Cathay Pacific

Cathay takes full control of freighter Air Hong Kong

Cathay will purchase DHL’s 40 per cent stake and continue to service the express freight firm

PUBLISHED : Friday, 07 July, 2017, 10:46pm
UPDATED : Friday, 07 July, 2017, 10:46pm

Hong Kong’s embattled carrier, Cathay Pacific Airways will take full ownership of its cargo joint venture, Air Hong Kong (AHK), the airline said in a stock exchange filing on Friday.

Cathay, which currently owns 60 per cent of the cargo firm, will purchase the remaining 40 per cent from its partner, freight forwarder DHL Group, and turn Air Hong Kong into its wholly-owned subsidiary.

According to AHK’s website, DHL express is its main customer.

The stock exchange filing said that AHK would continue to operate a freighter network to destinations in Asia for DHL and would receive agreed service fees and reimbursement of operating expenses.

Cathay Pacific chief customer and commercial officer Paul Loo said: “We are pleased to announce the signing of a Memorandum of Understanding and look forward to continuing our fruitful commercial relationship with DHL.”

In addition to purchasing DHL’s stake in AHK, the statement said that DHL would purchase eight

Airbus A300-600F freighter aircraft and associated equipment from AHK, and lease them back to the cargo firm.

“As DHL will continue to be a business partner, leasing these aircraft and purchase block space, Cathay Pacific will receive a fairly steady flow of aircraft rental and block space income,” said Corrine Png, CEO of Crucial Perspective, a consultancy specialising in the transportation sector.

“The longer term risk, however, is that these freighter aircraft are getting older and will need to be disposed and replaced in the future by Cathay Pacific. DHL has essentially transferred its exposure to the residual value risk of these older aircraft assets to Cathay Pacific,” she said.

Earlier this year, Cathay announced a major three-year restructuring programme, as part of which it announced 600 lay offs, began reorganising its cargo division and scrapped the role of cargo director.

Cathay has been struggling in the face of rising competition from mainland Chinese and gulf carriers. In 2016, it posted a net loss of HK$575 million, only the third year it posted a loss in its 70-year history.

Cathay Pacific reports first loss since 2008 as rivals’ cheaper fares erode margins

The Cathay-DHL cooperation began in 2002 when DHL bought a 30 per cent stake in Air Hong Kong from Cathay, which had fully acquired AHK earlier that year.

DHL upped its stake to 40 per cent in 2003.

DHL has essentially transferred its exposure to the residual value risk of these older aircraft assets to Cathay Pacific
Corrine Png, Crucial Perspectives

In 2007, DHL and Cathay came to an agreement that AHK would sell space to DHL on an agreed network of flights. Both this agreement and the joint venture agreement governing the company will expire on 31 December 2018.

The agreement announced today will take effect on the expiry of the existing arrangements.

The stock exchange filing did not say how much Cathay Pacific would pay for DHL’s 40-per cent stake, and the company did not respond to how much it would spend on the acquisition.