(Yicai Global) July 22 -- Cathay Pacific has wrenched Hong Kong Express from its rival Hainan Airlines after it turned losses into profits last year.
Cathay has now bought all shares in HK Express, it said in July 19 statement.
The Hong Kong-based airline did not state the price of the deal, but the transaction price is HKD4.9 billion (USD628 million) under a contract the two signed in the first half, of which Cathay will pay HKD2.3 billion in cash and HKD2.7 billion (USD295 million) through convertible loan notes.
Hong Kong Express is a Hong Kong-based low-cost airline backed by HNA. The deal means that Cathay Pacific, a traditional business-oriented airline, has wiped out a direct competitor in the Hong Kong market and made up for its shortcomings in low-cost flights. This is also HNA's first airline to switch hands.
HNA bought 45 percent of Hong Kong Express -- formerly known as Hong Kong United Airlines -- in 2006, while other shareholders were 'Gambling King' Stanley Ho (40 percent) and his nephew Xie Tianci (15 percent). Ho sold 15 percent of shares in HK Express in July 2008, to Meng Jianqiang, Global Mastermind Capital's chair. The airlines shifted to a low-cost model in 2013.
The unaudited net losses before and after taxation attributed to HK Express were both HKD141 million (USD18 million) last year, while the after-tax profit was HKD60 million in 2017.
Cathay Pacific had suffered losses for two straight years. Competition from Hong Kong-based companies including Hong Kong Express and new direct intercontinental routes from China's mainland carriers were important reasons aside from fuel hedging investment failures.
"The deal will boost Cathay Pacific's performance to a certain degree," Lin Zhijie, an industry insider, told Yicai Global, adding, "Among Hong Kong domestic airlines, Cathay Pacific and its unit Cathay Dragon hold 76 percent of the market share, Hong Kong Airlines claims 16 percent and HK Express 8 percent. Cathay Pacific will seize 84 percent of Hong Kong market share if the deal is successful, which will further cement its leading position."
In addition to HNA, Cathay also holds 45 percent shares in Hong Kong Airlines Hong Kong Airlines, a full service company with several Chinese mainland and intercontinental flights, has always been Cathay Pacific's strong rival.
CITIC Group, Wuxi Communications Industry Group and the family of Hong Kong's former chief secretary-general Tang Yingnian are also all gunning for Hong Kong Airlines. These new investors will inject at least CNY2 billion (USD290.8 million) and assume part of the firm's debt.
Editor: Ben Armour