Hong Kong OKs $5 billion bailout for Cathay Pacific Airways

FILE - In this March 6, 2020, file photo, Cathay Pacific Airways aircraft line up on the tarmac at the Hong Kong International Airport. Financially battered Hong Kong airline Cathay Pacific Airways says it is proposing the government help fund a $5 billion recapitalization plan to help it recover from the coronavirus pandemic. (AP Photo/Kin Cheung) (Copyright 2018 The Associated Press. All rights reserved)

HONG KONG – Financially battered Hong Kong airline Cathay Pacific Airways has become the latest airline to resort to government support to survive the coronavirus pandemic.

The Hong Kong government on Tuesday approved a 39 billion Hong Kong dollar ($5 billion) recapitalization plan that calls for a new government-controlled entity called Aviation 2020 to buy $2.6 billion of an up to 33 billion Hong Kong dollars ($4.3 billion) share offering by Cathay Pacific.

The airline also would receive a 7.8 billion Hong Kong dollar ($1 billion) loan from Aviation 2020.

Cathay Pacific proposed the bailout as it struggles to survive the near collapse of regional travel due to the pandemic.

“The objective is to help protect Hong Kong’s role as a leading international aviation hub in this region, as well as the long term, overall economic development of Hong Kong, while generating a reasonable return for the government,” Hong Kong financial secretary Paul Chan told reporters.

Chan said that the government had no intention of becoming a long-term shareholder in Cathay Pacific, and would not interfere in the operations and management of the airline. If it exercises its rights to the shares it will hold up to a 6% stake in the airline.

The government stands to earn a return of about 4% to 7% from the investment, compared to an average 3.7% return for the portfolio of Hong Kong's sovereign wealth fund, the Exchange Fund, he said.

“We hope that during these difficult times that this can help (Cathay Pacific) recover, and when they do so, they can pay off the loans and buy back the preferred shares,” said Chan, adding that defending Hong Kong’s flight routes was crucial for maintaining the city's status as a aviation hub.