Cathay Pacific to buy budget airline HK Express for $628 million

Hong Kong flag carrier Cathay Pacific announced on Wednesday that it will buy budget airline HK Express for USD 628.15 million, as it moves to counter competition from the increasing number of low-cost carriers in the region.

The HK USD 4.93 billion acquisition leaves Cathay Pacific in control of three of the four airlines in Hong Kong, adding to its namesake carrier and regional subsidiary Cathay Dragon.

Cathay will pay HK USD 2.25 billion in cash for HK Express, and issued HK USD 2.68 billion promissory loan notes, the company said in a filing.

The deal is expected to complete by December 2019, according to the filing. The carrier said it will continue to operate HK Express as a "standalone airline using the low-cost carrier business model".

"The Transaction is expected to generate synergies as the businesses and business models of Cathay Pacific and HKE are largely complementary," Cathay said in the filing.

The carrier also said the purchase is a "attractive and practical way" to support long-term development and enhance competitiveness.

Cathay shares rose 2.78 percent to HK USD 14.06 in Hong Kong trading shortly after the market opened.

Hong Kong Express is the city's sole budget carrier -- a sector of the industry that a marquee brand like Cathay has struggled to compete against.

Hong Kong Express is owned by HNA Group, a struggling Chinese conglomerate that has been looking to lower its debt pile. The group also owns Hong Kong Airlines, another Cathay competitor that has found itself in financial difficulties in recent months.

Cathay has been overhauling its business after posting its first losses for eight years in 2016, firing more than 600 workers and paring overseas offices and crew stations as it faces stiff competition from budget rivals in China.

It has also added international routes and better on-board services in a bid to compete with well-heeled Middle Eastern long-distance carriers.

The overhaul appears to have paid off. Earlier this month Cathay Pacific announced a net profit of HK USD 2.35 billion (USD 299 million) last year, ending two successive annual losses.