Cathay Pacific in talks for budget air stake

Top News | Reuters and Jeannie Tang 6 Mar 2019

Cathay Pacific says it is in "active discussions" about acquiring budget airline Hong Kong Express Airways, although an agreement has yet to be reached.

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 HK Express and full-service sister carrier Hong Kong Airlines from cash-strapped Chinese conglomerate HNA group.

Cathay did not give details about the potential value of the transaction or the size of the stake it would hold. It said it would issue an additional statement when appropriate.

An analyst last year estimated that HK Express could be worth about US$300 million (HK$2.34 billion).

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 and Qantas Airways in setting up its own budget brand.

Cathay has instead shifted destinations from its main brand to its regional carrier, Cathay Dragon, as part of a transformation plan designed to cut costs and increase revenue.

A source said the companies appeared close to reaching an agreement and noted Cathay's parent Swire Pacific had historically taken majority stakes when making investments.

But some analysts have expressed doubts on the benefits of the deal.

Daiwa analyst Kelvin Lau said he does not see much value in the potential acquisition and that Cathay would need to undertake significant reform to add a budget wing.

Cathay's shares rose 2.15 percent to HK$13.30 after the news was released.

Its shares have recorded a jump of more than 21 percent this year, compared with an 8 percent fall last year.

Meanwhile, Hong Kong Airlines has another US$30 million worth of bonds that is due on March 29.

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