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Cathay puts aircraft orders on hold
By Raphael Minder in Hong Kong and Robin Kwong in Taipei
Published: November 28 2008 17:42 | Last updated: November 28 2008 17:42
Cathay Pacific announced cost-cutting measures on Friday, including the deferral of aircraft deliveries, as the Hong Kong-based airline faced a sharp slowdown in both passenger and cargo traffic.
The airline cut its forecast for 2009 passenger capacity growth to less than 1 per cent, from 6-7 per cent. Tony Tyler, Cathay’s chief executive, also warned that the financial crisis was having “a particularly severe” effect on freight, which accounts for about 30 per cent of its revenues.
As a result, the airline will ground two of its Boeing 747 cargo aircraft in the Californian desert and put on hold the HK$4.8bn (US$620m) construction of a Hong Kong cargo terminal. It will also offer cabin and cockpit crew unpaid leave next year.
Cathay has ordered 42 passenger and freighter aircraft from Boeing, originally scheduled to be delivered by 2012. Mr Tyler said the airline was talking to Boeing about deferring the deliveries and outstanding payments.
This week, Air France-KLM also announced that it would postpone taking delivery of new aircraft, a trend that is threatening Boeing and rival Airbus.
Jim Proulx, at Boeing Commercial Airplanes in Seattle, said several airline customers had moved their delivery dates but said the aircraft-maker was confident its $276bn-backlog of orders – the equivalent of seven years of sales – was a sufficient cushion to carry it through the downturn.
Mr Tyler indicated that more operational cuts might be required at Cathay given the difficult market conditions.
“We cannot see light at the end of the tunnel at this point,” he said.
The measures come less than a month after Cathay issued its second profit warning of the year, citing lower demand.
Cathay’s problems mirror those of airlines worldwide, but it is among the Asian carriers that are most vulnerable to falling business passenger traffic as a result of job cuts in the financial sector, as well as lower cargo traffic as Chinese manufacturing exports decline.
Earlier this month, David Turnbull, former chief executive of Cathay, told the Financial Times that cargo revenues for Asian airlines were likely to drop off after the Christmas shopping season and could fall as much as 20 per cent by the middle of next year.
The outlook for the Asian aviation sector has worsened rapidly, forcing rival airlines in India to discuss co-operation initiatives and two Chinese state-controlled airlines to seek emergency subsidies.
Separately, Malaysia Airlines reported on Friday that profit in the quarter ending September 30 fell 90 per cent to M$38.1m (US$10.5m), with flat revenues.
The Association of Asia Pacific Airlines recently forecast that capacity growth for Asian airlines would be flat next year compared with growth of 4-5 per cent this year.
Additional reporting by Hal Weitzman