Hong Kong’s government is leading a bailout of the city’s flagship carrier Cathay Pacific, providing it with the bulk of a $5b funding package that could also give the government a minority stake in the 73-year-old company. Cathay said Tuesday that it would receive $2.5b from a government-owned entity called Aviation 2020 Ltd., which will buy preference shares in the company. The carrier will also be able to draw from a $1b bridge-loan facility from the same entity at a low interest rate. Cathay will separately raise $1.5b by selling new shares, and its biggest shareholders, Swire Pacific, Air China and Qatar Airways, have committed to subscribe to the rights issue. Augustus Tang, Cathay’s CE, said the company turned to the government for assistance after the coronavirus pandemic hammered its business and caused its passenger numbers to drop by more than 99% from a year ago. Chairman Patrick Healy said the carrier was facing the prospect of collapse and that the deal is critical to Cathay’s survival. The government could end up owning 6.08% of Cathay’s common shares following the recapitalization, if Aviation 2020 also exercises warrants for about $250m in additional shares.<br/>
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Cathay Pacific Airways said it expects to repay the Hong Kong government for HK$19.5b (US$2.52b) of preference shares over a three to five year period. The shares are part of a $5b recapitalisation package announced on Tuesday to help the airline weather the coronavirus crisis. The notes carry a coupon rate of 3% for the first three years, rising to 5% in year four, 7% in year five and 9% in year six, giving the airline an incentive to redeem them. “We would certainly be expecting to repay that over a 3-5 year period,” CFO Martin Murray said in an analyst briefing Tuesday. Murray said the package, which also includes a HK$11.7b rights issue to current shareholders would more than halve the airline’s gearing levels. “That in turn restores access to both the equity and debt market and allows us to tap that market later in the year or next year for equity and debt,” he said.<br/>
American Airlines Group will take 141 aircraft from storage to support an increase in July service as travelers return to the skies faster than expected amid the coronavirus pandemic. The carrier will reactivate 83 Airbus SE A320 family planes and 58 Boeing 737 jets, a spokesman said Tuesday. American joins Delta in bringing back aircraft that had been parked as service was slashed when the spread of coronavirus and related travel restrictions nearly wiped out demand in April. American had parked as many as 435 aircraft and permanently retired more than 100 planes from its fleet. Its busiest days in July will have about 4,000 flights, up from 2,300 in June, the carrier said last week.<br/>
Qantas and Virgin Australia have halted international commercial flights after government funding for select overseas routes ended, allowing some state-funded competitors to close in on the global market. The Australian government has subsidised Qantas and Virgin Australia flights from London, Auckland, Los Angeles and Hong Kong over the past few months, to repatriate Australians stranded by coronavirus. The flights were on a cost-recovery basis, with passenger revenue remitted to the government. Qantas and Virgin’s international fleets have otherwise been largely grounded since stringent border restrictions came into place on 25 March, banning Australians from leaving the country without an exemption. Qantas’s last scheduled flight from LA landed in Australia on Monday morning, while Virgin Australia’s landed in Brisbane on Tuesday. In their absence from the marketplace, state-owned airlines such as Qatar and the indirectly government-owned Singapore Airlines have continued to run regular international flights, even though they are likely operate at a loss, according to Prof Rico Merkert, a researcher in transport and supply chain management at the University of Sydney. “They want to grab market share, increase presence and improve branding,” he said. “Airlines spend an enormous amount of money in non-Covid times to maintain clients. What Qatar is trying to do is grab those passengers now and try and hook them. So for a carrier such as Qantas, that has to operate on a commercially viable basis, this is not a level playing field and it is very hard to compete.”<br/>