2009 Profit Results

[Waterskier]

Cathay Pacific 2009 Results (http://www.hkexnews.hk/listedco/listconews/sehk/20100310/LTN20100310087.pdf)

HKD 4,694 million profit (US $602 million)

10 cents dividend

[luvmuhud]

Confirm there was no valid Profit Share policy for 2009????????????.........I must have missed that announcement!!!

Good to see SLS takers get their cash back though.

[Base Vacancy]

Only 90% for Level D, though

[luvmuhud]

Share of Profit Policy

The Company's Share of Profit Policy for 2010-2012 will be announced in due course. There was no Share of Profit Policy for 2009 as the previous policy for 2006-2008 had already expired.




WTF Over???

[Bye Bye Baby]

Devious Cu*ts

[Harbour Dweller]

Captains are Level D

[Toe Knee Tiler]

Is this ID90 leave?

[monster330]

Typical F%#kin' CX Wankers

Entrust the jet to the professionals- Capts, FOs, and SOs, let the buck stop with only one person, the Capt, but shaft him/her on the "Ex-Gratia"

F%$kers.

Capt- we need your help please......"FU$K OFF":mad:

[jonathon68]

So I got 4 weeks extra leave, and they have paid me back for 90% of that. SLS basically cost me about 3 days pay. In the meanwhile during 2009 I made EFP equivalent to about 20 days pay.

Sweet! :D

BTW

Level A are Cabin crew, ground staff etc
Level B S/O's
Level C F/O's
Level D Captain's and Managers
Level E General Managers

[hongkongpilot]

No commander discretion :*

[superfrozo]

Bugger that, everyone new they would screw the SLS takers.

What I want to know is where is the rest of our 13th month after such a good profit?!? (and no, I don't believe "serious" Tony that "things aren't really that good").

That 2 weeks was paid in anticipation of a poor P&L statement. Now the truth is out, I want my contractual 13th month!! :mad:

(..and my BPP, and my seniority-based airline, etc...)

[2longhk]

Sounds like equal sharing of the pain, not.
Can't wait to see the Level E bonus seeing as they don't consider this a good profit.

[Toe Knee Tiler]

Yeah but what you don't understand is that if you make a 4.7 billion dollar profit and then, as Tony says on his message, you take away all of the major contributing items that made the profit (which, by the way, is still part of the business plan) you really haven't made that much. Have you?

Smoke and mirrors!

Oh, also, we forgot to renew the Profit Share policy but this will be put in place for next year. Yeah right!

[Giuseppe Giovanni]

"The Company's Share of Profit Policy for 2010-2012 will be announced in due course. There was NO SHARE OF PROFIT POLICY FOR 2009 as the previous policy for 2006-2008 had already expired."

How on earth can the Company get away with this ???

So the Profit Policy has lapsed for 2009 & they've let an oversight like this happen ?? This needs explaining on the behalf of the Company just HOW this could have been allowed to occur.

Let's turn the tables for just one minute here. Would the Swire boys allow their Bonus Policy to lapse for 12 months ?? Hell would freeze over before that would happen, but they simply brush this off as though it was a minor missive.

I think the AOA should be asking questions why this was allowed to happen.

[Intransitgent]

How this company can discriminate against the one group who willingly gave more (both in cash AND percentage terms) than all other groups in the SLS scheme, defies belief! It is discriminatory in the extreme. Especially after generating their $4.694B profit ... I'm just blown away.

As for Level E and above: be assured ... TT and his bunch of crony crooks will recompense themselves handsomely. Trouble is, they are so SLIMY and adept at hiding the detail, you will never quite work out how they did it.

But fear NOT ... I and many of my Level D colleagues will be every bit as SLIMY and adept at ensuring they never see how WE get our missing 10% back ... but most certainly, we WILL! :ok:

[000889]

Can somebody please explain the "Relevant Amount" for certain Cockpit Crew who elected to change to COS 08. I just dont understand it in plain english. Thanks!

[geh065]

They just change their policies at a whim to suit themselves. What rubbish to say that the previous one expired. Were any of us told that the scheme was only valid for a certain amount of time? It is almost as if they are saying their hands are tied, because there is no policy to give us any money. Makes your blood boil doesn't it?

[Capt Toss Parker]

When I was in the air force I was also a financial adviser & internationally acclaimed hamster breeder. These extra curricular activities gave me the necessary managerial skills to be of great assistance to Cathay Pacific.

I personally devised the COS 08 scheme as a way of giving back to the aviation community. Sure I could just retire but it would be such a waste of experience and a loss to the younger generation that need my tuition. Especially the G.A. guys who can't land planes.

It's good to see that the iSuggest system works. I'm proud that they implemented my recommendations to help turn this profit & retain the experience within the company.

Did you know that I was one of the best guitar players in the whole of the RAAF?

[goathead]

gear down and flaps 20 at 3500' and flaps 30 at 3000' will help with getting it back...everybody should be adopting this method , remember 1500' is the limit right ?:ok:

[Blogsey]

Intracx->"CX & You" tab-> Home> Cocpit Crew > Salary & Benifits > Profit Sharing Scheme.

"The Policy of the Cathay / Dragonair Profit Sharing Scheme will apply for the Benefit Years of 2006 to 2008"

Have we let ourselves be duped?

[Waterskier]

If you look closely, staff expenses increased from 2008 to 2009 (HKD $12,428 Mil to HKD $12,628 Mil).

This is despite a hiring freeze, SLS, and attrition/retirements.

To explain this increase, they state:

"Increased due to provision for bonus partly offset by savings from no pay leave."

So now who exactly is getting this bonus?

Does the lack of a 2009 profit share policy mean executive profit share (ie. bonus) are not going to happen?

[fire wall]

Toss, I think your coup de grâce was having the funds payable as an ex gratia payment, that way eliminating the provident fundable element. Pure genius !
I am certain you will formulate another scheme to inspire the troops to come to the companies rescue in it's next hour of need. Perhaps you could also devote some time to that pesky mark to market stuff, we need to blur the lines when we next make a bookable gain.
Inspiring indeed.
As an aside, were you not the Sao biscuit champion of the RAF?

[Oval3Holer]

My understanding of "relevant amount" for those who signed CoS08 in lieu of taking SLS is the amount of SLS they WOULD have taken had they NOT signed CoS08. So, in plain English: 3 weeks pay for FOs and 4 weeks pay for CNs

In other words, those who signed CoS08 in lieu of taking SLS will get a bonus of 3 weeks pay or 90% of 4 weeks pay in April. However, those people did NOT get 3 or 4 weeks of extra vacation.

[Freehills]

The bonus is the "special ex-gratia payment" I am guessing.

[Oval3Holer]

firewall, the SLS deduction did not affect the provident fund payment. If you look at your pay slips you'll see that your provident fund payment was the same as it would have been without SLS. Therefore, when paying back the SLS, of course the company does not pay an additional provident fund percentage.

[fire wall]

valid and thanks, I now feel only partially violated.

[Capt Toss Parker]

Sao biscuit champion from down under Fire Wall (RAAF) you know? the ones who taught the RAF how to really fly :eek: We'll that's what I tell everyone anyway, have to be sharp to cut the mustard on the Caribou.

Is it delusions of grandeur or grand delusions? Anyways I'm pretty good at most things just ask me.

[Giuseppe Giovanni]

Like I previously mentioned. Just who is responsible for this oversight that the Profit Share Scheme was allowed to lapse ??

This is simply criminal. Oh & BTW, as the SLS payback is 'ex-grata', there will be no 15.5% Provident Fund payment. So if you're Level B & C, although you get 100% back, you still loose out on your 15.5% Provident Fund. For Level D this equates to 25% down.

Again, serious questions need to be asked of senior Management as to just how they can so 'conveniently' forget that the Profit Share Scheme was allowed to expire for 2009.

I'm fuming !!!

[Blogsey]

Just who is responsible for this oversight
Well as I mentioned up the top of this page, it's in plain sight on intracx, so I'm not sure who you could blame other than yourself?

[iflyplanes]

Love how they include mark-to-market losses in last years results, but are quick to remove it from this year to make operating profit smaller. Cant have it both ways.

I would hardly call this profit marginal therefore we are owed 2 more weeks of 13th month.

IFP

[Giuseppe Giovanni]

No Blogsey, I don't accept that as a valid reason.

Cx & Swires proclaim themselves to be honorable business dealers. Are you now suggesting that we need to continually review out contracts to ensure that Cx aren't deceiving us ? Is that what working for one of the Worlds leading airlines means ??

[Bus]

But fear NOT ... I and many of my Level D colleagues will be every bit as SLIMY and adept at ensuring they never see how WE get out missing 10% back ... but most certainly, we WILL!

Yep. I suspect that captains in overtime will make sure that the 10% is taken into account in block time. I also expect that a captain’s sickness rate will increase by at least 10% for the months when they are not earning EFP, and fuel burns in those months also increase with reduced work hours.

The good news for F/Os and S/Os shafted by age 65? Time to command will reduce with the lack of available commanders (small recompense I know, but a token from your colleagues, and any EFP will also be increased for you too).

I've always been pissed off with the level D+ category for SLS. I am a pilot not a strategist/manager for the company. The major losses over the last couple of years were corrupt business strategies (cargo fines) and fuel hedging (almost redeemed themselves, but still an unsatisfactory system from year to year. I know it just accounting practise). As a captain I didn't make those decisions, so why isn't there a category E in any of these things? Why just D+? The captains make decisions on the spot for fuel savings, efficiency with short cuts, on time performance. We might not be so keen to do so now.

Overall efficiency of the major operation of the airline is reduced, with extra training costs, extra fuel burn and EFP payments, lack of productivity from sick pilots.Who loses? CX as a company for being complete pricks to the people that are in charge of their revenue source. The 10% is going to cost alot.

[crewsunite]

These guys are Lying Swine's ! They should get in jail the lot of them!

How much profit will be available for distribution under the Profit Share Scheme?

Under the current Scheme, we should get $215mill

What is 'Margin'?

Operating Profit after Tax
Margin = ---------------------------------
Turnover net of Recoveries

Margin = Profit/Turnover = 4300/64,400 = 6.6% * 3/4 = 5%
5% of Profit ($4300) = Avail for Profit Share $215 Million

Amount we are getting = ZERO! And we they only tell us now there was no formula valid!
And they expect us to go the extra mile.

Why 90% of SLS for LvL D that 10% just pisses on our heads!
Done as a litmus test, to test if there will be a reaction or not.
(Abit like a frog being boiled alive very slowly, at first he does not react)

If we don’t react to this they come back for more!

We are certainly Modern Slaves if we cannot stand up for ourselves.
Two choices
Never mind keep visiting those cheap girlie pubs down route buy the latest Iphone to download World Cup Games to watch in the flight deck while the other guy is taking his controlled rest. :ouch:

Or
Take a stand, be professional. Join together somehow. Contribute to forums, write to AoA, pay more subs, get more professionals on board. Take CX to court win some cases. :ok:

Lets get some life back in our Souls!:)

[sorvad]

Blimey, Is the glass always half empty with you lot?..... at a time when the whole world is enduring unemployment, redundancies and a general tightening of the purse strings, we get an extra 3 or 4 weeks leave....most of us exactly when we want it, then we get paid for all or most of it too.......jeeeez......how angry would you all be if something actually bad happened.......come of it chaps....you all said we should be paid back our SLS and for the most part we have..enough said

[Oval3Holer]

What a job, huh? 9-10 weeks paid leave! Better than those French people who spend the whole summer on vacation in their Hymermobiles.

[Bus]

No SORVAD, those who paid the most have been returned the least.

It is inequitable. Surely not that hard to get the concept?

[Some How I'm Tired]

Crewsunite: Did you mean "Are-souls"?!

[Gone Down]

[QUOTE]What a job, huh? 9-10 weeks paid leave!/QUOTE]

Easy on, what about the 3.5 year SO's with their massive 3 weeks leave per year, with the extra 2 making it 5 it's still not what they are entitled to in a normal year as an FO getting 6 (9 if you count the SLS payback).
Oh well the good thing is that SO's can't afford to take any leave anyway.

[geh065]

Well as I mentioned up the top of this page, it's in plain sight on intracx, so I'm not sure who you could blame other than yourself?

They will do what they want. Expiry or no expiry they dictate whether such a scheme exists or whether it is even referred to. It is not something which is contractual so even if 'we' had noticed it and said something, I do not believe for one minute that it would have made them pay profit share to the staff. They would simply have come up with some reason not to pay it anyway.

[crwjerk]

How many times did they say " We don't know if Profit Share will be paid this year""???
Could they have not said... " there is no Agreement for Profit Share this year"?? , instead of keeping us wondering?
Do i understand correctly that those who signed for COS 08 are getting the equivalent of SLS back, even though they didn't pay it?
Don't jump on me, i'm just not as smart as the rest of you.............

[freighterdog]

COS reads,

"officers will be entilted to recieve an annual share of CPA's profits in accordance with company policy as may be amended time to time".

Would this not mean a policy must be in place to be in compliance with the COS from the employer's point of view? From a legal standpoint, seems that simple. Thoughts/ comments?

[Noddys car]

so will it get paid in March pay packet, or as the memo states. Paid in April..

[mephisto88]

Reckon it'll be in April so you won't get slugged for tax in the year up to 31 Mar 2010.
And as for that those who signed for COS 08 are getting the equivalent of SLS back, even though they didn't pay it?
I don't read it that way.
If you were a sucker like me, you get 90% back, if you didn't take SLS, you get 100% of what you gave the company, ie zip.

[Free Flight]

..and just how surprised are you all?

When has the company management failed to penalise the honest employees of this company for their loyalty?

Get a life, everyone - 5 weeks extra leave and maximum FDP and EFP for all!

Hasn't anyone else worked this out?

[spannersatcx]

Level A are Cabin crew, ground staff etc
Not accurate at all, lots of ground staff are B and C grade.

[GANKER]

you all moan and carry on ,but the the fact of the matter is that as a group that should be united , we are a weak pathetic little school kid who will always be bullied! and the bully will keep pounding on us why? cause its fun! So go winge to ya mothers and think if in this generation of pilots that maybe darwins theory of evolution is true and that we were all born without backbones! Im embarrassed to be part of it. :ugh:

[bobrun]

Big profits announced yet:

1- SLS not fully paid back (90% only for level D)
2- 13th month not paid (only two weeks)
3- no profit share
4- dividends paid to shareholders!

So, to sum it all up: we are giving some SLS, half of the 13th month and our share of profit to the shareholders.

Thanks again, dear company, for transfering our salaries into the accounts of shareholders. We hope that management also took the time to reward themselves with some of our salaries too.:D

[rjmore]

I was strong armed into signing a new contract or stay on freighter scale indefinitely. It is going to cost me roughly $250,000USD over ten years as an FO now on UFO pay. Instead I will get three weeks pay instead of my B scale. I'd say I paid more than my share.

[bobrun]

Regarding the 13th month, below is what our COS states:

"In any year when profitability is marginal or negative...the Annual discretionary bonus may be reduced or, in extreme circumstances, not paid."

Now, with over 4 billion in profits, I'd like to know why we haven't been paid our full 13th month? Any explanations? Seems like a breach of contract (seriously, isn't the bonus contractual with profits over 4 billion???).

To top it of, they will pay shareholders their share of the profit (dividends) but we won't see any of it? Really? 4 billion isn't enough to share?

Sorry, but giving back salaries (that we should have been paid in the first place anyway) isn't nearly enough.

:eek:

[airplaneridesrfun]

rjmore. Nobody strong armed anybody to sign Cos '08. That's your own fault, and you can't blame it on anybody but yourself!

[rjmore]

So threat of not having any bases open on the 777 due to current COS 08 guys going to training wasn't real? I couldn't switch to the 777 to get a passenger base, can't go to HKG, and had no other choice but to remain on the freighter on freighter scale if I did not sign over.

Maybe strong arm is the wrong term but there certainly were not any great choices. That is also why most NAM FOs in my seniority level did sign over. I made the choice and I accept that, my statement was simply to show that we did make a sacrifice as well. Sometimes you have to know when you've been beaten, and we were beaten on this one.

With that, I'm done with the thread...back to your regularly scheduled programming.

[deepdiggings]

Well I'm happy. Three weeks extra leave last year where I obtained alternate employment. I banked double pay for that month. Bring back SLS. count me in for the next one!

[NoseGear]

Easy sorted...stick together, go to the the slimy lying basterds who pose as "management" as say...."sort it, or we walk".....balls anyone?

[IFB]

Cx has in the past done many things to annoy the hell out of me, but this SLS repayment is not one of those occasions. When I left the Air Force in 2005 I did so with 9 buddies. Of those 9 in the last year:-

4 - have been made redundant.
3 - are on a 40% pay cut for a minimum of one year.
1 - is expecting to hear if he will be made redundant in the next few weeks but is actively looking for a new job with virtually zero success.
1 – has had no change, but is far less confidant about his companies future.

I got an additional 3 weeks paid leave, when I wanted it!:ok:

Compared to the people I know I didn’t get a good deal.................I got without doubt the best deal.

As far as the captains go, yes I do find the withholding of 10% rather petty. I guess the company was trying to send the message that what permanent sacrifice has been made due to the financial crisis is to be borne by management. That may be a rather rose tinted view granted, but please answer honestly the following question:-

If at the start of the financial crisis instead of asking for unpaid leave the company had said we want all captains to take a month off but you will have to forfeit 3 days pay which you will not get back. Would you have taken it?

Just trying to look at this situation from a glass half full perspective! Hard hat and flack jacket on, standing by for incoming!:eek:

[Nullaman]

Glass half full

:ok:

[Liam Gallagher]

Nick Rhodes says your glass is too big...... and he has a plan to fix that!!

[IFB]

perhaps, but I still got 3 weeks additional paid leave when I wanted. All I am saying is with this individual situation I do not understand all the venom.

[Ex Cathedra]

with this individual situation I do not understand all the venom.


Score one for management then. Divide and conquer is what it's all about.
Captains are pissed, but you're happy so all is well for you.
Good thing you'll never be a captain then...?

Comparing your situation to whatever hardship others are going through is also exactly what TT and the herd want you to think. Surely you don't think the 'industry news' part of the weekly newsletter is just a random collection of aviation headlines?

Management will ALWAYS seek the lowest common denominator, And if you're happy and satisfied with what you have, then you're paid too much.

Which is why I suppose you're also happy to give away your profit share so they can pay management bonuses, despite the profit?

[IFB]

Ex Cathedra

Certainly seems that Captains are pissed. But SLS was our choice and you did not have to take SLS if you didn't want too. When I signed up to the scheme I was sceptical that any would be paid back, but if you thought it was just a loan then I guess I can understand your anger! All that said if the company offered me an additional 4 weeks leave next year at a cost of under 3 days pay then I would jump at the chance. Perhaps you are right I am paid too much, or perhaps I just value my time off more than you do. If the company offer you an extra 4 weeks leave next year at such a cost will you take it?

Are you a captain? If yes then did you take COS08 and age 65? Are you happy with that? Some might say that was a divide an conquer issue. Be interested to know which side of the fence you fell on that one? I may not make captain, but that will probably be due to COS08. However before you jump to any conclusion on how I feel over that little issue let me point out that I have made no indication one way or the other.

As for the industry news update. Hmmm do you actually read that!!! My comments were based on real people rather than company spin. The fact is I know dozens of people in many airlines. Some are better off than me and some are worse. However, the simple fact is that my friends of similar age and time in the civilian world are ALL worse off that I am after the financial downtown. Maybe you are right rather than compare my situation with people of similar age experience and time in aviation I should compare myself to all the A scalers instead. Of course some may say that that was an unrealistic comparison! Bugger......What to do!

With regard the profit share that is a diffent situation and one which I have made no comment on so am somewhat surprised that you feel you know my opinion. Well done you! If you really can read minds then maybe you should put yourself forward to the AOA as a negtiator. We could do with that sort of help on our side! Of course you may be wrong, but there is little point in me commenting as you have already made up your mind on what I think!

[Free Flight]

Hi IFB,
A belated welcome to your second career - hope the RAF or RAAF or USAF was fun and that the training your received at the taxpayers expense is still up to the excellent standards we expect. Sure that the accrued retirement benefits are also of some comfort in this harsh world.

Now you are 5 years into your professional career, it seems as though you are actually not reflecting the "glass half full" position but rather "the sky i falling" Chicken Little position. If you take you position that many other pilots - some of which you know - are facing redundancy and pay cuts as a reason for the professional pilots at this successful airline not to protect and advance their careers then you will never see any improvement over your career.
I have been in the airlines for over 3 decades and can say, without fear of contradiction that there are always airlines that are facing financial pressures and pilots that are facing the prospect of changing jobs. Cathay Pacific has always used these financially stressed airlines as a ready source of highly trained professional pilots - just ask your colleagues on the flight deck where they worked before.

If you take your position to its logical conclusion then the professional pilot group will never see an improvement in terms and conditions for the rest of their careers because there will always be some group or airline that is facing a financial meltdown - even in "good times", often because of strategic decisions made outside of their control - e.g. Swissair which was driven into the ground (financially) because of the desire of the CEO and board to acquire other airlines in a business plan that was flawed - Sabena, Air Limoges and the other regional airlines that Swissair acquired lead to the failure of the parent company even when other airlines were making hay in the sunshine times.

The success of Cathay Pacific has been generated over the past 60+ years by a combination of factors - good location, good political connections, cheap local support labour, excellent standards, almost monopolistic market conditions, minimalist regulation and labour laws which have been ignored or barely respected in the past (see Cartel prosecutions and Labour Department findings against the company), excellent reactions to the major changes in market conditions, etc. All of these factors have generated massive returns for the original investors, shareholders and also used to provide excellent terms and conditions for the professional pilots who moved their families for a hardship posting in the Far East.

You will say that we have moved on and you are perfectly correct - HK is no longer a hardship posting and it is no longer necessary for a new joiner to have 10-15 years experience BUT the correction to the terms and conditions for new joiners more than recognises the change in entry requirements. Cathay Pacific has continued to benefit from rumours of being the best paid pilots in the world - something that has been a dream for a couple of decades now.

I would recommend that you consider what is in the best long term interest of both your ex-colleagues and yourself and family. Do you honestly believe that a massively profitable company like Cathay Pacific reducing the wages for its professional pilots is going to help your ex-colleagues regain their long term, career earnings potential? Someone has to be the leader and that is best to be the the group that is best able to afford it. Don't ask BA or United to be the pace setters when they have financial difficulties.

If you wish to raise the issue of some pilots in the world being financially hurt at the moment, the best thing you can do is to support them and to support the improvement in terms and conditions for the professional pilots in the successful airlines around the world which will give your friends the ability and choice to move to improve their families' prospects.

May you have a long, successful and well remunerated career at one of the most profitable airlines in the world.

FF

[Bow Inn]

.....hope the RAF or RAAF or USAF was fun and that the training your received at the taxpayers expense is still up to the excellent standards we expect.

A little jealousy in your tone perhaps. Did you fail the RAAF selection? :)

Anyone leaving the military these days will have more than "paid back" the cost of their training! Some of my friends didn't live long enough to move on to civil aviation. And the bush flying/GA route has also claimed it's fair share of casualties along the way. No one has an easy ride to CX or any other airline.

Although I hate what the company has done to us with all this SLS BS, I can see that we're probably better off than the rest of his ex Air Force mates. Doesn't make it right.

[IFB]

FF

Broadly agree with everything you say. Certainly I want improvements to our circumstances and as I said in my first post on this thread, CX has done many things in the past that I totally disagree with/upset me. For me however SLS payback is a standalone issue and on that basis I think that overall they have done the right thing. That is not to say that I agree with their handling of 13th month, profit share or various other issues.

As stated in my previous post, I do feel the 10% witholding was petty, But as a hypothetical question, if the witholding threshold had been for level E only do you believe there would still be this outcry at how all the managers had been unfaily treated?

For me the simple fact is that in the worst reccesion since the great depression to be given 4 weeks additional leave at a cost of less that 3 days pay seems a reasonable deal. I guess many on this forum would not agree with that. However, I would be interested to know how those same indiviuals would answer the following question:-

If a new COS came out tomorrow offering an additional 4 weeks leave every year for less than a .85% pay cut would you take it?

IFB

[crewsunite]

Guys I just want to remind u. Air China owns 1/3 of CX.
They will be buying Shenzhen Airlines and don't think that Swire won't tie up with them somehow.

Swire are slowly moving into a management position for CX/Dragon/Air China Cargo/Air HK/Shezhen AL etc. We will be working for the Chinese in the long run. We need to hold on to every benefit we got. Swire Managers are going to become every greedy (cutting as much as they can) for their bonuses in the next 5yrs. As their loyal for their staff & team disapate. They have already sold off Haeco. (That's alot of future profits gone from CX)

Anyway, its up to us Pilots & our trainers & Chief Pilots to lead the way in fighting to maintain the professialism of this airline. Other staff memebers won't see this coming.


Air China rises 13pc on plans to raise funds

Shares in Air China (SEHK: 0753, announcements, news) rose as much as 13 per cent after the carrier announced plans to raise 6.5 billion yuan (HK$7.38 billion) through a private share placement to beef up its balance sheet.

The news came after its bigger rival, China Southern Airlines, said it was seeking to raise more than 10 billion yuan from issuing new shares to 10 specific shareholders this week.

Shares in Air China closed 11.1 per cent up at HK$7.52 yesterday.

Several analysts said the market had reacted positively to the fund-raising news because it could increase the Beijing-based carrier's liquidity and help it with potential merger and acquisition plans.

"A stronger financial position will enhance Air China competitiveness and help fulfil its ambition to be an industry consolidator," Citigroup said in a report.

Air China is in a dogfight with China Southern over a controlling stake in Shenzhen Airlines. Air China is seen as having the edge after its vice-president Fan Cheng was appointed Shenzhen Air's acting president on March 6 following the arrest of the previous president.

A report from Daiwa Capital Markets said Air China's net asset value per share would increase to 3.08 yuan from 2.69 yuan. The brokerage house has increased the target price to HK$8.19 from HK$7.16.

After repaying bank loans, the carrier's net debt to equity ratio would fall to 1.3 times from 1.8 times, which is in line with leaders like British Airways, Lufthansa and Cathay Pacific Airways (SEHK: 0293), the Citigroup report said.

Cathay, which owns 18.1 per cent of Air China, will have its stake diluted to 17.1 per cent after the share placement. However, analysts expect Cathay to seek to raise its Air China stake in the future. Cathay could potentially find ways to subscribe to some of the new shares to retain or increase its stake to a maximum limit of 25 per cent, a JP Morgan report said.

Air China holds a 29.9 per cent stake in Cathay at present.

The carrier plans to issue 585 million A shares at not less than 9.58 yuan per share to 10 specific shareholders, including its parent, China National Aviation Holding Company, and 157 million H shares at not less than HK$6.62 apiece to a subsidiary of its parent. The shares subscribed to by the parent are subject to a 36-month lock-up period, and other investors are subject to a lock-up period of 12 months.

Shares in Cathay closed 1.03 per cent down at HK$15.32 yesterday.