A wide-ranging corporate restructure by Cathay Pacific will see regional arm Cathay Dragon shut immediately and 8,500 job cuts.

Almost a quarter of the Hong Kong-based group’s workforce will be affected as result of the continued impact of the Covid-19 pandemic on the aviation industry

The group said it had been able to reduce the total to 5,900 actual jobs through a recruitment freeze and natural attrition.

But some 5,300 Hong Kong-based employees will be made redundant, and about 600 employees based outside the home base also “possibly being affected” subject to local regulatory requirements.

Wholly owned regional subsidiary Cathy Dragon will cease operations “with immediate effect” with a majority of its routes to be operated by Cathay Pacific and budget arm HK Express.

Hong Kong-based cabin and air crew will be asked to agree to changes in their conditions of service designed to match pay more closely to productivity and to “enhance market competitiveness”.

Executive pay cuts will continue throughout 2021 and a third voluntary special leave scheme for non-flying employees will be introduced for the first half of next year.

No 2021 salary rises will be offered or 2020 bonuses for all employees.

The action came just a day after Cathay Pacific warned that it will only run at half capacity next year.

“The restructuring will enable the company to secure its future, so it can protect as many jobs as possible, whilst meeting its responsibilities to the Hong Kong aviation hub and its customers,” the airline group said.

“The group will create a more focused, efficient and competitive business. It will do this by harnessing Cathay Pacific’s strengths and unparalleled customer experience, while leveraging the potential of its low-cost carrier, HK Express.”

Chief executive Augustus Tang said: “The global pandemic continues to have a devastating impact on aviation and the hard truth is we must fundamentally restructure the group to survive.

“We have to do this to protect as many jobs as possible, and meet our responsibilities to the Hong Kong aviation hub and our customers.

“Our immediate priority is to support those affected by today’s announcement. We are deeply saddened to part ways with our talented and respected colleagues, and I want to thank them for their hard work, achievements and dedication.”

Severance packages that go “well beyond” statutory requirements will be offered. It will also extend medical benefits and staff travel entitlements, as well as providing counselling and job transition support services. There will be no offset against pension contributions.

Tang added: “We have taken every possible action to avoid job losses up to this point. We have scaled back capacity to match demand, deferred new aircraft deliveries, suspended non-essential spend, implemented a recruitment freeze, executive pay cuts and two rounds of Special Leave Schemes.

“But in spite of these efforts, we continue to burn HK$1.5 billion-HK$2 billion cash per month. This is simply unsustainable. The changes announced today will reduce our cash burn by about HK$500 million per month.

“We have studied multiple scenarios and have adopted the most responsible approach to retain as many jobs as possible.

“Even so, it is quite clear now recovery is going to be slow. We expect to operate well under 25% of 2019 passenger capacity in the first half of 2021 and below 50% for the entire year.”

On Cathay Dragon, Tang said: “Over its 35 years, Cathay Dragon has earned a well-deserved reputation for excellence, thanks to its outstanding service and distinct hospitality, delivered by a remarkable team.

“Whilst this is a difficult time, we are a resilient group and a proud Hong Kong brand. I believe in this plan and I know we will prevail.

“We remain absolutely confident in the long-term future of Cathay Pacific, the Hong Kong aviation hub and the critical role Hong Kong will play in the Greater Bay area and beyond.”