The Cathay Pacific logo on the tails of passenger planes at Hong Kong International Airport. Photo: Bloomberg</s>Image copyright Getty Images

Cathay Pacific will buy low-cost carrier Hong Kong Express for $4.93bn Hong Kong dollars ($628m).

The purchase will be made in cash and through promissory loan notes, the company said in a stock filing.

Hong Kong Express, which flies to destinations across Asia, will become a wholly-owned subsidiary of Cathay Pacific.

Cathay Pacific has been overhauling its business to cut costs, and returned to profit in 2018.

"We intend to continue to operate Hong Kong Express as a stand-alone airline using the low-cost carrier business model," a Cathay Pacific spokesperson said in a statement.

Hong Kong Express captures "a unique market segment" the spokesperson said, adding that the deal "represents an attractive and practical way for the Cathay Group to support the long-term development and growth of our aviation business".

The transaction is expected to be completed by the end of the year.

Turnaround plan

Cathay Pacific returned to profit last year after two years of losses, after launching a cost-cutting programme.

The airline has been struggling against competition, particularly from low-cost Chinese carriers covering Hong Kong, mainland China and South East Asia.

Last year, it also became subject of a data breach in its IT systems, jeopardising the personal information of up to 9.4 million passengers.</s>Hong Kong flag carrier Cathay Pacific announced on Wednesday it will buy budget airline HK Express for HK$4.93 billion (S$850 million).

[HONG KONG] Hong Kong flag carrier Cathay Pacific announced on Wednesday it will buy budget airline HK Express for HK$4.93 billion (S$850 million).

The purchase comes as the airline moves to counter competition from an increasing number of budget carriers in the region.</s>SINGAPORE (Reuters) - Cathay Pacific Airways said on Wednesday it had agreed to buy Hong Kong Express Airways Ltd from cash-strapped Chinese conglomerate HNA Group for HK$4.93 billion ($628 million), giving it a foothold in the fast-growing budget travel market.

A lack of slots at Hong Kong International Airport until an expansion is completed in 2024 had constrained Cathay’s ability to follow peers like Singapore Airlines Ltd and Qantas Airways Ltd and set up its own budget brand.

Cathay said it would continue operating HK Express as a standalone carrier using a low-cost business model.

The purchase price comprises HK$2.25 billion of cash and HK$2.68 billion of non-cash consideration through promissory loan notes, Cathay said in an statement to the Hong Kong Stock Exchange.

HK Express reported a HK$141 million net loss in 2018 and had a net asset value of HK$1.12 billion, Cathay said.

The transaction was expected to be completed on or before Dec. 31, it said, although it added that lawyers for a shareholder of an intermediate holding company of HK Express had written to Cathay indicating an intention to contest the agreement.

Cathay, which did not name the shareholder, said it had the right to terminate the deal if proceedings were commenced to prevent the transaction.

HK Express said it was not involved in the shareholder-level negotiations of the deal and had no comments on the issue, while HNA declined to comment.

Cathay shares, which had risen as much as 3.4 percent in early trade on Wednesday, later reversed gains to trade as much as 2.9 percent lower.

Daiwa analyst Kelvin Lau told clients that the deal appeared “costly” and it could take years for cost-savings to emerge from owning the low-cost carrier as well as its other operations.

Others, however, said it made strategic sense for Cathay.

“It seems like a good deal given the value of the slots and the strategic importance of fast-tracking a low-cost carrier, multi-brand strategy and preventing a competitor from making a move in its home market,” said CAPA Centre for Aviation Chief Analyst Brendan Sobie.

“But a proper valuation is hard to figure out given the debts and complex structure of the HNA Group.”

HK Express has 24 Airbus SE A320 jets and the acquisition would increase Cathay’s share of seat capacity in Hong Kong to 51 percent from about 46 percent, according to CAPA data.

Cathay Chief Executive Rupert Hogg told Reuters last week he believed low-cost airlines met a “unique market segment” not captured by the Hong Kong carrier at present, and helped to stimulate new travel demand.

Cathay is in the third year of a three-year turnaround plan designed to cut costs and boost revenue to make it more competitive against Chinese and Middle Eastern rivals, as well as low-cost carriers.

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.

It also owns full-service carrier Hong Kong Airlines, which is not part of the deal with Cathay.</s>The operator of Cathay Pacific Airways is acquiring budget regional carrier HK Express, which it will continue to operate as a low-cost carrier.

The operator of Cathay Pacific Airways is acquiring budget regional carrier HK Express, which it will continue to operate as a low-cost carrier.

Cathay Pacific Group said on Wednesday it will pay a total of 4.93 billion Hong Kong dollars (£476 million) for HK Express, which will remain a separate brand.

Cathay Pacific Group’s airlines serve 130 destinations throughout Asia, Europe and North America. It acquired regional carrier Dragonair in 2006 and also owns Air Hong Kong.

HK Express, founded in 2013, serves destinations throughout East and Southeast Asia.

Cathay said it will pay for HK Express with a combination of 2.25 billion Hong Kong dollars (£216 million) in cash and 2.68 billion Hong Kong dollars (£258 million) in promissory loan notes.

Cathay said the transaction would be completed by the end of this year.</s>HK Express is owned by HNA Group, a struggling Chinese conglomerate that has been looking to lower its debt pile. The airline flies to several regional cities including in Japan, South Korea and Vietnam.

HONG Kong flag carrier Cathay Pacific said on Wednesday that it will buy budget airline HK Express for more than US$600 million as it moves to counter competition from the increasing number of low-cost carriers in the region.

The move is its first foray into the budget sector and will leave Cathay controlling three of the four airlines at one of Asia's busiest airports at a time of huge growth in the region's air industry.

It comes weeks after the carrier said it had swung back into the black in 2018 following two years of losses and will help ease concerns after an embarrassing data breach that dented the firm's reputation and could prove costly.

"HK Express captures a unique market segment," Cathay said in a statement. "This represents an attractive and practical way for the Cathay Group to support the long-term development and growth of our aviation business and to enhance the competitiveness of the Hong Kong hub during a time of intense regional competition."

Cathay will stump up HK$4.93 billion (S$850.21 million) for the airline in a deal that is expected to be completed by December, according to a filing announcing the deal.

The firm said it will continue to operate HK Express as a "standalone airline using the low-cost carrier business model".

"The transaction is expected to generate synergies as the businesses and business models of Cathay Pacific and HKE are largely complementary," it added.

Cathay shares rose almost 3 per cent after the announcement but later retreated to end the morning more than 2 per cent lower.

HK Express is the city's sole budget carrier - a sector premium-focused Cathay has struggled to compete against despite rivals such as Singapore Airlines making inroads years ago.

But analyst Dickie Wong of Kingston Securities said it is now rectifying its "shortcoming".

"I think Cathay has said goodbye to its worst time when it lost money from fuel-hedging contracts, faced an unclear business outlook and competition with budget airlines," he added.

HK Express is owned by HNA Group, a struggling Chinese conglomerate that has been looking to lower its debt pile. The group also owns Hong Kong Airlines, another Cathay competitor that has found itself in financial difficulties in recent months.

HK Express flies to several regional cities including in Japan, South Korea, mainland China, Thailand and Vietnam.

Cathay has been overhauling its business after posting its first losses for eight years in 2016, firing more than 600 workers and paring overseas offices and crew stations as it faces stiff competition from budget rivals in China.

It has also added international routes and better on-board services in a bid to compete with well-heeled Middle Eastern long-distance carriers.

The overhaul appears to have paid off. Earlier this month Cathay Pacific announced a net profit of HK$2.35 billion last year, ending two successive annual losses.

However, chairman John Slosar raised concerns about the strength of the US dollar, geopolitical uncertainty and global trade tensions, which he said could dampen passenger and cargo demand in the coming year.

It is also potentially facing a big bill after admitting in October to a massive data breach five months after hackers made off with the information of 9.4 million customers, including some passport numbers and credit card details.

UK-based law firm SPG Law has already launched a group action against the carrier over the breach to help customers seek compensation. AFP</s>With the acquisition, Cathay Pacific would be in control of 3 of the 4 airlines in Hong Kong

HONG KONG – Hong Kong flag carrier Cathay Pacific announced Wednesday, March 27, that it will buy budget airline HK Express for US$628.15 million, as it moves to counter competition from the increasing number of low-cost carriers in the region.

The HK$4.93-billion acquisition leaves Cathay Pacific in control of 3 of the 4 airlines in Hong Kong, adding to its namesake carrier and regional subsidiary CathayDragon.

Cathay will pay HK$2.25 billion in cash for HK Express, and issued HK$2.68 billion promissory loan notes, the company said in a filing.

The deal is expected to complete by December 2019, according to the filing. The carrier said it will continue to operate HK Express as a "standalone airline using the low-cost carrier business model."

"The transaction is expected to generate synergies as the businesses and business models of Cathay Pacific and HKE are largely complementary," Cathay said in the filing.

The carrier also said the purchase is an "attractive and practical way" to support long-term development and enhance competitiveness.

Cathay shares rose 2.78% to HK$14.06 in Hong Kong trading shortly after the market opened.

Hong Kong Express is the city's sole budget carrier – a sector of the industry that a marquee brand like Cathay has struggled to compete against.

Hong Kong Express is owned by HNA Group, a struggling Chinese conglomerate that has been looking to lower its debt pile. The group also owns Hong Kong Airlines, another Cathay competitor that has found itself in financial difficulties in recent months.

Cathay has been overhauling its business after posting its first losses for 8 years in 2016, firing more than 600 workers and paring overseas offices and crew stations as it faces stiff competition from budget rivals in China.

It has also added international routes and better on-board services in a bid to compete with well-heeled Middle Eastern long-distance carriers.

The overhaul appears to have paid off. Earlier this month Cathay Pacific announced a net profit of HK$2.35 billion ($299 million) last year, ending two successive annual losses. – Rappler.com</s>The operator of Cathay Pacific Airways is acquiring budget regional carrier HK Express, which it will continue to operate as a low-cost carrier.

Cathay Pacific Group said on Wednesday it will pay a total of 4.93 billion Hong Kong dollars for HK Express, which will remain a separate brand.

Cathay Pacific Group’s airlines serve 130 destinations throughout Asia, Europe and North America. It acquired regional carrier Dragonair in 2006 and also owns Air Hong Kong.

HK Express, founded in 2013, serves destinations throughout East and Southeast Asia.

Cathay said it will pay for HK Express with a combination of 2.25 billion Hong Kong dollars in cash and 2.68 billion Hong Kong dollars in promissory loan notes.

Cathay said the transaction would be completed by the end of this year.</s>HONG KONG The Hong Kong flag carrier Cathay Pacific said yesterday it will buy budget airline HK Express for HK$4.93 billion (S$850 million) as it moves to counter competition from the increasing number of low-cost carriers in the region.

The move is its first foray into the budget sector and will leave Cathay controlling three of four airlines at one of Asia's busiest airports at a time of huge growth in the region's air industry.

It comes weeks after the carrier said it had swung back into the black last year following two years of losses and will help ease concerns after a data breach that dented the company's reputation and could prove costly.

"This represents an attractive and practical way for the Cathay Group to support the long-term development and growth of our aviation business and to enhance the competitiveness of the Hong Kong hub during a time of intense regional competition."

Cathay will pay HK$4.93 billion for the airline in a deal that is due to be completed by December, says a filing announcement.

It will continue to operate HK Express as a "standalone airline using the low-cost carrier business model".

"The transaction is expected to generate synergies as the businesses and business models of Cathay Pacific and HK Express are largely complementary," it added.

HK Express is the city's sole budget carrier - a sector that Cathay has struggled to compete against.</s>SINGAPORE (Reuters) - Cathay Pacific Airways said on Wednesday it had agreed to buy Hong Kong Express Airways Ltd from cash-strapped Chinese conglomerate HNA Group for HK$4.93 billion ($628 million), giving it a foothold in the fast-growing budget travel market.

A lack of slots at Hong Kong International Airport until an expansion is completed in 2024 had constrained Cathay’s ability to follow peers like Singapore Airlines Ltd and Qantas Airways Ltd and set up its own budget brand.

Cathay said it would continue operating HK Express as a standalone carrier using a low-cost business model.

The purchase price comprises HK$2.25 billion of cash and HK$2.68 billion of non-cash consideration through promissory loan notes, Cathay said in an statement to the Hong Kong Stock Exchange. The transaction was expected to be completed on or before Dec. 31, it added.

HK Express reported a HK$141 million net loss in 2018 and had a net asset value of HK$1.12 billion, Cathay said.

Cathay shares rose 3.4 percent in early trade on Wednesday, outpacing a 0.1 percent gain in the benchmark Hang Seng Index.

“It seems like a good deal given the value of the slots and the strategic importance of fast-tracking a low-cost carrier, multi-brand strategy and preventing a competitor from making a move in its home market,” CAPA Centre for Aviation Chief Analyst Brendan Sobie said.

“But a proper valuation is hard to figure out given the debts and complex structure of the HNA Group.”

HK Express has 24 Airbus SE A320 jets and the acquisition would increase Cathay’s share of seat capacity in Hong Kong from about 46 percent to 51 percent, according to CAPA data.

Cathay Chief Executive Rupert Hogg told Reuters last week he believed low-cost airlines met a “unique market segment” not captured by the Hong Kong carrier at present, and helped to stimulate new travel demand.

Cathay is in the third year of a three-year turnaround plan designed to cut costs and boost revenue to make it more competitive against Chinese and Middle Eastern rivals, as well as low-cost carriers.

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.

It also owns full-service carrier Hong Kong Airlines, which is not part of the deal with Cathay.

HK Express and HNA did not respond immediately to requests for comment.
Cathay Pacific announces the acquisition of low-cost carrier HK Express for US$628 million (HK$4.93 billion).