Cathay Pacific to buy budget airline HK Express for US$628 M
Published Mar 27, 2019 12:00 am
SINGAPORE (Reuters) – Cathay Pacific Airways said on Wednesday it had agreed to buy Hong Kong Express Airways Ltd. from cash-strapped Chinese conglomerate HNA Group for HK$4.93 billion ($628 million), giving it a foothold in the fast-growing budget travel market.
A passenger plane of low-cost airline Hong Kong Express Airways taxis past a Cathay Pacific Airways passenger plane at the Hong Kong Airport, China March 27, 2019. (Reuters)
A lack of slots at Hong Kong International Airport until an expansion is completed in 2024 had constrained Cathay's ability to follow peers like Singapore Airlines Ltd and Qantas Airways Ltd. and set up its own budget brand.
Cathay said it would continue operating HK Express as a standalone carrier using a low-cost business model.
The purchase price comprises HK$2.25 billion of cash and HK$2.68 billion of non-cash consideration through promissory loan notes, Cathay said in an statement to the Hong Kong Stock Exchange. The transaction was expected to be completed on or before Dec. 31, it added.
HK Express reported a HK$141-million net loss in 2018 and had a net asset value of HK$1.12 billion, Cathay said.
Cathay shares rose 3.4 percent in early trade on Wednesday, outpacing a 0.1 percent gain in the benchmark Hang Seng Index.
"It seems like a good deal given the value of the slots and the strategic importance of fast-tracking a low-cost carrier, multi-brand strategy and preventing a competitor from making a move in its home market," CAPA Centre for Aviation Chief Analyst Brendan Sobie said.
"But a proper valuation is hard to figure out given the debts and complex structure of the HNA Group."
HK Express has 24 Airbus SE A320 jets and the acquisition would increase Cathay's share of seat capacity in Hong Kong from about 46 percent to 51 percent, according to CAPA data.
Cathay Chief Executive Rupert Hogg told Reuters last week he believed low-cost airlines met a "unique market segment" not captured by the Hong Kong carrier at present, and helped to stimulate new travel demand.
Cathay is in the third year of a three-year turnaround plan designed to cut costs and boost revenue to make it more competitive against Chinese and Middle Eastern rivals, as well as low-cost carriers. 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.
It also owns full-service carrier Hong Kong Airlines, which is not part of the deal with Cathay.
HK Express and HNA did not respond immediately to requests for comment.
A passenger plane of low-cost airline Hong Kong Express Airways taxis past a Cathay Pacific Airways passenger plane at the Hong Kong Airport, China March 27, 2019. (Reuters)
A lack of slots at Hong Kong International Airport until an expansion is completed in 2024 had constrained Cathay's ability to follow peers like Singapore Airlines Ltd and Qantas Airways Ltd. and set up its own budget brand.
Cathay said it would continue operating HK Express as a standalone carrier using a low-cost business model.
The purchase price comprises HK$2.25 billion of cash and HK$2.68 billion of non-cash consideration through promissory loan notes, Cathay said in an statement to the Hong Kong Stock Exchange. The transaction was expected to be completed on or before Dec. 31, it added.
HK Express reported a HK$141-million net loss in 2018 and had a net asset value of HK$1.12 billion, Cathay said.
Cathay shares rose 3.4 percent in early trade on Wednesday, outpacing a 0.1 percent gain in the benchmark Hang Seng Index.
"It seems like a good deal given the value of the slots and the strategic importance of fast-tracking a low-cost carrier, multi-brand strategy and preventing a competitor from making a move in its home market," CAPA Centre for Aviation Chief Analyst Brendan Sobie said.
"But a proper valuation is hard to figure out given the debts and complex structure of the HNA Group."
HK Express has 24 Airbus SE A320 jets and the acquisition would increase Cathay's share of seat capacity in Hong Kong from about 46 percent to 51 percent, according to CAPA data.
Cathay Chief Executive Rupert Hogg told Reuters last week he believed low-cost airlines met a "unique market segment" not captured by the Hong Kong carrier at present, and helped to stimulate new travel demand.
Cathay is in the third year of a three-year turnaround plan designed to cut costs and boost revenue to make it more competitive against Chinese and Middle Eastern rivals, as well as low-cost carriers. 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.
It also owns full-service carrier Hong Kong Airlines, which is not part of the deal with Cathay.
HK Express and HNA did not respond immediately to requests for comment.