Hong Kong’s Cathay Pacific is back raising money to stay in the air. Twelve months into COVID-19 and almost two years since protests began in Hong Kong, the airline’s financial woes continue. Now flying a fraction of its 2019 passenger numbers, Cathay Pacific has a monthly cash burn running up to US$190 million, and there’s no relief in sight. To help tide it over, Cathay Pacific is looking to raise around US$870 million via a bond sale.

Cathay Pacific to issue five year bonds

Late last week, Hong Kong’s flagship airline said it would offer five-year bonds paying 2.75% annually. The deal will see Cathay Pacific raise HK$6.74 billion (US$870 million). The bonds are convertible, meaning investors can swap them for Cathay Pacific shares. The conversion price is at a substantial premium to the stock price. News of the bond’s issue caused Cathay Pacific’s share price to drop further. Existing shareholders (including Swire Pacific Limited, Air China Limited, and Qatar Airways Group) will also see their current shareholding diluted after the deal goes through.

“The Board considers the issuance of the Bonds to be an opportunity to further strengthen the
Company’s liquidity and working capital position and which allows the Company to better navigate the challenges posed by the COVID-19 pandemic,” said Cathay Pacific in a Hong Kong Stock Exchange filing.

While Cathay Pacific flights have been few and far between in the last 12 months, the airline has been busy raising cash to keep it afloat. Cathay Pacific has raised over US$5 billion in the past year via share subscriptions and deals, bridging loans, and government assistance programs. The airline says it tends to use the funds raised from the bonds’ sale for “general corporate purposes.”

A tough year for Cathay Pacific

As one of the few airlines that exclusively fly to international destinations from its Hong Kong hub, it’s no secret Cathay Pacific has suffered more than most airlines since COVID-19 washed up on its shores. Every Cathay Pacific flight and its passengers were not only subject to Hong Kong’s border and quarantine rules but also the border and quarantine rules at the origin or destination country. It has made for a very tough operating environment.

In December 2020, Cathay Pacific carried a total of 39,989 passengers, a decrease of 98.7%
compared to December 2019. December’s revenue passenger kilometers (RPKs) were down 98.1% year-on-year. The passenger load factor dropped by 66.6% to 18.4%, while capacity, measured in available seat kilometers (ASKs), decreased by 91.2%.

New quarantine rules add to Cathay Pacific’s financial woes

The airline has also forecasted a substantial loss for 2020. That loss will further increase now the Hong Kong Government is implementing a new 14-day hotel quarantine plus a seven-day medical surveillance requirement for Hong Kong-based pilots and cabin crew. According to Cathay Pacific, this will see current passenger capacity fall about 60%.

“The new measure will have a significant impact on our ability to service our passenger and cargo markets,” says Cathay Pacific.

The airline expects the quarantine decision will add between US$39 and $51 million to its monthly cash burn. It’s a cost the already struggling airline can ill afford.

“The actual extent of such impact is yet to be confirmed and will be affected by a number of factors, including the success of mitigation measures we are able to adopt, such as agile manpower resources management,” the airline says.

With COVID-19 continuing to bite and Hong Kong’s Government imposing significant imposts on Cathay Pacific, this may not be the last time the airline goes looking for funds.

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