A robust financial turnaround will see Cathay Pacific (CX, Hong Kong International) implement a capital reduction program that involves redeeming and cancelling preference shares, as well as exercising options to order narrowbody Airbus aircraft.

The announcements coincide with the airline announcing a 2023 first-half profit of HKD4.268 billion Hong Kong dollars (USD546 million) on August 9. Cathay Pacific Group Chairman Patrick Healy said the airline is now flying over 43,000 passengers per day and is on track to reach 70% pre-pandemic passenger flight capacity by the end of 2023, and 100% by the end of 2024.

"The first half of 2023 has been a positive period for the Cathay Group, as we worked to rebuild connectivity at the Hong Kong international aviation hub following the full reopening of borders in Hong Kong and in the Chinese Mainland," he said. "Our results for the first six months of 2023 demonstrate that we are on the right track. Further demonstrating this, the Group plans to buy back 50% of the preference shares before the end of 2023 at a redemption price of over HKD9.75 billion, and the remainder by the end of July 2024."

An August 8 filing with the Hong Kong Stock Exchange (HKEX) reveals the Group wants shareholders to approve a plan to take all of HKD19.5 billion (USD2.5 billion) credit standing in the Group's preference shares capital account and use that to redeem all of the issued preference shares which currently stand at has 195,000,000. The proposal is to redeem the shares in two tranches of 97,500,000 at HKD100 (USD12.80) per preference share, with the first redemption finalising before December 31, 2023, and the second by July 2024.

The Cathay Pacific Group issued the preference shares to the Hong Kong government in 2020 as part of a HKD39 billion (USD5 billion) rescue package. The issuance terms allow the Group to redeem them after providing at least 15 days' notice. Upon their redemption, the Group intends to cancel the shares.

Separately, Cathay Pacific also has advised via a HKEX filing that it will exercise a 2017 options agreement to buy up to thirty-two A320-200N/A321-200N aircraft. The carrier said it intends to exercise the purchase rights on or before September 30, 2023 and anticipates delivery by 2029.

In a statement, the airline said it now has more than 70 aircraft on order. The optioned aircraft will be split between Cathay Pacific and HK Express (UO, Hong Kong International), and primarily service destinations in the Chinese Mainland and elsewhere in Asia. "These aircraft models have been serving Cathay Pacific and HK Express well, allowing us to strengthen the expansion of our Chinese Mainland and regional network for our customers," said Group CEO Ronald Lam.

As of June 30, 2023, Cathay Pacific's fleet stood at 183 aircraft. This included four A320-200s (one was transferred to subsidiary HK Express earlier this month); two A321-200s; twelve A321-200Ns; forty-three A330-300s; twenty-eight A350-900s; eighteen A350-1000s; six B747-400ERFs; fourteen B747-8Fs; seventeen B777-300s; and thirty-nine B777-300ERs.

The airline took delivery of a further A350-900 in July and expects another later this year. Next year, it expects to take delivery of four A321-200Ns, and it is anticipating the first of twenty-one B777-9s to start delivering in 2025 "and beyond." This week's filing did not disclose when Cathay Pacific anticipates deliveries of the optioned A320N/A321N aircraft to begin.

In terms of aircraft returns, Cathay's current fleet plan, released along with the financial results this week, reveals three B777-300(ER)s will return to their lessors in 2024, two in 2025, and four in 2026. In addition, two A330-300s will return to their owners in 2024 and two more the following year.