Cathay Pacific pilots are facing pay cuts of up to 27 per cent in return for shares in the airline as part of a restructuring of cockpit salaries. Sources said the plan could save the loss-making airline up to $500 million a year. A letter was likely to be sent to aircrew in the middle of the month outlining the proposal, circumventing the need for negotiations between the airline and the pilots' union, which have been bogged down for months. The airline was preparing for substantial resistance from pilots, sources said. Management is understood to have informed the Government industrial action could be imminent. Cathay was preparing a range of contingency plans to 'ensure any inconvenience to the travelling public will be kept to a minimum', sources said. According to the proposal, 60 per cent of pilots, who receive lucrative 'A-scale' salaries, will be asked to accept cuts. In return they would receive share options, which would give them the right to Cathay shares. The shares could offset the pay cut over eight years as long as they perform well. Cathay said the total cost of employing a senior captain on 'A-scale' pay was $3.57 million, making them the highest paid in the region and a significant fraction of the company's wage bill. The airline is to target pilots based in Australia, Canada and Britain with the biggest cuts, arguing they are overpaid because they do not incur Hong Kong's high living costs. Salary cuts for overseas-based crew will range between 23 and 27 per cent. Hong Kong-based aircrew will be asked to accept average cuts of eight per cent, according to the proposal. The 40 per cent of pilots on the less lucrative 'B-scale' packages will be unaffected but will have pay reviewed next year. The move to trim salaries represents an escalation in the dispute between staff and the airline. The threat of massive pay cuts and the sweetener of shares in the company as compensation could be used to coax pilot representatives back to the negotiation table, analysts said. An airline spokesman confirmed a share-option plan was being considered and was likely to be discussed with pilot representatives. 'Other things are premature to speculate until we get into substantive talks,' he said. Hong Kong Aircrew Officers' Association general secretary John Findlay said cuts of up to 27 per cent could not be justified. 'They have failed to provide any satisfactory explanation for why they need that sort of pay cut,' he said. Mr Findlay did not rule out that pilots would accept some cuts in return for shares 'but the airline would have to say exactly what they mean by share options - it means many different things to different people'. A special meeting of shareholders is expected to be called in the middle of the month, when the company will seek approval to issue share options to pilots. Last August, Cathay reported its first interim loss for 35 years. In the first six months of 1998, the airline lost $175 million.