Cathay Pacific to buy HK Express for $628 mn, enter budget airline segment

International News

Cathay Pacific Airways said on Wednesday it had agreed to buy Hong Kong Express Airways Ltd from cash-strapped Chinese conglomerate HNA Group for HK$4.93 billion ($628 million), giving it a foothold in the fast-growing budget travel market.

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 an statement to the Hong Kong Stock Exchange. The transaction was expected to be completed on or before Dec. 31, it added.

HK Express reported a HK$141 million net loss in 2018 and had a net asset value of HK$1.12 billion, Cathay said.

Cathay shares rose 3.4 per cent in early trade on Wednesday, outpacing a 0.1 per cent gain in the benchmark Hang Seng Index.

"It seems like a good deal given the value of the slots and the strategic importance of fast-tracking a low-cost carrier, multi-brand strategy and preventing a competitor from making a move in its home market," CAPA Centre for Aviation Chief Analyst Brendan Sobie said.

 "But a proper valuation is hard to figure out given the debts and complex structure of the HNA Group.