Air Transport World

Cathay Pacific's public offering: low risk, good benefits.

Cathay Pacific's public offering: low risk, good benefits

Cathay Pacific has been regarded as one of the world's more successful airlines (ATW, 11/83). And the airline is now going through some major expansion in its route structure.

For 1985 Cathay Pacific reported an operating profit of HK$898.2 million (U.S.$115.2 million), a drop of 4% from 1984's profit of HK$933 million (U.S.$120 million). Cathay Pacific is a privately owned company--70% by Swire Pacific and the remainder by Hongkong & Shanghai Banking Corporation.

Guesswork ending

But at the end of last year, it was announced that the two owners were going to sell around 25% of the equity in the airline in the first half of 1986. The publicly stated reason was simply the desire to give the Hong Kong people a chance to share in the results of their airline. The reason for that is partly political, in the lead up to the handover of Hong Kong to China in 1997. It is generally assumed that the decision was speeded up by the creation of a second privately owned airline in Hong Kong, Dragonair, which made a claim that it was the real airline of the Hong Kong people.

But this and other guesswork was due to end by May, when an investment prospectus for the sale of shares in Cathay Pacific was due to be published. It was expected that around 20% of Cathay's capital will be offered for sale (less than the 25% originally mooted), for listing on the stock exchange some time in May. In keeping with the owners' aim to spread the new ownership wide (and in small lots), the share price will be pitched low--one figure put this at HK$2-$3 (U.S.$.25-.39). Reports indicate that the share issue could raise as much as HK$1 billion (U.S.$128.4 million) for the existing owners.

Management is not expected to change as a result of this share offer. No single shareholder is likely to emerge with a sufficient share of the capital to demand a seat on the board, and management will remain with Swire. The Hongkong Bank has taken no active role in management, though it does, of course, have representation of the board.

That means control will remain with the existing management team, led by Managing Director Peter Sutch. Since he took over in January 1984, Sutch has expanded the airline to the extent that it can no longer be considered the unexciting, albeit steady, airline it was under Duncan Bluck.

The money raised from the sale of shares will go to Swire Pacific and the Hongkong Bank. Swire Pacific Chairman Micheal Miles is on record as saying the funds will be used to retire debt and for Swire Pacific to invest in other aspects of its business. …

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