltd. raised S$8.8 billion ($6.3 billion) in a rights issue last week and has since secured new credit lines and loans, while South Korean authorities are pumping another 1 trillion won ($834 million) into Korean Air Lines Co..

Major US carriers American Airlines Group Inc., Delta Air Lines Inc. and United Airlines Holdings Inc. are among those to have lined up billions of dollars in aid to help them through the crisis.

In Europe, Deutsche Lufthansa AG has secured about $10 billion in state support. Others including Avianca Holdings SA and Latam Airlines Group SA have filed for bankruptcy, while administrators are looking at bidders for Virgin Australia Holdings Ltd. after it collapsed in April.