Cathay Pacific Airways Limited (293) Earnings Call Transcript & Summary

We have -- the major stakeholders have all irrevocable undertaking to sign up. So it's a 15% free float which has been underwritten by 4 strong relationship banks.

Okay. Final part from Kelvin. What is the interest cost now? Or how does it compare to the raise offer on the preferential shares?

What is our...

Yes.

Well, again, it's -- they're all different instruments. The instruments have all been done on a commercial basis. And so if we take tranche C in terms of the loan HIBOR plus 1.5% for 18 months is certainly a level that we would have had pre-COVID-19, if not lower. And so that's very much on commercial base for that length of tenor. In terms of our perpetual bond, I think the coupon rate is fair in terms of the step-up there. And in terms of the warrant, then we strive to have a return on capital invested, ROCE of 7.5%. And I hope to achieve that.

Okay. Thank you. The next question comes from Rebecca Law of Crédit Suisse. Three parts. The first part is the company is taking more passenger flights for cargo. What is the revenue and earnings contribution for the cargo segment now?

Well, with the passenger revenue falling to only 1% to the normal level, basically, majority of revenue predominantly comes from cargo nowadays. And we have done a lot to improve our cargo revenue, apart from running the freighters with higher utilization. We have mounted many passenger flights to carry cargo only. For example, in the month of May, we have mounted close to 900 pairs of passenger flights to carry cargo only.

Right. The second part of the question is we understand the hedging loss will be USD 7 million for every $5 drop in oil price. Could you remind us any updates on hedging loss now?

Well, that was well remembered, and it doesn't change. And so that -- all we're seeing there is for the hedging losses. It's already public. So our hedging position, we've hedged it for the rest of the year at USD 65. You have to work out what your own view of what the future's going to be in terms of the brand price. If you assume $40, then for every 7 -- for every $5 decrease, that difference will be $25. Then with USD 7 million per month for every $5 you're talking about, just over HKD 250 million per month hedging losses. And obviously, at the moment, while we're not flying, we don't get the more-than-offsetting benefit of the cheap fuel.

Final part of the question from Rebecca. Given the right share issuance price is at HKD 4.68, which is 35% discount to TERP, how do you think about short-term market performance?

Well, obviously, as Ronald mentioned, the immediate short term is very uncertain. So we don't know when international travel restrictions will lift. Ronald also mentioned what the IATA outlook was. And so we are expecting a difficult 2021 at this stage. We will come back to the Board in the fourth quarter in terms of what we think the optimal size of the group should be at that time. But again, the target remains to get our return of investment back up above our hurdle rate of 7.5%. And we're very bullish, remains very bullish about the medium-term outlook for Hong Kong as an aviation hub.

Okay. The next question comes from Kom Ajith of UOB. Will the preference shares be treated as equity or debt?

Yes. I mean whilst it's like a perpetual bond and structure, the preference, the beauty of the Preference A shares, it is treated as equity. So 80% of the recapitalization is treated as equity, and that's what brings our gearing levels down, and that's what opens the capital markets up for further equity and debt lending.

Okay. The second part of -- there's another question from Kom of UOB, and also a few similar questions from other analysts about fleet. So the question is, has Cathay managed to defer deliveries in 2020? Would you be able to quantify the expected deliveries for 2020?

Well, our original budget plan has plan for 17 aircraft to be delivered in 2020. And some aircraft has already been delivered earlier this year. But for the remainder of them, we are working with the aircraft manufacturer to try to delay them as much as possible, and some of them into 2021, at least. But given that some of the aircraft are already manufactured, so I think we are still talking to the aircraft manufacturer to see what degree of deferral we can manage to agree on for the rest of 2020. So we're still working on it.

Okay. Next question comes from Eric Lin of the UBS. Aircraft delivery part has been answered, and fuel hedging part has been answered. The third part of the question is have your cash flow in May and June improved or deteriorate versus the first 4 months of the year?

Well, we're operating a skeleton crew. So the cash flow started to stabilize. So the -- of the HKD 2.5 billion to HKD 3 billion that we've seen since February, the big part of that is salaries. A big part of that is financing of the aircraft and then maintenance of the aircraft. You can add to that what we just talked about in terms of the hedging losses. But then there's a big chunk of working capital movement, which is the refunds that we've had to pay in the first period. So we do expect the cash burn to come down in the second half if we maintain a skeleton crew just because the refunds have been repaid.

Okay. I think we will have time for 4 more questions. Actually, follow-up questions from Ben of Goldman Sachs. Technical questions on the EGM vote. Can Air China vote for the rights issue?

Yes.

Yes. Okay. The second one, contingencies. Do you see any risk to completing the transactions laid out here? Any of the conditions present that might be uncertain?

No. We've had irrevocable undertaking from all the stakeholders, and the government support has got no conditions attached. So we're good.

Okay. I think that's -- most of the other questions are repeating. So you have answered already. So...

Thank you very much for your questions. Kindly note that the slides from today's presentation will also be made available to download on our Investor Relations website later this evening. If you have any further questions, please write to us at IR@cathaypacific.com, and we will endeavor to respond to them as soon as possible. This concludes today's analyst webcast. Thank you for joining us.

Thank you.

Thank you.