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Cathay Pacific shores up cash position with jet delivery delay

Hong Kong flagship carrier reports halving of revenue and liquid funds

A Hong Kong Express Airbus A320 lands in Hong Kong. The budget arm of Cathay is to delay taking delivery of some A321 jets.    © AP

HONG KONG -- Cathay Pacific Airways' move to delay delivery of new aircraft should further help alleviate the cash squeeze on Hong Kong's flagship carrier as it struggles to rebuild ticket sales, analysts say.

In a prospectus for a shareholder rights issue filed Wednesday, the airline disclosed that it had reached agreement with Airbus to defer delivery of an unspecified number of A350-900, A350-1000 and A321-200neo planes it was to receive this year and next. It said it was also in talks with Boeing to push back some B777-9 orders.

The announcement comes less than a week after the airline warned it would likely record a loss of 9.9 billion Hong Kong dollars ($1.28 billion) for the first half of the year due to the impact of the coronavirus pandemic.

In Wednesday's filing, it said revenue for the period dropped 48.2% from a year earlier to HK$27.7 billion. This squeezed its holdings of liquid funds to HK$7.4 billion as of June 30, roughly half the sum on hand at the end of 2019.

"[The pandemic] is the biggest challenge to the aviation industry that Cathay Pacific has ever witnessed and, overall, it does not anticipate that there will be a meaningful recovery for an extended period," Chairman Patrick Healy said in the prospectus.

To shore up its financial position, the carrier had earlier reached a deal with BOC Aviation, a unit of Bank of China, to sell and lease back six Boeing 777-300ER jets, cut executive pay, persuaded most staff to take unpaid leave and trimmed back passenger capacity to a fraction of normal operations. Last week, shareholders approved a government-led HK$39 billion bailout.

Kelvin Lau, aviation analyst with Daiwa Capital Markets in Hong Kong, said the delivery schedule changes are "a good thing for Cathay as it can further reduce its cash burn rate."

The airline last month said it was losing cash at a rate of HK$2.5 billion to HK$3 billion a month.

In its new prospectus, Cathay said that monthly rate had been trimmed to about HK$1.5 billion, with Healy saying the delivery plan changes would "produce cash savings to the Cathay Pacific group in the short to medium term."

Spokespeople for Cathay and Airbus declined to provide details on the delivery plan changes. According to its latest annual report, Cathay was to receive four A350-900 and eight A350-1000 over 2020 and 2021. It said Wednesday that the new arrangement will extend delivery of some of those planes into 2023.

Originally, a total of 32 A321-200neo were to be handed over to the group's short-haul arm Cathay Dragon and budget unit Hong Kong Express by 2023. Some of those will now be delayed as late as 2025.

Under its existing deal with Boeing, a total of 21 B777-9 are to be turned over to Cathay from next year. Boeing declined as well to comment on its talks with Cathay.

Cathay shares dipped 1% on Wednesday to HK$5.76.

The carrier is hardly alone among Airbus and Boeing customers seeking to push back delivery of new planes amid the airline sector's deep slump.

Akbar Al Baker, chief executive of Qatar Airways, a major Cathay shareholder, said in an interview with Sky News last month that his company had "already notified both Boeing and Airbus that we will not be taking any airplanes this year or next year." He said delivery of some planes would be pushed back as much as seven years.

President Yuji Akasaka of Japan Airlines told Nikkei in an interview published on Tuesday that the Japanese carrier is negotiating with Boeing and Airbus to postpone prepayment fees for several aircraft scheduled for delivery after next April.

Aircraft leasing companies are reviewing their contracts with the manufacturers as well.

Avolon Holdings, a Dublin-based lessor jointly owned by China's Bohai Leasing and Japan's Orix, has canceled the purchase of 102 Boeing 737 Max planes and deferred delivery of 16. With Airbus, the Irish lessor canceled orders for five A330neo planes while delaying delivery of 12.

"These actions provide us with the capital strength to manage through this market backdrop and to support customers through the recovery," said Avolon Chief Executive Domhnal Slattery.

Bohai Leasing itself, a unit of cash-strapped conglomerate HNA Group, warned last Wednesday that it expects to record a net loss of 1.8 billion yuan ($257.6 million) to 2.7 billion yuan for the first six months of 2020. It generated a profit of 1.8 billion yuan a year earlier.

BOC Aviation announced at the end of June that it had agreed with Boeing to cancel an order for 30 B737 Max aircraft while deferring delivery of an unspecified number of others which were to arrive by 2023.

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