Hong Kong-headquartered Cathay Pacific has announced its intention to acquire 100% of low-cost carrier Hong Kong Express (HKE), though HKE’s chairman and major shareholder, Zhong Guosong, is in the process of launching legal action in a bid to stop the sale.
If successful, Cathay Pacific will own three of the four airlines operating out of Hong Kong, namely Cathay Dragon which Cathay Pacific bought as Dragonair in 2006, HKE and Cathay Pacific itself. The result would see Cathay Pacific and its subsidiaries hold a 45 percent stake in Hong Kong’s runway slots.
Cathay Pacific has confirmed it intends to operate HKE as a subsidiary and stand-alone airline and not change its low-cost operating format which carried 4.1 million passengers in 2018; the deal will also see Cathay Pacific offering over half the airline seats available for flights from Hong Kong International Airport.
The deal at US$628 million (HK$4,93 billion) will see Cathay Pacific pay US$286.6 million (HK$2,25 billion) in cash and a further US$341.4 million (HK$2.68 billion) to repay debt held by HKE in the form of promissory notes.
In a stock exchange filing on Wednesday morning, Cathay Pacific said: “Completion is conditional upon certain conditions being fulfilled, including clearances required from relevant competition authorities.” However, opposition from Zhong could prove a major obstacle.
“A firm of solicitors acting for a shareholder of an intermediate holding company of HKE has written to the company indicating an intention to contest the seller’s entry into an agreement for the transaction,” the filing said.
Also, according to the filing, HK Express recorded HK$141 million in losses last year after achieving a net profit of HK$57 million (US$7.7 million) in 2017. Cathay Pacific Group generated a profit of HK$2.03 billion (US$258.6 million) in 2018, halting two years of back-to-back losses, a very positive turnaround after the implementation of several cost-cutting initiatives.
