Cathay Pacific is expected to burn 1.5 billion Hong Kong people every month and need to pump water again? Experts don't expect government action

The global aviation industry has been hit hard by the COVID-19 epidemic, and Cathay Pacific (0293) was not immune.

In the past two years, Cathay Pacific has been able to stabilize its business by seeking financial support from the government and other means, while rectifying its business, and finally recorded positive cash flow in the second half of last year.

Just as Cathay Pacific was preparing to resume sailing, the Omicron variant virus spread rapidly in the community. The government decided to tighten the quarantine requirements for crew members after returning to Hong Kong, which prompted Cathay Pacific's air freight capacity to shrink significantly. The company also expects to operate cash monthly from February. The consumption reaches 1 billion to 1.5 billion yuan, that is, there is a net outflow of cash flow again.

To reverse this situation, of course, we must hope that the epidemic is under control.

But before that, does the government need to help again?

Forecast last year's maximum loss of 6.1 billion yuan

The epidemic has lasted for two years, and the shipping industry has been hit hard. In 2020, Cathay Pacific is fortunate to have the help of the Hong Kong government, providing 19.5 billion yuan of funds through the subscription of preferred shares, another 1.95 billion yuan of warrants, and a commitment of US$1 billion in loans. About 11.7 billion yuan was raised by way of rights issue, hoping to tide over the difficulties.

Cathay Pacific's prospects could have made investors optimistic.

The company announced this morning that it is tentatively expected to record a loss attributable to shareholders of about 5.6 billion to 6.1 billion yuan in 2021.

Although the loss is expected to be large, it is better than the loss attributable to shareholders of RMB 21.6 billion for the year ended December 2020. The improvement is mainly due to strong freight demand, high freight yield and load factor, and the company's continued effective management of cash and costs.

At the same time, the company also pointed out that through more competitive business and strong freight demand.

The cash flow consumed 2.5 to 3 billion yuan per month from the first half of last year, and roughly achieved positive cash flow in the second half of the year.

Cathay Pacific expects monthly operating cash burn of $1 billion to $1.5 billion from February.

(Image credit: Cathay Pacific)

"Burn money" will reappear from next month

However, since next month, the company has once again fallen into the situation of net cash outflow.

Chief Executive Deng Jianrong pointed out that the port government further tightened travel restrictions in late December and early January last year, as well as the quarantine requirements for crew members, which affected the company's passenger and cargo capacity.

In January, Cathay was only able to operate about 20% of its pre-pandemic cargo capacity and about 2% of its passenger capacity.

He also pointed out that Cathay Pacific's business will undoubtedly be affected by the reduction in capacity, and the potential impact of the measures on the company's operations and costs is currently being assessed.

According to preliminary assessment, if the above capacity level is used, it is expected that the monthly operating cash consumption will be 1 billion to 1.5 billion yuan from February.

He pointed out that the company is making every effort to increase capacity before the situation improves, and adopting countermeasures to increase crew resources is estimated to increase the monthly cargo capacity by about 5% compared to the current one.

Earlier, Cathay Pacific has confirmed that to encourage more pilots to accept the quarantine measures in Hong Kong, it has provided bonuses to relevant pilots and pilots.

The captain will receive a bonus of 22,000 yuan for two "closed-loop" flights, and the bonus will be increased to 29,000 yuan for four or more flights.

The first officer can get 17,000 yuan, and the amount can be increased to 24,000 yuan for four or more trips.

During the "closed-loop" flight work within the crew, they need to work for 3 to 4 consecutive weeks, and they must stay in hotel isolation between each flight.

You must quarantine for two weeks before going home.

The arrangement makes it difficult for Cathay Pacific to have enough manpower to operate the service.

Cathay Pacific's losses narrowed sharply to about 6 billion yuan last year.

(file picture)

Government's $7.8 billion line of credit remains undrawn

With the company experiencing another net cash outflow from next month, does Cathay Pacific have sufficient financial resources?

According to the company's 2021 interim report, it has a working capital of 23.557 billion yuan.

If it consumes up to 1.5 billion yuan per month from February, it can last for about 15 months.

Together with the available credit line, the total is 32.819 billion yuan.

In terms of related funds alone, Cathay Pacific can "burn money" for up to 22 months.

The relevant available credit lines include the credit line promised by the Hong Kong government to Cathay Pacific in June 2020.

In June last year, the government agreed to extend the drawdown period of the HK$7.8 billion bridge loan facility given to Cathay Pacific by 12 months to June 8 this year.

Ye Shangzhi said that Cathay Pacific is currently in a stable stage, with moderate overall growth last year, and the hardest time has passed.

(file picture)

Analyst: Cathay Pacific's worst is over

Regarding the results announced by Cathay Pacific, Ye Shangzhi, chief strategist of First Shanghai, said that the epidemic has lasted for two years, and the aviation industry has been greatly affected. Business grows.

Cathay Pacific is now in a stable phase, with moderate overall growth last year, and the hardest time is over.

He continued that Cathay Pacific has sufficient cash and does not need other capital injections, "Cathay Pacific has enough cash on hand to support it for a year or two. If it really doesn't have enough money, you can use the 7.8 billion that the government planned to borrow first. For the time being, the government doesn't need any more pump water".

For investors, Ye Shangzhi pointed out that Cathay Pacific's business is currently stable and its valuation is cheap. The short-term share price fluctuates between RMB 6 and RMB 7. In the long run, the current price is "struggling". , the stock price is expected to rise to 9 yuan.

Cathay Pacific is expected to lose 6 billion passengers in the whole year, only 717,000 people, and monthly cash consumption of 1 billion to 1.5 billion Omicron since February | Illustration of the Pakistani women's quarantine group on the 11th, 5 generations involved more than 40 people, almost the mother of Cathay Pacific flight attendants Cathay Pacific has the highest A bonus of 29,000 yuan encourages pilots to accept quarantine measures in Hong Kong. Outsourced employees at the Cathay Pacific Airport Cargo Terminal have been diagnosed with mandatory testing for all employees responsible for the unpacking work.