August 16, 2019 / 1:12 PM / a month ago

Breakingviews - Cathay shakeup clarifies China’s corporate muscle

(L-R) Cathay Pacific Group Chief Financial Officer Martin Murray, Chief Executive Officer Rupert Hogg, Chairman John Slosar, Chief Customers and Commercial Officer Paul Loo and Chief Operation and Service Delivery Officer Greg Hughes attend a news conference on the carrier's annual results in Hong Kong, China March 14, 2018.

HONG KONG (Reuters Breakingviews) - It looks as if China is now flying Cathay Pacific Airways. Chief Executive Rupert Hogg and one of his top deputies abruptly resigned on Friday after the company spent a week scrambling to quell a mainland backlash related to Hong Kong protests. The shakeup occurs at an especially bad time for the carrier.

Cathay cryptically cited “safety and security” reasons for replacing Hogg and Paul Loo, the chief customer and commercial officer. The $5 billion airline’s latest struggles, however, relate to employees involved with anti-government demonstrations in Hong Kong. Rebukes and demands from China’s civil aviation officials led to two pilots being sacked, deferential statements from Hogg and new protocols for crews flying in and over the country’s airspace.

Yet the pressure persisted. Beijing-backed enterprises initiated boycotts of Cathay, Hong Kong’s flagship carrier for decades. Analysts at state-owned ICBC put a “strong sell” rating on the stock because of what it called “poor crisis management”. State carrier Air China’s, near-30% stake in Cathay is smaller than that owned by conglomerate Swire Pacific, but Beijing’s sway looks bigger. Chinese broadcaster CCTV disseminated news of Hogg’s departure before it landed officially at the Hong Kong bourse.

New boss Augustus Tang, who resigned as a director at Swire in 2017, arrives at a dicey moment. It’s not obvious why he is better suited to contend either with the unrest in Hong Kong, including airport clashes that caused hundreds of flights to be cancelled this week, or with slower economic growth in the mainland. The airline is also nearing the end of a three-year turnaround plan that depends on growing revenue. Cathay’s cargo division has been battered by the U.S.-China trade war and the protests have hit forward bookings.

The apparent exertion of boardroom influence means that the idea of Air China taking over Cathay is also no longer unthinkable. And other big companies in the former British colony, including HSBC and Jardine Matheson, will be on high alert about their dealings with Beijing. If there were any lingering doubt before about the influence of government officials, there can be none left now.  

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