Cathay sells Haeco stake to Swire for HK$1.9b

In an effort to raise cash and shore up its balance sheet, Cathay Pacific Airways has agreed to sell a 12.45 per cent stake in Hong Kong Aircraft Engineering Co (Haeco) back to the carrier's controlling shareholder, Swire Pacific, for HK$1.9 billion.

The all-cash deal will see 20.7 million Haeco shares change hands for HK$91.83 each, a 1.6 per cent discount to yesterday's closing price. After the deal, Cathay will see its shareholding in Haeco cut to 15 per cent, while Swire will boost its stake to 45.96 per cent.

'This is a prudent and sensible step to strengthen our balance sheet,' Cathay chief executive Tony Tyler told reporters yesterday.

Cathay has struggled amid falling passenger and cargo revenues in the worst global recession since the Depression and has seen plunging volumes in business and first-class travel, previously its most profitable segments.

Stripping out a one-off gain due to fuel hedging accounting, Hong Kong's de facto flag carrier made a HK$765 million pre-tax loss in the first six months of the year, compared with a HK$1.49 billion loss last year.

Yesterday's deal allowed Cathay to monetise part of its stake in Haeco while retaining a strategic interest in a firm that 'acts as Cathay's maintenance department', Tyler said.

The HK$1.9 billion cash injection should help offset holes that the challenging business environment has punched in its balance sheet. The airline had HK$20.78 billion in liquid assets, including HK$11.34 billion cash, at the end of June but was carrying a hefty HK$34.36 billion in net long-term debt.