Cathay Pacific in talks to buy stake in HNA's HK Express Airways
* Cathay says "active discussions" are under way
* HNA unwinding $50 bln acquisition spree
* Cathay lacks a low-cost carrier
* Cathay shares jump more than 3 pct
(Adds HK Express comment)
By Donny Kwok and Jamie Freed
HONG KONG/SINGAPORE March 5 (Reuters) - Hong Kong flagship
carrier Cathay Pacific Airways Ltd said on Tuesday it
is in "active discussions" about an acquisition involving budget
airline Hong Kong Express Airways Ltd, although an agreement has
yet to be reached.
Such a deal would give Cathay exposure to the growing
budget-travel market at a time when a lack of slots at Hong Kong
International Airport has constrained its ability to follow
peers like Singapore Airlines Ltd and Qantas Airways
Ltd and set up its own budget brand.
The Hong Kong carrier has instead shifted some destinations
from its main brand to its regional carrier, Cathay Dragon, as
part of a transformation plan designed to cut costs and increase
revenue. It has ordered 32 Airbus SE A321neos for
Cathay said it had decided to go public about the
discussions in response to media reports suggesting it may be in
talks to acquire shares in Hong Kong Express Airways Ltd and
full-service sister carrier Hong Kong Airlines Ltd from
cash-strapped Chinese conglomerate HNA Group Co Ltd.
It did not detail the potential value of the transaction,
nor the size of the stake it would hold. It said it would issue
an additional statement when appropriate.
An analyst last year estimated to Reuters that HK Express
could be worth about $300 million.
HK Express in a statement said shareholders have held
initial discussions with strategic investors about a potential
acquisition but no details had been confirmed and there was not
yet any agreement.
A person with knowledge of the matter said the companies
appeared close to reaching an agreement and noted Cathay's
parent Swire Pacific Ltd had historically taken
majority stakes when making investments.
Cathay is not interested in Hong Kong Airlines because it
has both similar routes and full-service positioning, the person
A second person with knowledge of the matter said Cathay had
signed an exclusivity period for discussion but other parties
remained interested in HK Express if a deal could not be
Both sources spoke on the condition of anonymity as
discussions are confidential.
Given Cathay's dominance of Hong Kong's aviation market, a
deal could attract scrutiny from the competition regulator.
Some analysts have also expressed doubts about the likely
benefits of any deal. Daiwa analyst Kelvin Lau said he did not
see much value from the acquisition as the two airlines flew
similar routes, but also because Cathay would need to undertake
significant reform to add a budget wing.
Jefferies analyst Andrew Lee however said in a note to
clients it would be "positive for Cathay Pacific" as it would
give the airline greater access to a different passenger segment
in the low-cost market.
News of Cathay's interest in HK Express comes just weeks
after Hong Kong's flagship carrier projected its annual profit
at more than double analyst estimates, sending its shares
surging nearly 9 percent.
Shares of Cathay have risen more than 19 percent so far this
year, compared with an 8 percent fall in 2018. The airline's
shares jumped more than 3 percent on Tuesday morning.
Cathay has faced repeated questions from investors over the
last few years about its failure to set up a budget carrier.
Chief Executive Rupert Hogg has said it would be difficult
to do so until a third runway was completed at Hong Kong
International Airport in 2024, opening up more slots.
"Our home-based airport is full at the moment, or largely
full, and so it's not a perfect place to develop a model from
scratch," he told CAPA Centre for Aviation last May.
HK Express operates a fleet of 25 A320 family aircraft to
regional destinations around Asia, according to plane tracking
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.
(Reporting by Donny Kwok in HONG KONG and Jamie Freed in
SINGAPORE; Additional reporting by Kane Wu in Hong Kong; Editing
by Stephen Coates and Christopher Cushing)
First Published: 2019-03-05 02:39:29
Updated 2019-03-05 11:19:32
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