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Cathay Pacific to buy HK Express for $628 mn, enter budget airline segment

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

Reuters  |  Singapore 

Hong Kong carrier Cathay Pacific
Hong Kong carrier Cathay Pacific

Airways said on Wednesday it had agreed to buy 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 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 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 Stock Exchange. The transaction was expected to be completed on or before Dec. 31, it added.

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 per cent in early trade on Wednesday, outpacing a 0.1 per cent 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." has 24 Airbus SE A320 jets and the acquisition would increase Cathay's share of seat capacity in Hong Kong from about 46 per cent to 51 per cent, 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.

First Published: Wed, March 27 2019. 09:30 IST