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Asia300

Swire Pacific founding family scion to take reins

Hong Kong-listed conglomerate aims to bolster lackluster performance

The outgoing Swire Pacific chairman John Slosar speaks during a press conference in Hong Kong on March 15. (Photo by Yasuo Awai)

HONG KONG -- Swire Pacific has made the unusual decision to return control of the conglomerate to the founding family, choosing one of its members as the next chairman in an effort to shore up lackluster performance at subsidiary Cathay Pacific Airways and its shipping business.

"2017 has been another challenging year with difficult market condition facing our aviation and offshore businesses," departing chairman John Slosar told a press briefing on Thursday.

Slosar became Swire Pacific's first American chairman in 2014, but he leaves the post just four years later having failed to revive the troubled company. Asked about having to leave the conglomerate when three out of five business units were in loss, Slosar told the Nikkei Asian Review that "Swire did a great job. It's all OK now and I will focus on Cathay." He will remain as chairman of Cathay Pacific Airways, continuing to work on the airline's transformation program. "I support them and [aim to] get it finished in a good way," he said.

Merlin Swire, a sixth-generation direct descendant of founder John Swire, takes over as chairman on July 1.   © Reuters

Merlin Swire, a sixth-generation direct descendant of founder John Swire, takes over as chairman on July 1. He joined the Swire group in Hong Kong in 1997 and worked at several group companies in China before returning to the U.K.

In 2015, Merlin Swire became chief executive of U.K.-based John Swire & Sons, the privately owned holding company for the group's operations in the U.K. and elsewhere. He also served as a director at Hong Kong-listed Swire Pacific for nearly a decade. He will be Swire Pacific's first chairman from the founding family.

The group's core Asian businesses face serious pressures. Swire Pacific's adjusted underlying profit fell 5% to 4.76 billion Hong Kong dollars ($610 million) in 2017, disregarding valuation of investment properties and one-off items.

Aviation proved a major drag on earnings, as Cathay Pacific landed in the red for a second year amid growing competition from low-cost carriers and Chinese state airlines. Hong Kong Aircraft Engineering Company, or HAECO, which provides maintenance and repairs, also posted a loss due to lackluster performance by its U.S. arm.

The marine services business fared little better. Singapore-based Swire Pacific Offshore, which provides offshore support vessels to oil developers, has posted losses in recent years as demand falls alongside the price of oil. SPO is reducing its fleet of ships and making other streamlining efforts, but it remains unclear when the company can return to profitability.

Meanwhile, the Swire group continues making inroads in mainland China. It develops and operates large-scale commercial facilities in Shanghai and Chengdu. Swire also has spread its beverage business, which includes bottling and distributing products for Coca-Cola through franchises in Guangdong, Zhejiang and Jiangsu provinces. The group is expected to intensify efforts in China under Merlin Swire, who has experience doing business there.

The Swire group aims to provide extensive, far-sighted training for employees. Potential executives receive the chance to run businesses around the world. Some of its employees have been there for over three decades, rare for a Western company.

A perk of working for Swire has been the opportunity to become involved in various industries from real estate to aviation to beverages, an official at a key group company said. But some think this laid-back culture prevented the group from adapting to a fast-changing business environment.

Asia's other big carriers, like Singapore Airlines and ANA Holdings, have actively expanded into the budget airline business. But Cathay Pacific continued focusing on high-paying business customers instead of courting regular travelers. CEO Rupert Hogg is hesitant to offer low-cost flights, arguing that Hong Kong International Airport already operates at full capacity. Executives at rival carriers claim Cathay Pacific has missed its window.

After the latest results were released during lunch break on Thursday, Swire Pacific shares kept up their morning momentum and closed up 1.1% at HK$80.85, outpacing the benchmark Hang Seng Index, which gained 0.3% to end at 31,541.10.

Nikkei staff writer Mayuko Tani in Hong Kong contributed to this story.

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