HONG KONG (Reuters) – Shares in Cathay Pacific Airways Ltd fell nearly 4% in early trade on Thursday following the resignation of its chairman after the market closed on the previous day.
The departure of John Slosar was announced less than three weeks after mounting Chinese regulatory scrutiny led to the shock exit of its chief executive, Rupert Hogg.
Cathay shares had closed 7.2% higher on Wednesday as the Hong Kong market was lifted by reports of the withdrawal of a controversial extradition bill, which was officially announced after the market closed.
Long-serving Swire Pacific Ltd executive Patrick Healy was appointed as Cathay’s new chairman on Wednesday following the resignation of Slosar, who had served in the role since 2014.
“As John would have retired soon anyway it’s not really a huge setback as a business,” an analyst said of Slosar’s departure. “However it’s always awful to see when politics dictate like this.”
The analyst, who was not authorised to speak publicly about personnel changes, said he believed if the political situation in Hong Kong stabilised, the situation at Cathay should as well.
Daiwa Capital Markets analyst Kelvin Lau said the extradition bill’s withdrawal was positive for Cathay, even though protests were not expected to end immediately.
“We expect this to be a turning point where the situation would at least not worsen,” he said in a note to clients, adding that recent personnel changes at the airline should satisfy the requirements of the Chinese regulator and were likely to instill confidence among customers.
China’s aviation regulator last month said crew who engaged in the anti-government protests in Hong Kong posed a threat to safety and should be suspended from staffing flights to the mainland and over its airspace.
(Reporting by Donny Kwok and Jamie Freed, writing by Jamie Freed, editing by Richard Pullin)
HONG KONG/SINGAPORE (Reuters) – Hong Kong flagship carrier Cathay Pacific Airways Ltd said on Tuesday it is in “active discussions” about an acquisition involving budget airline Hong Kong Express Airways Ltd, although an agreement has yet to be reached.
Such
a deal would give Cathay exposure to the growing budget-travel market
at a time when a lack of slots at Hong Kong International Airport has
constrained its ability to follow peers like Singapore Airlines Ltd and
Qantas Airways Ltd and set up its own budget brand.
The
Hong Kong carrier has instead shifted some destinations from its main
brand to its regional carrier, Cathay Dragon, as part of a
transformation plan designed to cut costs and increase revenue. It has
ordered 32 Airbus SE A321neos for Cathay Dragon.
Cathay
said it had decided to go public about the discussions in response to
media reports suggesting it may be in talks to acquire shares in Hong
Kong Express Airways Ltd and full-service sister carrier Hong Kong
Airlines Ltd from cash-strapped Chinese conglomerate HNA Group Co Ltd.
It
did not detail the potential value of the transaction, nor the size of
the stake it would hold. It said it would issue an additional statement
when appropriate.
An analyst last year estimated to Reuters that HK Express could be worth about $300 million.
HNA and HK Express did not immediately respond to a request for comment.
A
person with knowledge of the matter said the companies appeared close
to reaching an agreement and noted Cathay’s parent Swire Pacific Ltd had
historically taken majority stakes when making investments.
Cathay is not interested in Hong Kong Airlines because it has both similar routes and full-service positioning, the person said.
A
second person with knowledge of the matter said Cathay had signed an
exclusivity period for discussion but other parties remained interested
in HK Express if a deal could not be reached.
Both sources spoke on the condition of anonymity as discussions are confidential.
ANTITRUST
Given Cathay’s dominance of Hong Kong’s aviation market, a deal could attract scrutiny from the competition regulator.
Some
analysts have also expressed doubts about the likely benefits of any
deal. Daiwa analyst Kelvin Lau said he did not see much value from the
acquisition as the two airlines flew similar routes, but also because
Cathay would need to undertake significant reform to add a budget wing.
Jefferies analyst Andrew Lee however said in a note to clients it would be “positive for Cathay Pacific” as it would give the airline greater access to a different passenger segment in the low-cost market.
FLYING HIGH
News
of Cathay’s interest in HK Express comes just weeks after Hong Kong’s
flagship carrier projected its annual profit at more than double analyst
estimates, sending its shares surging nearly 9 percent.
Shares
of Cathay have risen more than 19 percent so far this year, compared
with an 8 percent fall in 2018. The airline’s shares jumped more than 3
percent on Tuesday morning.
Cathay has faced repeated questions from investors over the last few years about its failure to set up a budget carrier.
Chief
Executive Rupert Hogg has said it would be difficult to do so until a
third runway was completed at Hong Kong International Airport in 2024,
opening up more slots.
“Our
home-based airport is full at the moment, or largely full, and so it’s
not a perfect place to develop a model from scratch,” he told CAPA
Centre for Aviation last May.
HK
Express operates a fleet of 25 A320 family aircraft to regional
destinations around Asia, according to plane tracking website
FlightRadar24.
Embattled
HNA Group is more than a year into the process of unwinding a $50
billion acquisition spree that at its peak netted the company stakes in
banks, fund managers, hotels, property and airlines, among other assets.
(Reporting by Donny Kwok in Hong Kong and Jamie Freed in Singapore; Additional reporting by Kane Wu in Hong Kong; Editing by Anne Marie Roantree and Stephen Coates)
