THE HONG KONG GOVERNMENT IS LEADING A MASSIVE HK$39 BILLION BAILOUT OF STRUGGLING CATHAY PACIFIC

The Hong Kong government is leading a massive HK $39 billion (US $5 billion) bailout of struggling Cathay Pacific, taking a sizeable stake to save the city’s aviation industry as the coronavirus pandemic grinds international travel to a halt.

In a report by the South China Morning Post, the paper said that with the airline controlling more than half of passenger traffic and carrying nearly two-fifths of cargo in the Asian financial hub, officials viewed Cathay’s possible collapse as a fundamental threat to its aviation sector.

Under the recapitalization plan unveiled on Tuesday, the government will provide a lifeline of HK$27.3 billion, representing 1.5 times the company’s market capitalization, and take a 6.08 per cent stake.

The goal of the bailout is to protect Hong Kong’s role as a global aviation hub and ensure the city’s long-term economic development, while generating a reasonable return for the government, according to Financial Secretary Paul Chan Mo-po.

“It’s not a random person or a random company,” Chan said. “We have to safeguard [the city’s] aviation rights, otherwise this will cause systematic risk.” If Cathay failed to operate flights and maintain routes, Hong Kong could be forced to surrender air traffic rights to competitors in mainland China and overseas.

“If this challenge is not properly addressed, it would harm Hong Kong’s international aviation hub status, and adversely impact other economic activities, to the detriment of the overall interest of Hong Kong,” he said.