Cathay to pay government deferred dividend as fortunes rise

Cathay Pacific Airways Ltd. will pay an outstanding dividend of HK$1.52 billion ($194 million) to the Hong Kong government at the end of the month, in another sign the carrier’s financial fortunes are turning the corner after Covid.

Hong Kong’s flagship airline also said it won’t need to utilize a government HK$7.8 billion bridge loan that’s due to expire later this week. The outstanding dividend payment on the preference shares held by the Hong Kong government will be made on June 30, it added.

Cathay Chief Executive Officer Ronald Lam said the repayment reflected his confidence in the airline and its financial health.

“Our journey of rebuilding Cathay for Hong Kong is on the right track, and now is the appropriate time to begin repaying the support that the government has shown us,” Lam said. 

“As travel restrictions get lifted and travel demand returns, our group, further to being overall operating cash generative in 2022, has continued to be operating cash generative so far in 2023.”

What Bloomberg Intelligence says:

Cathay Pacific’s announcement that it will pay all HK$1.52 billion in deferred dividends on the Hong Kong government’s preference shares on June 30 bodes well for its 2023 profitability and cash-flow recovery. We believe Cathay will also begin partial redemption of the preference shares as the interest rate steps up to 5% in August 2023 and 7% in August 2024.

Cathay weathered a torrid period during Covid. With no domestic market to rely upon and international travel at a standstill, the carrier began hemorrhaging money and was forced to slash costs and cut thousands of staff in order to survive. Hong Kong and China also took a lot longer to reopen to the rest of the world after the pandemic, prolonging Cathay’s recovery as other airlines got back on their feet.

“Hong Kong has lost an awful lot of ground, and that will take time to recover,” IATA Director General Willie Walsh said at the aviation lobby group’s annual general meeting in Istanbul this week. “I’m glad to see that Cathay Pacific is rebuilding, but it takes time.”

Cathay also said in its statement late Tuesday that it will repay any obligations on future annual interest payments on time and start to redeem the preference shares “in due course.”

Cathay was bailed out by the Hong Kong government in June 2020 at the depths of the pandemic via a HK$19.5 billion lifeline consisting of preference shares and warrants.

Cathay Pacific and HK Express as a group aim to operate at around 70% of pre-pandemic passenger flight capacity and cover some 80 destinations by the end of 2023. The company expects to return to pre-pandemic levels by the end of 2024.

Shares in Cathay are down about 14% this year.