Cathay Pacific Agrees to Sell Part of Equity Stake in HAECO

Cathay Pacific Airways today announced that it has agreed to sell 20,700,958 shares, representing 12.45% of its shareholding, in Hong Kong Aircraft Engineering Company Limited (HAECO) at HK$91.83 per share to Swire Pacific - a transaction valued at approximately HK$1,901 million.

In accordance with Stock Exchange Listing Rules, the transaction is subject to the approval of Cathay Pacific's independent shareholders. If approved, Cathay Pacific's direct interest in the issued share capital of HAECO will decrease from 27.45% to 15.00%, while Swire Pacific's stake in the maintenance provider will rise from 33.52% to 45.96%.

Cathay Pacific Chairman Christopher Pratt, who is also Chairman of Swire Pacific and HAECO, said: "The transaction will bring clear advantages for all parties concerned.

"From a Cathay Pacific point of view, it will improve the airline's cash position during an extremely difficult time for the aviation industry. At the same time, the carrier will retain a strategic interest in HAECO. The transaction will enable Swire Pacific to make a significant increase in its strategic investment in HAECO on terms it regards as appropriate. At the same time it affirms Swire Pacific's long-term commitment to Cathay Pacific and HAECO in particular, and to Hong Kong aviation in general."

Cathay Pacific Chief Executive Tony Tyler said: "Cash preservation has remained Cathay Pacific's top priority during this downturn and over the past year we have already taken many measures to help us achieve this goal. The sale of part of our HAECO stake will provide funds that will strengthen our balance sheet at a very challenging time for the business. We will keep a strategic stake in HAECO, which is very important because HAECO is our main provider of overhaul and maintenance services, and Cathay Pacific is HAECO's biggest customer airline.

"There are signs that the recent slump in business may now be levelling out, but there is unlikely to be a sharp rebound. The latest IATA figures released only yesterday reveal the extent of the problem: the industry organisation forecasts that airline losses will total US$11 billion in 2009, up US$2 billion from the previous estimate, while yields are expected to fall by 12% for passenger services and 15% for cargo business.

"The reality is the airline industry is facing an enormous challenge, and Cathay Pacific is not immune. Our ultimate aim has to be to preserve cash wherever possible, and it is imperative for us to review carefully and realistically all the options open to us."

Separately, Cathay Pacific has confirmed that it has signed an agreement with the aircraft leasing company BOC Aviation for the sale and leaseback of six of the 19 Boeing 777-300ER aircraft the airline has on order. The aircraft are scheduled to be delivered between the fourth quarter of 2009 and the second quarter of 2011. This is the first time Cathay Pacific and BOC Aviation have worked together.

Commenting on the BOC Aviation deal, Mr Tyler said: "This is a landmark agreement because it is the largest single lease-back arrangement we have entered into. It is consistent with our cash-preservation priority during this difficult time, and dovetails with our long-term fleet management strategy to maintain an appropriate balance between owned and leased aircraft. Importantly, the arrangement will have no impact on our debt-equity ratio as there will be no need to raise finance for the purchase of these aircraft."

Mr Tyler reiterated that Cathay Pacific has no intention to cancel aircraft orders. "However, we are in negotiation with aircraft manufacturers to defer some of our deliveries to align our capacity with expected demand. We believe this is a prudent step to take," he said.

Cathay Pacific currently has 39 aircraft on order for delivery before 2013. At present, there are 122 aircraft in its fleet, 25 of which are leased. The remainder are owned by the airline.