What should the Hong Kong government do if Cathay Pacific loses 20 billion yuan?

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Written by: Commentary Editing Room

2021-03-12 12:30

Last update date: 2021-03-12 12:30

Cathay Pacific announced on Wednesday (10th) its full-year results for the end of December 2020. Cathay Pacific lost 21.648 billion yuan last year, and its revenue fell more than half from 2019's 106.97 billion yuan to 46.93 billion yuan.

The government injected capital into Cathay Pacific Airways in June last year, and then Cathay Pacific launched a capital restructuring plan to issue preferred stocks and warrants to the government on the one hand, while accepting bridging loans provided by the government on the other, and at the same time raise funds through rights issues.

Helplessly, the global epidemic continues, and air passenger transport will recover indefinitely. Apart from injecting capital into Cathay Pacific, how to revitalize the local aviation industry is the government's top priority.

Under the epidemic, the global aviation industry has been greatly affected, and passenger flows between countries have almost stagnated. The International Air Transport Association report shows that the total global passenger demand in January this year (calculated in terms of revenue passenger kilometers or RPKs) is the same as that of 2019 before the outbreak. It has fallen sharply by more than 70% month-on-month, and international passenger transport demand has dropped by 85.6% compared with the same period last year.

The global epidemic has not yet been controlled, and the aviation industry can hardly turn losses into profits in the short term. It is quite difficult to reduce losses alone. Cathay Pacific CEO Deng Jianrong cannot guarantee that there will be no layoffs or salary cuts in the future.

Under the epidemic, the global aviation industry has been greatly affected, and passenger flow between countries has almost stagnated.

(Profile picture)

The government injects tens of billions to shoulder the fate of the aviation industry

Cathay Pacific, one of the leaders in Hong Kong's aviation industry, is "too big to fail." Therefore, the Hong Kong government bought about 19.5 billion preferred shares of Cathay Pacific last year and provided it with a HK$7.8 billion bridging loan. It currently holds about 6% of Cathay Pacific's shares. Minute.

Although the Financial Secretary Chen Maobo has stated that he has no intention to hold Cathay Pacific for a long time, whether the government can recover dividends, loans and successfully retreat from Cathay Pacific as scheduled depends in disguise on whether the Hong Kong aviation industry can turn around after the epidemic.

The government’s capital injection of Cathay Pacific was close to 20 billion yuan, which has caused a lot of controversy at first. With Cathay Pacific’s announcement of serious annual results on Wednesday, it is inevitable that Cathay will be accused of "eating out" the government’s capital injection. Cathay Pacific is undoubtedly very helpful to overcome the difficulties, because from the perspective of its operating expenditure distribution, the three largest expenditures of Cathay Pacific are employees (15.7 billion yuan), fuel and hedging losses (11.3 billion yuan), and aircraft depreciation and Rent (11.8 billion yuan), of which the fuel and hedging part is due to the sharp drop in fuel prices but the lack of daily operation impacts of the sluggish fuel prices. As for aircraft depreciation and rent, there is not much room for reduction, so if Cathay Pacific Airways does not I believe the most "commercial" way to get capital injection from the government would be to lay off a large number of employees as it did in the earlier dissolution of Dragonair.

The latest financial report shows that Cathay Pacific’s current current assets are only 27.5 billion yuan, and they still have 46.7 billion yuan in current liabilities. What may be even worse is that if global shipping still fails to resume next year, or Cathay Pacific’s performance does not improve, in fact It is difficult to rule out Cathay Pacific's future crisis.

The government already holds a 6% stake in Cathay Pacific. If the government wants to take care of itself in the future, seeing the collapse of Cathay Pacific, I believe it will be a difficult decision for the government.

If the government really intends to improve the business environment of the local aviation industry, it must take both the long-term "hardware" and the short-term "software" together, and it must focus on other related industries.

(Photo/Photo by Luo Guohui)

Airport planning and retaliatory tourism combined to help rebound

Nevertheless, the government's capital injection to Cathay Pacific should only be a temporary measure to suspend its urgent need. The last thing it should do is to improve the business environment of the local aviation industry from a macro perspective, and this direction is the right way for the government to deal with the economy under the epidemic.

Last year’s policy address stated that it would consolidate Hong Kong’s position as an international aviation hub. It plans to open the third runway and the entire three-runway system in 2022 and 2024, complete the "High-end Logistics Center" in 2023, and complete the "Space City" in phases from 2021 to 2027. The development project also puts forward the concept of cooperation between the airport city and the Hong Kong-Zhuhai Airport. By this year’s Budget, it also stated that it intends to apply for funding to rebuild the Hong Kong International Airport Air Mail Center, and hopes to open it as early as 2027.

Although the direction of these measures is correct, the content still cannot get rid of the "hardware" category of large-scale infrastructure construction. The actual completion will have to wait at least a few years.

If the government really intends to improve the business environment of the local aviation industry, it must take both long-term "hardware" and short-term "software", and it must also focus on other related industries. For example, as the epidemic makes cross-border online shopping popular, the authorities should Consider strengthening the logistics industry’s support for e-commerce, and by the way, help improve the cargo handling capacity of Hong Kong’s airports and airlines. In addition, in order to prepare for the retaliatory travel boom that may occur after the epidemic, the government can also plan in advance how to attract long-distance passengers. The arrival of local airlines in Hong Kong is like encouraging tourists to stay overnight in Hong Kong hotels in order to help the local aviation industry, tourism industry, and catering and hotel industries at the same time.

Cathay Pacific's new crown pneumonia 01 view