Cathay Pacific, Hong Kong's flagship airline, recently released its financial data, painting a picture of robust recovery post-pandemic. A market capitalization of $6.88 billion, a 56.7% year-over-year quarterly revenue growth, and an impressive EBITDA of $20.47 billion all point towards a company back on its feet, ready to reclaim its position as a global aviation leader. But is this truly the case? A deeper dive into the data reveals a potentially unsettling story, one that most analysts seem to be overlooking.Reference: Cathay Pacific Official Website

The company boasts a sizable fleet of 230 aircraft, navigating the skies across the Americas, Europe, Southeast Asia, and beyond. Its business model extends beyond mere passenger transport, encompassing cargo services, property investments, travel reward programs, and even tour operations. This diversified approach seems to be paying off, with a healthy revenue of $94.48 billion (TTM) and a profit margin of 10.36%. However, a peculiar trend emerges when scrutinizing the company's cash flow statements, particularly the "salePurchaseOfStock" entry.

In 2023 alone, Cathay Pacific spent a staggering $9.75 billion on stock repurchases. This hefty sum dwarfs similar expenditures in previous years and represents a significant portion of the company's operating cash flow. While stock buybacks are a common strategy for companies to boost their earnings per share and signal confidence in their future, such an aggressive approach warrants a closer look, especially in the context of Cathay Pacific's recent history.

Remember, this is an airline that barely survived the pandemic. In 2020, its stock plummeted, and the company was forced to accept a government bailout to stay afloat. While a resurgence in travel demand has undoubtedly bolstered their revenue, is it sufficient to justify such massive stock buybacks? Could this be a tactical maneuver to inflate the stock price artificially, masking underlying vulnerabilities?

The company's debt situation adds another layer of intrigue. Despite a net debt of $60.93 billion, Cathay Pacific continues to borrow heavily, with a "shortLongTermDebtTotal" reaching $68.82 billion in the latest quarter. This persistent reliance on debt financing raises concerns about their long-term financial stability. Are they leveraging their future to create a mirage of profitability in the present?

Debt and Stock Buybacks: A Risky Combination?

The chart below illustrates the trend of Cathay Pacific's net debt and stock buybacks over recent years. Note the sharp increase in both in 2023.