Inside $5bn ‘Apollo’ deal to salvage Hong Kong’s Cathay

Bloomberg

The code name was “Apollo.” Its mission was to keep Cathay Pacific Airways Ltd alive.
Hong Kong’s dominant airline had been in financial strife for months, its strong start to 2019 a distant memory. Social unrest in the city triggered a slump in passengers through the second half of last year. Then came the coronavirus pandemic, which forced Cathay to ground most
of its fleet, cut salaries and put staff on unpaid leave as it hemorrhaged more than $10 million a day.
The carrier’s shares had lost a quarter of their value in the first few months of 2020 and passengers were down 99% from a year earlier. One of Hong Kong’s most-recognised brands was veering towards collapse.
In March, Chairman Patrick Healy and Chief Executive Officer Augustus Tang kicked off negotiations that culminated with the latest announcement of a plan to raise HK$39 billion
($5 billion) from the Hong Kong government and its top shareholders, namely Swire Pacific Ltd, state-run Air China Ltd, according to people familiar with what happened.
The following account is based on conversations with those involved in bringing the rescue plan to fruition. The people asked not to be identified so they could speak freely about how the bailout came together. Cathay and its top shareholders either wouldn’t elaborate beyond their public statements or didn’t comment. The Hong Kong government and Cathay Group have long maintained close communication “on different issues,” the city financial secretary’s office said in a statement.
The task at hand was so big — almost like a moonshot — that the deal was code-named “Apollo.” The Greek god was famously used by NASA as the moniker for its program to put men on the moon.
Cathay hired Morgan Stanley to help orchestrate complex negotiations involving Swire Pacific and Air China. As Cathay’s troubles mounted, speculation grew that Swire — one of the last remaining British trading companies based in Hong Kong — might sell its stake to Air China, which already owns almost 30% of the airline. Both shareholders were active in the talks to ensure their holdings weren’t diluted.
It soon became clear that billions in fresh capital was needed to ensure Cathay’s continued viability. Singapore Airlines had already unveiled a plan to raise $6.3 billion in a rights issue backed by its biggest shareholder, Temasek Holdings Pte.