After prolonged discussions, Cathay Pacific Airways announced on Wednesday its plans to buy Hong Kong Express Airways from cash-strapped conglomerate HNA Group for 4.93 billion HKD ($628.1 million).
According to the terms of the deal, 2.25 billion HKD comprise will be paid in cash while 2.68 billion HKD will be paid through promissory loan notes. However, full-service carrier Hong Kong Airlines is not part of the deal.
The acquisition came after Cathay’s prolonged desire to gain foothold in the budget travel market. For this, Cathay intends to continue operating HK Express as a standalone carrier using a low-cost business model. Cathay’s CEO further explained that Hong Kong Express so far has been unable to capture the unique market segment of budget travel. He expects that the acquisition will help stimulate new travel demand based on the lower price point. It should also enable Cathay to gain more slots at the Hong Kong International Airport, which has so far limited its ability to compete with peers like Singapore Airlines and Qantas Airways.
The acquisition also revealed that HK Express reported a 141 million HKD net loss in 2018 and had a net asset value of 1.12 billion HKD.
This move is in-line with Cathy’s turnaround around plan designed to cut costs and boost revenue to make itself more competitive with Chinese and Middle Eastern rivals, and other low-cost carriers.
HNA Group has long been struggling and is currently more than a year into the process of breaking away from a $50 billion acquisition spree, that in its full glory won stakes in banks, fund managers, hotels, property and airlines, among other assets.