Cathay Pacific 2009 Annual Report Download - page 6

Chairman’s Letter
A significant change in Cathay Pacific’s shareholding
structure took place in the second half of the year, with
Air China and Swire Pacific both agreeing to increase
their shareholdings by acquiring shares from CITIC
Pacific. Air China acquired a 12.5% interest, taking its
shareholding in Cathay Pacific to approximately
29.99%. Swire Pacific acquired a 2% interest, taking
its shareholding from approximately 39.97% to
approximately 41.97%. The change in shareholding
benefits Cathay Pacific because we now have two
strong principal shareholders, both committed to the
long-term development of the aviation industry in Hong
Kong and Mainland China. In February 2010, we
announced a very important development in the
cooperation with Air China – we had entered into a
conditional framework and other agreements with Air
China and others under which the parties have agreed
to establish a jointly owned cargo airline. Cathay
Pacific’s investment in the joint venture will be funded
by the sale to the joint venture company, Air China
Cargo Co. Ltd. (“Air China Cargo”), of four Boeing 747-
400BCF freighters and two spare engines. We expect
the joint venture to begin operations in summer 2010
and it will provide the two most important cargo-
generating regions in the Mainland with two highly
competitive and efficient home-based carriers – Cathay
Pacific in the Pearl River Delta and Air China Cargo in
the Yangtze River Delta.
Cathay Pacific remains the subject of antitrust
investigations and proceedings by competition
authorities in various jurisdictions and continues to
cooperate with these authorities and, where
applicable, defend itself vigorously. These
investigations are ongoing and the outcomes are
subject to uncertainties. Cathay Pacific is not in a
position to assess the full potential liabilities but has
made a provision of HK$80 million in respect of such
liabilities in its 2009 accounts.
We have always managed our finances in a
conservative way, but our balance sheet was put
under considerable pressure in 2009 by the reduction
in revenue during the period. The effect of the
reduction in revenue was offset by cost reductions.
The balance sheet also benefited from the sale for
HK$1,901 million of part of our shareholding in Hong
Kong Aircraft Engineering Company Limited
(“HAECO”). The sale reduced our interest in HAECO
from 27.45% to 15.00%.
While we welcomed the improvement in business in
the latter part of 2009, we remain cautious about the
prospects for 2010. Revenues and yields remain below
levels experienced prior to the recent downturn and
there has not yet been a sustained improvement in
premium passenger demand which accounts for a high
proportion of total revenues. There are concerns that
the adverse changes which we have seen in the
pattern of passenger and freight demand could be
structural rather than cyclical. In addition, the cost of
fuel, which rose steadily from the middle of 2009,
remains stubbornly high and threatens to
undermine profitability.
That said, we have many things working in our favour
which will help to put us in a stronger position if the
current recovery in the world economy is sustained.
We launched a number of projects and initiatives at the
beginning of 2009 designed to improve further the way
we do things, particularly for our customers. We have a
united team that is the hallmark of Cathay Pacific. We
have a superb international network and an unrivalled
network into Mainland China through Dragonair. Our
relationship with Air China will bring many benefits in
the years to come and we operate out of one of the
world’s premier aviation hubs, Hong Kong. We are
deeply committed to our home city and remain highly
confident about the future of Cathay Pacific.
Christopher Pratt
Chairman
Hong Kong, 10th March 2010
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