Cathay Pacific to acquire low-cost carrier HK Express for $628 million

Cathay Pacific Airways said on Wednesday announced that it has agreed to buy Hong Kong Express Airways Ltd from cash-strapped Chinese conglomerate HNA Group for HK$4.93 billion ($628 million), thereby entering the budget travel market.

Cathay Pacific and Hong Kong Express Holding Company Limited along with the seller’s guarantor also entered into a share purchase agreement under which Cathay Pacific will purchase the HKE interest (being 315,060,716 ordinary shares in HKE held by the seller and representing 100 per cent of the issued share capital of HKE) for a consideration of HK$4.93 billion.
The purchase consideration comprises a cash consideration of HK$2.25 billion payable in
Cash and a non-cash consideration of HK$2.68 billion settled through the issue of promissory loan notes.
Cathay Pacific said completion of the deal is conditional upon certain conditions being fulfilled, including clearances required from relevant competition authorities, consents under relevant contracts of HKE and the termination or variation of certain arrangements between HKE and its related parties.
The performance of the seller’s obligations under the share purchase agreement is guaranteed by the seller’s guarantor.
Upon completion of the transaction on or before 31 December 2019, HKE will become a wholly-owned subsidiary of Cathay Pacific.
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 a 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 31 December, it said, but 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 has 24 Airbus SE A320 jets and the acquisition would increase Cathay’s share of seat capacity in Hong Kong to 51 per cent from about 46 percent, according to CAPA data.
It also owns full-service carrier Hong Kong Airlines, which is not part of the deal with Cathay.