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Cathay remains under investigation as the CEO falls for protests

SHANGHAI (Bloomberg): Cathay Pacific Airways trusts that British chief executive Rupert Hogg would resign to move beyond the tumor which saw his employees' participation in Hong Kong protests pull the clock from Beijing. [19659002] But will that be enough?

Inbound CEO Augustus Tang has the delicate task of continuing to place China, an increasingly important market for the 72-year-old airline, while reducing the fallout of employees, customers and investors as Ufred in the home base continues to boil.

Whether Tang – a longtime lieutenant with Cathay's largest investor, Swire Group – succeeds or fails, Cathay's history has consequences beyond the carrier itself. It has become a cautious tale of modern China, with the country increasingly willing to call out companies that want access to the lucrative consumer market, but do not endure the party line.

"This is Beijing's most horrific kowtow," David Webb, a Hong Kong activist investor, wrote on his blog just hours after Chinese state broadcaster CCTV broke the news of Hogg's departure on Friday.

"Every major employer in Hong Kong, both in the public and private sectors, has employees who have participated in marches that have often exceeded the approved spatial or time limits. Should all CEOs resign?"

After China's aviation watchdog struck a number of claims on Cathay on August 9, the company appeared to swing in with Swire chairman Merlin Swire, who flies to Beijing to meet the authority three days later.

But even with Hogg taking the fall, it is unclear whether China, which together with Hong Kong accounts for about half of Cathay's revenue, will be satisfied.

The Global Times, a newspaper published by the Communist Party of China, said that Hogg's departure may not be enough to atone for Cathay's "lukewarm attitude" to deal with its "radical" employees. [1

9659002] Pilots and flight attendants from the airline participated in strikes and demonstrations related to the protest, which has claimed to oppose extradition insurance for a mass rejection of China's hold over the territory it withdrew in 1997.

"Cathay Pacific & # 39 ; s last gesture was seen by many as too little to restore the sharp reputation and loss of customers, "Global Times said after Hogg's departure.

Chief customer and commercial manager Paul Loo met with the CEO.

Cathay shares fell 1.7 percent to HK $ 10.42 ($ 1.84) at 10:03 in Hong Kong. The stock has fallen 6.5 percent this year, compared with a 0.9 percent increase in the Hang Seng index.

Zhao Dongchen, an analyst with the State Industrial & Commercial Bank of China, who pushed Cathay's plunge last week to a 10-year low by blasting its "poor" handling of the crisis, applauded the top-level changes given that the company " had a severe lack of crisis management skills. "

But he also offered some warnings.

"I'm not sure it would be enough to replace two top executives to improve Cathay's leadership in a meaningful way," Zhao said in an email that answered Bloomberg questions. "More likely, this is a first step."

Zhao also criticized Cathay for what he described as a "rushed" decision to fire two pilots in connection with the protests, saying that the move was questioning procedural justice.

Meanwhile, Cathay's flight attendants' association regretted the departure of Mr Hogg and Mr Loo.

Their workplace "is now and will continue to be heavily influenced by many unforeseen elements," according to a Facebook post Sunday (August 18).

Members are asked not to discuss political issues as they fly and be careful on social media and outside working hours to discuss issues that could "cause significant impact on all of us now."

The Civil Aviation Administration of China (CAAC) banned staff who participated in or supported Hong Kong's protests from flying to the mainland and demanded Cathay provide a plan to improve flight safety and security. On Thursday, it said Cathay had met its requirements.

"This will soothe CAAC for now, but it may not be the end," said Shukor Yusof, founder of aviation consultant Endau Analytics. "When you cave in, it takes precedence. It could empower CAAC to seek tougher measures."

Cathay's entanglement with the protests against Beijing turned out to be due to its status and affiliation with Hong Kong, but it was not alone.

Within days of Cathay being thrown by CAAC and the boycott of state-backed companies, luxury brands Versace, Coach and Givenchy were forced to apologize for selling T-shirts suggesting that Hong Kong was not a part of China.

PricewaterhouseCoopers LLC was indicted on Chinese social media – where nationalist posters are increasingly pushing the country's causes – for not condemning the demonstrations enough after a company-linked online post appeared to support the protests. The company said it was a scam.

In a message to Bloomberg employees, Hogg said a change of leadership was necessary for Cathay to move forward.

"There is no doubt that our reputation and brand are under tremendous pressure, and this pressure has been building up for a few weeks – especially in the main market in China," he wrote.

Cathay is for many an emblem of the years Hong Kong was ruled by the United Kingdom, which made it a goal loaded with symbolism. The airline is almost half owned by the two-century-old conglomerate led by Britain's Swire family, but now considers the state of Air China as its second largest shareholder.

Joshua Wong, the student activist who shot to fame during the Hong Kong umbrella movement protested five years ago, tweeted that Hogg's resignation showed how China tightened its grip on the city and the people.

Most of Cathay's 32, 800 workers are based in Hong Kong and downtown is the airport that had become a central site for the protesters. Last week's closure of the airport as protesters occupied important buildings added to Cathay's misery, with hundreds of flights canceled.

While the flight attendants' union recognized Cathay's need to meet CAAC's requirements so that they can continue to fly there, other working groups, including the Hong Kong Aircrew Officers Association, have so far remained silent.

The company's actions – which, among other things, expressed their support for Hong Kong's embattled leader, Carrie Lam, and the police, which have clashed fiercely with protesters – risk triggering a backlash from staff and its domestic market, but that may pale in comparison to the option to extend Beijing's anger.

"The message China wanted to send was that they have the power and the will to do what they want to do," said Endaus Yusof. "Cathay gets caught between a devil and the deep blue sea – that's the beginning of the end."

"Like many others in Hong Kong, the airline's future is in China," he said. – Bloomberg

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