HONG KONG – Hong Kong’s flag carrier is set to acquire the low-cost Hong Kong Express Airways for $628 million, Cathay Pacific Airways announced on Wednesday.
Hong Kong’s largest airline said it would buy 100 percent of shares of HK Express – until now owned by the Chinese conglomerate Hainan Airlines Group – for HK$4.9 billion in an operation that was expected to be completed by Dec. 31, 2019.
“The transaction represents an attractive and practical way for the Cathay Pacific Group to support the long-term development and growth of its aviation business and to enhance its competitiveness,” read a statement by the airline.
HK Express will thus become a wholly-owned subsidiary of Cathay Pacific.
According to the statement, the purchasing price will be divided into HK$2.2 billion in cash and “a non-cash consideration of HK$2.68 billion settled through the issue and novation of promissory loan notes.”
The company added that it intended to continue to operate HK Express as an independent airline using a low-cost business model.
HK Express has been part of the HNA Group along with five other budget airlines from mainland China: Air Guilin, Beijing Capital Airlines, Lucky Air, Urumqi Air and West Air.
The HNA Group also owns Hong Kong Airlines, a struggling carrier with a network of regional passenger and cargo flights that has been generally considered a low-fares competitor, although it is not classified as low cost.
Cathay Pacific closed 2018 with a profit of HK$2.3 billion (US$293 million) after being in the red for two consecutive years; for instance, it recorded a loss of HK$1.2 billion in 2017.
The agreement comes at a time when HNA has been struggling with its debt when it comes to international purchases and has therefore been disposing of assets – including real estate in New York – and shares in Deutsche Bank over the last year.
The group has been cutting off one of China’s largest debts by selling dozens of hotel assets to aircraft leasing companies.
As of now, three of the four Hong Kong airlines will be controlled by Cathay Pacific, leaving the group with nearly half of the runway slots at Hong Kong International Airport.
Cathay Pacific joins a list of traditional Asian airlines that acquire a low-cost airline, following in the footsteps of Singapore Airways – which created Tigerair and Scoot-Qantas with the Jetstar brand – and Japan’s All Nippon Airways, which created Vanilla Air and Peach.